Episode Transcript
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(00:00):
Good morning, and welcome to theCapitol District's Money and Investment Program. You
are listening to the Fagan Financial Report. I'm Dennis Fagan's sitting here with my
son Aaron, as we do everySunday right here in News Talk E ten
and one oh three one w Gy Uh. Victorian Stroll Day, Victoria,
Troy. Yeah, you're working atit right, yeah, chamber.
Yeah, so it should be fun. It's a little rainy out, so
(00:24):
that's not the best thing, butyeah, you know, it's a it's
a good day for it's like thetwo hundredth years. So it's like of
the Twesday Night before Christmas, whichwas written in Troy. Yeah, New
York. So yeah, I thinkit's like kind of that theme. Yeah,
it's always good to see Victorian peoplewalking around. Yeah, it's fun.
It is, you know, itgets you in the Christmas Spirit fire
truck ride. So so Mom andI will go down there and you're going
(00:45):
down it's or Lorna jut No hissoccer today. He's on the pitch.
He's on the pitch at eleven thereand we're excited. Takes eighteen months old,
so I'm guessing they just like throwballs out there and kids just running
to see what happens, you know, little scrum kids. Yeah, scrum
I remember. I remember when youwere playing a long time ago. You
went Sam, you were pretty good. You were good. It was fun,
(01:07):
you know. You know. Soanyways, as we get into the
final month of the year, it'sbeen I think unpredictable. I mean,
I think when we're coming into theyear, and you know, I think
that's the thing that you know,the passing of Charlie Munger will get into
great length. At the passing ofCharlie Munger, most people refer to Warren
Buffett as the Oracle of Omaha,and yet I would call Charlie Munger one
(01:33):
of the two oracles of Omaha.Really they've been they've been partners for so
long decades. Yeah, and hehas a lot of wit and wisdom as
it pertains to investment in life thatyou know, I think the listeners will
appreciate. And we'll talk about thatin the second half and really cover the
whole second half talking about Charlie Munger. An article by Julia Laroche and Adriana
(01:53):
bel Monte uh has forty four memorableCharlie Munger quotes about life in the market.
So we've picked out a few ofthose, and I think you can
learn a lot about if you're aclient of ours, we have tried to
embody and embrace a lot of Mungerand Buffett's qualities to the best of our
ability. And if you're not aclient of ours and you do it on
(02:15):
your own, you think you shouldlook up that article Julia l Erosion that
in Adriana Belmonte wrote forty four memorableCharlie Munger quotes about life in the markets.
And also, I think you'll appreciatethe second half because there's lots of
food for thought. You know,I think you know, no matter what
your investment approach, your investment styleis, I think what you know,
(02:36):
I think the basive, like yourportfolio and your asset allocation should be,
you know, kind of what CharlieMungers and Warren Buffetts is. Obviously,
you know, fundamental investing good companies. You know, strong management, strong
fundamentals, and you know, Ithink that goes a long way with all
companies. And you know, Ithink that, you know, I always
I think I have ten or twelveyou know, Warren Buffett and Charlie Munger
(02:59):
quotes, I might somewhere and youknow, you kind of go through all
companies if you're trying, if you'restarting to invest in a company, you
know, I think it's important tohave a checklist. You know, does
this company have good management, yes, does it have good strong fundamentals yes,
does it have a huge moat yes. So I think, you know,
when investing in anything, it's youknow, what they do well is
that they have a checklist of acompany. A. If you don't fit
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these parameters, we're not going toinvest in you. And I think that's
a you know, a good wayif you're picking your own stocks, especially
and also I think you know,and again this is for the second half,
but also when I think I learnedfrom the quote that sticks in my
mind off it was Buffett or Mungerthat said, you know, there are
no balls and strikes. You know, it's not like it's strike too when
you've got to find a good stock, or it's or if you've got three
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balls and if you just wait itout, you'll get on base. No,
there's no balls or strikes. Waitto you see a fat pitch and
you hit it, you know,And I think that's what you know.
That's so we'll get into that inthe second half. But suffice to say
that November, you know, you'rereally closed. We closed out November a
positive note on both the stock andthe bond side. And I think you
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look at November from the S andP five hundred standpoint, the third best
month in a decade you look aton the fixed income side, bonds,
you know, one of the bestmonths in over thirty years for you know,
intermediate longer term about like seven orsomething like that. A lot of
bond funds were up that I thinkin the aggregate, the agg was up
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about four percent, still in thenegative. Year to date, we've had
the ten year move from four toseventy or four to eighty back down the
four to twenty five. So we'lltalk you know a little about the numbers.
But you know, I think thatyou know, you're gonna hear a
lot of prognostications about the market.Hey, you know, take them all
with the grain of salt, becauseyou just never know what the market is
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going to do over the short term, you know. And I think next
year will be the first year ina long time that you're going to see
the introduction of fixed income for capitalgains as an investment approach. Probably I
have never in my career. I'venever been around for anything like that.
(05:10):
And what do you mean by that, Like, you know, the value
of bonds going down, going up, going up? You know. So
yeah, perhaps next year, perhapsnext year, so you know, if
we are done cutting rates, youknow, so I think that could be
a thing that we might see.Yeah, yeah, so the Fed might
be done raising rates, you know. And if that's the case, and
I think you saw this this pastthis past month. You know, if
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you take a look at UH atfixed income, Well, how can fixed
income or how can bond funds goup by seven or eight percent if they
only pay four or five percent ininterest? And it is because as interest
rates go down, the value ofbonds go up, just like we saw
the last year for sure, asinterest rates went up, to value of
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bonds went down. And we're actuallyeven if we close out this year with
intermediate longer term treasuries, this willmark the third consecutive year where we had
a negative total return. Is thatthe first time ever? That's the first
time ever. So, so you'reright, I think next year could be
setting up as the year four fixedincome where fixed income perhaps returns when you're
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taking the consideration the interest payments,let's say four or five percent, and
then the appreciation on the bond.Should interest rates continue to come down,
in the aggregate, the total returnthe price appreciation and the and the interest,
you know, could approach what thestock market has to offer for twenty
four, you know, and justthinking out loud a little bit, it's
gonna be interesting to see what happenson the equity side. You know,
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Historically, h interest rates go down, stocks tend to do better. But
you know, stocks are already they'renot cheap here. If you look at
the you know, Ford Ford peratio of the S and P five hundred,
you know, it's kind of nearthe top of its historical average at
twenty one. So it'll be interestingto see what happens with stocks this next
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year again, you know, aftersuch a good year this year and prices
fairly valued in my opinion, andyou know that's not to say. Before
the show, we were kind oftalking about, you know, what,
what what do we want to what? What are some names? Some are
some sectors that we think will dowell next year despite earnings ratios that where
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they are now, you know,and we mentioned like total return, we
mentioned maybe searching more for total returnnext year. Just to name, you
know, two stocks and two orthree two stocks that we own, two
ETFs that we own for customers thatmay be going to add to Exon Mobile
and Johnson and Johnson for total returnon the individual stock side, and also
a couple areas that have been outof favor year to date, energy and
(07:38):
healthcare, big pharma. And thenon the ETF side, jef B,
the JP Morgan Preium Income and alsothe one that invested in as dec oriented
stocks j p Q. Both payyou know, seven or eight percent distribution
rates. So even if the stock, even if it goes nowhere, you're
still compensated for you know. Oneof the things I was saying tho,
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if you look not saying thinking asas we're getting ready to talk about this,
is that if you year to year, like when you prepare for the
next year, you have to havean overall type of you know, posture,
you know, a baseline case,and then that baseline case gets adjusted
over time, you know, allthe while staying within your your strong suits,
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staying within you know your your areasof competency, and I think as
long term, long term secular growthareas growth investors that on the on the
stocks, here's here's how we investlong term secular growth. On the stock
side, invest in invest in bondsfor income rather than growth, so so
intermediate that and that implies intermediate termfixed income and secular growers like Alphabet and
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Amazon and Apple and the like.And then we kind of we kind of
on the peripheries use uh use usecompanies and and and exchange traded funds and
mutual funds that we think are goingto do well over over like a shorter
intermediate term period of time. Soa long term bias towards secular growth,
(09:11):
long term bias towards intermediate term bonds. On the equity side, intermediate and
shorter term bias probably you know forthe periphery moving more towards you know,
stocks with dividends. But if youlook out over the past three years there,
I mean, AI through a hugepositive wrench into technology this year.
(09:31):
Nobody after last year's tobacco really intechno information technology, nobody thought that we'd
have the year that we had foryou know, Apple in video, you
know, Microsoft, Adobe. Imean those are some of our larger holdings.
Apple be in our largest holding,and I think give you Microsoft's right
(09:52):
up there, and Videos right upthere. Alphabet another another great performer this
year. So AI through a positivewrench. Last year, the Fed you
know, hiked and hiked and hikedin and the market probably didn't foresee that.
And then and the S and Pwas down twenty five percent at its
worst point in twenty and twenty two. Twenty and twenty one was a rebound
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from the pandemic. The pandemic.So every year brings with it something new
and something something that's you know,kind of the market didn't expect. I
will, like you go to say, and I'm sorry for taking up so
much time, but you know,if you look at the S and P
five hundred, and I was lookingonline, the S and P five hundred
closed at forty five sixty seven onNovember thirtieth, twenty and twenty one,
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and forty five sixty seven point eighton November thirtieth, twenty and twenty three.
You know, and so you havetwo years of nothing, and yet
if you stretch that out, Ithink the market's done. You know,
a lot better if you look outthree, four or five years, you
know for sure? Yeah, AndI think you know that that that goes
to no matter what type of itkind of wrench is thrown at you in
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any one given you as you stretchtime out, it does you know more
predictable. Yeah. I think wetalk about this once in a while.
Is that you know, sometimes theseare the hardest times. You know.
I heard you on the phone withsomeone the other day talking about you know,
I think they came over about youknow, a year and a half,
two years ago. So yeah,it's sometimes when the market goes nowhere,
it's it's the hardest time to investbecause what am I doing here?
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You know, when it's going down? I think you have okay, you
know, you could say, hey, maybe I'm getting stocks at better prices,
which is which is true. I'mgetting you know, I'm dollar cost
averaging into the market. But sometimeswhen the market's going nowhere, you know,
it gets fatiguing mentally. You know, you have the schwab a lines
app on your phone or Fidelity appon your phone or whatever, and you're
checking it every day and you're notseeing anything happen. And I think you
(11:45):
know that then all of a suddenyou're seeing commercials pop up for high yielded
savings accounts at four and a halffive percent. So I think it's you
know, sometimes it's tempting to takeyour money out of the stock market,
you know. Yeah, when whenthe market's kind of just you know,
tread and water for a while,and you know it's not when you're in
the midst of it. It neverfeels like it's treading water. No,
right, right now, right,that's a good point. You either feel
like it's going up or down.Yeah, you know, I probably like
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treading water in general. You know. One of the things we wrote,
I think almost a year ago,were some bullet points as the longer lasting
issues to keep at the top ofour mind, and one of them was,
unlike the past couple of bear marketswhere investors witness the V shaped bottom,
this should be more of a youor a process rather than an event,
not to whereas we believe the bottomwill ushure in a new, longer
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lasting, more durable market. Blahblah blah. But this, the fourth
bullet there are was more a componentof traditional, longer lasting bear markets.
And this is what you were justreferring to is the emotional strain it places
upon the investor. And just asbull markets place pressure on investors sitting on
the sidelines, bar markets exert thesame force on those that have money in
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the market. And I think thatis what you're what we're referring to,
is that stress that investors feel.If I were to say, okay,
and what we'll speaking to that oneof our clients. The market's going nowhere
for two years? You know,what am I doing here? What am
I doing here? What am Idoing? Why don't we take a look
at the numbers in the market there. I don't know if you have them
in front of you. As faras the statistically, obviously another good week
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in the market. You know,we're we're getting towards our our all time
record highs in a few indices,but the Dow Jones Industrial Average was up
eight fifty five thirty five to closeat thirty thix thirty six thousand and two
forty five fifty, up two pointfour two percent for the week, up
nine point three five percent for theyear, trailing twelve month, up five
point two seven percent, one pointfive percent from its all time highs.
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Sm P up thirty five twenty nineto close at four thousand and five ninety
four, up point seven seven percentfor the week, up nineteen point six
seven percent for the year, trailingtwelve month up twelve point eight four percent
percent from record high four point twoone percent. NAS Like up fifty four
eighteen to close at fourteen thousand andthree oh five, up point three eight
percent for the week, up thirtysix point six seven percent for the year,
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percent to obtain a new high tenpoint nine to one percent. US
total market up five twenty seven totwenty four to close a forty five thousand
and eight oh five, up onepoint one six percent for the week,
up eighteen point nine one percent forthe year, a trailing twelve month up
eleven point nine percent, six pointeight six point three eight percent from its
record high. Russell two thousand,another good week, up three point zero
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five percent, up five point sevensix percent for the week, twenty three
point seventy five percent off its recordhighs Utility is up ten point zero three
to close at eight seventy six,up one point one six percent for the
week, down nine point four fivepercent for the year, eighteen point two
percent off its record high. Transportsup three sixty nine to close at fifteen
thousand and four to sixty three,up two point four five percent for the
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week, up fifteen point four toseven percent year to date, nine point
two five percent from its record high. So now another good week in the
market, you know, led bythe Russell two thousand, we're seeing rates
go down. You know, Ithink, as you said at the beginning
of the show, was the itwas the best week for bonds in a
(15:03):
long time. I don't know,you know, bond what up seven eight
percent for the month. So yeah, you know that, I think that,
you know, obviously the Russel twothousand was most influenced by that,
in my opinion. So a goodweek to start December really well. Yeah,
the last week in November, Yeah, Russell two thousand said, you
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know, up because interest rates weredown. And most people don't realize that.
Russell two thousand are you know,the second third thousand largest American stocks,
and they there's a lot of debtinvolved there and with those companies and
a lot of them are in anunprofitable industry. So yeah, they you
know, they rely on debt forgrowth, so that debt becomes a little
bit more expensive as interest rates goup. So I think if you were
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to take a look really at thelast two weeks of the year, from
eleven seventeen to eleven thirty, that'swhen the Russell two thousand, you know,
you know, really or extra thelast just the last week really really
began to shine. What do youthink of just breaking down those numbers a
(16:06):
little bit? And look, youknow you said to me this this past
week, you know, maybe andI agree with you one hundred percent,
you know, week to week,two week, come on, you know,
you know, even even the lasttwo years, the S and P
five hundreds unchanged. And yet yetif you look at the average over the
past three years, the S andP five hundred is going up an average
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of eight percent over the past fouryears and average almost about nine to eighty.
The average return over the past fiveyears has to be ten sixty.
So you know, then when youbreak down week to week to week,
are we really adding any value?You know? You you know, do
you think, yeah, well,not the radio show. But when you
say when you hear okay, andwe watch a lot of CNBC and Bloomberg,
(16:52):
and you know, I know youget frustrated with that, and so
do I it's like, what's thevalue in in in this this this hour
in the market or the biggest hourin the market, or the halftime report
this or that. I know,it's I know, it's a show you
got to do, just like ESPN. But in general, I mean the
fact that the market was up ordown? What can we glean from it?
I think more so trends. Arethere any trends developing that you look?
(17:15):
What's your thought process? What areyou know, what are some medium
long term issues that you could seein the market, you know, developing
a thought process for for your assetallocation in your portfolio? Is that there's
I think those are some things thatwe try and do you know, give
a give I guess listeners a glimpseof how we invest in you know,
uh, I guess the parameters thatthat we have when when investing in companies.
(17:38):
But yeah, sometimes you know,the day to day, week to
week things get you know, myopinion, I guess a little boring,
but you know, meaningless meaning meaninglessmore than boring because it's not boring,
it's entertaining, you know. Ithink you know, and I think listeners
like even hearing about individuals companies,you know, individual trends that we see.
But yeah, it's what I'm saying. More more, I think as
(18:00):
we look at the week to weeknumbers, we try to look for like
patterns developing. You know. Youknow, week to week is a summary
of you know, five day todays, you know, and then months
to months and quarters the quarters inyears years. So I think when i'm
when I look at this week,you know, no, it doesn't mean
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anything. But the Russell two thousandand second, third thousand largest American stocks
up three percent, the S andP five hundred one point seven seven,
the Nazaga point three to eight,the Dow up two point four two tells
me there was a cyclical bent tothe market this past week. What I
mean going into twenty twenty four,I mean, have tech stocks run their
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course? I think you've been sayingthat a little bit not run their course
but could use a breather? Issomething? Yeah, yeah, fairly valued?
Right? If if tech stocks arefairly valued, then given the fact
that tech you know, no,yeah, but yeah they are. But
I think you always have to realizethat you could be wrong. Look at
CRMs, so definitely all time,yere look at Snowflake, you know,
(19:03):
both companies that had a very verygood earning, So you know, yeah,
I think, you know, Idon't want to begin with the Charlie
Munger quotes, but he says somewherethat like, you need to have two
or three of the best twelve companiesin the world to succeed, and I
think every investor needs to know that. Is like, you know, I
think one of my two largest holdingsare Google and Amazon. I think they
might be a little bit overvalued,but I also know they're a significant part
(19:26):
of the S and P five hundred, so I know they'll move with the
SMP five hundred. So you know, correlation to the stock market, in
my opinion, is one of themost important things that you can have as
an investor. I had one likeone of my professors in college used to
say that, like he wan ahedge fund, and he always had seventy
five percent of his money correlated tothe S and P five hundred. Sometimes
(19:48):
at twenty five percent was in onestock, like Tesla, but other times
it was in twenty But you know, the correlation to the market is extremely
important for any investor in my opinion, because you know, over time the
market does about ten percent per year, and going forward, if history is
any indicator, it should do that. That's in a full economic cycle.
That should also be the case.Yeah, because you know, because you
(20:11):
don't want to wake up twenty yearsfrom now have the S and P five
hundred to ten percent and you dotwo because you thought you were smarter than
you actually were, or you're reallysmart, but you basically were zigged when
you should have zagged. So that'swhy you want to have some correlation to
the market. And it's paid offfor our clients really in spades over the
(20:33):
longer haul, you know. AndI think the other thing too, Aaron,
is we also try to be proactivein the in the in the way
we think. That's why. Youknow, everyone says, well, Apple's
your largest holding, Well, ofcourse it is. Apple's the largest company.
It might be, but our averagecosts or Unicust is thirty six dollars
and fifty eight cents, and it'strading at one ninety, you know,
(20:55):
so obviously we're buying it when itwasn't you know, a household name.
You know, you look at youin video. Our average cost and that
is eighty dollars and it's four toseventy, So it's not like that was
one a stock that oh everybody wasbuying at that point in time. And
I pretty much thank you for thatstock, uh Regenerate on four sixty six
to eight twenty five when we've gotsome clunkers in it too, But even
(21:17):
uber we paid thirty three for it. Was just now it's being included in
the S and P five hundred andfifty six. I guess my point is
that you try to spot trends,you know, stick with them as long
as you think that they're they're they'rethey're uh, you're accurate in in that
identification, and then and then getoff of it when you when when you
when you when you find out you'rewrong. But so if I look at
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this, I would say, okay, hum, are we going to see
a more cyclical bent next year?Dow up up eight hundred and fifty five
points see the CRM and Dow isa dollar weighted index, you know,
helped help the Dow a lot thispast week as opposed to the market capitalization
waiting next like the S and Pfive hundred and the NAS DEC. But
still we had a cyclical bent.So is Boeing gonna do better next year?
(22:00):
Is Johnson and Johnson. Johnson andJohnson, you know, has been
a lagger thus far this year,but with a three percent dividend, you
know, I think it, Ithink it it certainly bears watching. I
think also when you to take alook at Johnson and Johnson, you're also
looking at a company with you know, with a lot of potential UH in
their in their pipeline, and theyalso have front of the front of the
(22:21):
store type of UH offerings as well. In five days it was up.
It was up four point sixty ninepercent this week, you know. And
I guess I'll close out with Ithink that the problem with right now is
that we are getting towards the endof the year, so there's a lot
of tax laws, tax laws shufflingpeople shuffling their portfolios ahead ahead of next
year. So you know, youlook at that and go from there.
(22:42):
Also, and I know we've gotabout a minute ago, is interest rates
on mortgages have come down, andif they continue to come down, I
think next year the lows of theworld there at a look, yeah,
you know, and and and andand even the homebuilders. If you look
at the Uh, what's the symbolin the home builders x x XBH.
(23:03):
I think yeah, I'll get itover the over the break is xl BAH
XHBA XHB home Builders. I thinkthey'll boby picking up a little bit as
well for next year. So that'swhat we're looking on. I do like
I do like Low's just because oftheir I think they're in a win win
situation. As far as I thinkit's a well run company, it's fairly
(23:26):
valued. So yeah, So rightnow, it's ten thirty on the station
depend upon for news, weather andinformation. We are going to get to
some of the quotes that Charliemongers hassaid over the years, and uh,
after the break, we'll spend asecond second half on that. But it's
ten thirty on the station you dependupon for news, weather and information.
News Talk ten and one O threeone w G Y, Good morning,
(23:48):
Welcome back to the second half hourof the Capitol District's Money and Investment Program.
You're listening to the Fague and FinancialReportum, that's Fagan sitting here with
my son Aaron as we do everySunday. And you know, not that
we knew Charlie Munger, but wesaw him many many times on CNBC along
with his partner at Berkshire Hathaway,Warren Buffett, and known for really his
sharp wit, his candor, Ithink, and obviously his investment acumen.
(24:15):
Charlie Munger died this past week atthe age of ninety ninety. Would have
been one hundred on New Year's Daytwenty twenty four. So also from Omaha,
worked at the same soda shop Ithink as Warren Buffett did at different
times. Jordan Burke joined Burt BerkshireHathaway in the seventies, so you know,
(24:36):
you know, almost a fifty yearif not a fifty year partnership between
Warren Buffett and Charlie Munger. Bothbecame billionaires. And you know, I
think in general, you know,kind of march to their own drummer,
would you say, or a littlebit and you know, so so I
don't know, we picked out somequotes. I don't know if you've got
(24:56):
one you want to start with,but what now, Yeah, we have
already four good quotes and you know, I think will probably take up the
whole entire second half talking about itbecause they relate so much to obviously investing,
as him being investor, but lifeas well. I think life in
investing, and you know, Iguess investment traits that you pick up kind
of they do spill over into yourlife. They do. Yeah, it's
(25:17):
good point. I think it's agood thing to look at. But you
know, I think what we rownthe in the weekliest, you know,
I think who was it? Asksgroup Arrat Shah summarized, you know,
one of the lessons he learned fromthe forty minute conversation with him, and
what he said was he emphasized thatin investing, one encounter's phases of pleasure,
pain, and self doubt, understandingthat these emotions are transient and acknowledging
(25:38):
that markets, over time tend tobe more rational due to their innate nature.
As data analysis machines is crucial.The essence lies in avoiding prejudices and
illusions, finding the balance between selfdoubt and conviction, and fostering resilience duly
tempered with adequate self criticism and agilityto intelligently revise one's own opinion. You
(26:00):
know, I think that's obviously importantin life investing, but also in life
is you know that, you know, having self awareness and being able to
criticize yourself, knowing when you arewrong, and you know, knowing that
you can be wrong, you know, always being open minded to the fact
that maybe you aren't right, maybeit is just your opinion, and you
(26:22):
know everyone else has their own opinionsas in life and in the stock markets.
Assume you're wrong. That's what Iwould think it out. Assume you're
wrong, because if you assume you'rewrong and you're right, things are good.
If you assume you're right and you'rewrong, and you've always assumed that
you're right, then and that's that'swhen you have issues that you think you
know, but that does as youuse the word for you acuies. You
(26:42):
know, this spills over into allparts of your life. One encounters phases
a pleasure, pain, and selfdoubt. I mean, I just with
with you know, with with youknow this is not a but with the
death of uncle Chris four years agotomorrow, having worked together you you with
him for you know, six orseven years, six days a week,
(27:04):
and me with him and being mybrother and your uncle for you know,
twenty twenty five years, six daysa week. You know that that pain
is there, but it's also theflip side. You know that what I
forget what they call that, butuh, you know it's what you know,
what he reminds me of is youknow, I know we both watched
it this week, and you knowLauren's big into this. Not watch it
(27:26):
this week, but you know thatLive to one hundred on Netflix and it's
interesting and you know they go overyou know, these five blue zones in
the world where people tend to livelonger. And you know what they what
all five of them kind of haveis is you know, in the first
episode is Japan, it's called EkeyGuy. It's a purpose. It's it's
(27:47):
dated back hundreds of years to youknow what people having a purpose in life
in whatever that means. And Ithink you know, a lot a lot
of people maybe it's farming or bakingor whatever like like they they were saying
in Japan. But I think CharlieMunger's and Warren Buffett, as you can
see with Proof, is you know, investing, you know, keeping your
mind active, finding it, findingthat purpose of and I think their purpose
(28:12):
was investing in teaching people how toinvest in. It's, you know,
it's a concept of you know,what gives your life worth meaning? Purpose
and I think you know, theyreally really not not did well in that,
but you have found their purpose inlife and that was investing in teaching
other people how to invest. AndI think you know a lot of times
and there's a lot of strategies.You know, you don't want to equate
(28:34):
you know, the stock market togambling, but they really emphasized the complete
opposite of that, and in takinga fundamental, uh you know, data
driven approach to investing in companies.And I think, you know, it's
interesting to see both of them liveto be almost what cential it? Yeah,
you know you know that that whatdid he go on to say in
(28:57):
a that markets tend to be morerational due to their their innate nature as
dated? Okay, the purpose andthat's what I want to say, that
purpose in life. You know againyou know, with investing with Charlie Munger,
but I think you know you broughtup farming and baking. Your purpose
in life does not have to includethe pursuit of you know, some financial
(29:19):
prowess or success. You know,I think you know, a successful life
and this is what you know youlearn from a guy like Munger, is
you know my guess is he wouldhave been successful in anything he did,
and maybe would have died broke,you know what I mean, But maybe
would have done whatever, been thebest baker or whatever. So anyways,
and this is not for us topontificate and what we think, but it's
(29:40):
for Munger. But he also threethese basic rules made me successful in life.
One, don't sell anything you wouldn'tbuy yourself. We are a fiduciary.
Don't work for anyone you don't respectand admire. And three work with
only with people you enjoy. AndI think that you know, if you
dread going to work every day,man, that's a ficult position to be
(30:00):
in. So anyways, so I'mgoing to go right to like in this
these forty four memorable quotes, I'mgoing to find one that pertains to investing.
And that is a couple of things. One is mimicking the herd invites
(30:26):
regression to the mean. And Ithink when you talk about portfolios with one
hundred or two hundred wrap accounts withone hundred or two hundred investments in that
Yeah, And I don't think hemeans passive investing. I think he means,
you know, when you hear someonecome on CNBC and talk about,
hey, where should we go next? That's kind of you know, the
(30:48):
whether we're watching kind of takes place. In my opinion, right, it's
not just like you know, passiveinvesting, it's it's doing what is kind
of in is trendy now right.I agree with that, and I'm thinking
for yourself the other thing too.I mean, when you look at Berkshire's
largest holdings from Apple to American Expressto Coca Cola and forget I think Bank
(31:11):
of America's in there, but they'veheld these four or five companies. They
are the foundation of their of theirportfolio around which you know, they kind
of have a lot more flexibility,but they don't get caught up in the
in the day to day movements ofthe market, and they know these are
good companies that will do well overtime. Correct. You know, maybe
(31:32):
they won't perform like the Googles ofthe world, but they will go up.
And they have a lot of sharesof them just the dividends that they're
collecting from these some of these companiesare you know, in the hundreds of
millions of dollars, billions of dollars, so you know, although yeah,
sometimes maybe Berkshire won't perform like aGoogle or an Amazon. You know,
it won't have the downturns of iteither. It doesn't have the volatility of
(31:52):
it. They don't invest in companieswith the volatility of that. True,
and you know, and he didthey in that same area. Goes on
to say, what everybody, andthis is kind of piggybacking on what you
just said. What everybody has learnedis that everybody needs some significant participation.
And you were talking, you alludedto this in the first half of the
show. Significant participation. In thetwelve companies that do better than everybody else,
(32:15):
you need two or three of themat least, So there is so
even if you think they're overvalued,you still need them in your portfolio to
have the correlation to the market.And that's what I think, right,
And also you don't have to haveyou know, he says you need some
significant participation in the twelve This wasa a podcast podcast that he did.
(32:37):
I don't know if it was recentor not. But in the twelve companies
that do better than everybody else,you need two or three of them.
He's not saying, oh, wegot to find all twelve. Everybody would
like to find twelve. But youjust need a couple. You just need
a couple winners in your portfolio,either through an ETF mutual fund, you
know, find somebody who does welland over time, or individual securities.
(32:59):
That's what you need. You needsome ten baggers in there to offset,
you know, investments that you knowaren't going to do well, because we
started out with that, you know, adequate self criticism and agility to intelligently
reverse one's own opinion. So it'squite often that you know though they're gonna
In fact, I think Berkshire Hathawaywith Buffett Monger three or four years ago
(33:21):
invested in airlines and got out ofthem shortly thereafter because of because they they
felt like they they had made amistake. So you know, you can
add to Charlie Munger's quotes of youknow, when when you when you,
when you make a mistake, getout, you know, don't and suffer
the you'll suffer the consequences from fromyour clients. Whatever what else you got
in there, any anything you pickedup or you want going to choose another
(33:44):
one or I mean there's so manyof them, right, it takes character.
How about this one when I'm ontoo, is there? Ay?
God, it takes character to sitwith all that cash and to do nothing.
I didn't get to be where Iwas where I am by going after
mediocre opportunity. And I think that'skey too. We've I've been talking,
we've been talking to clients a lotlately, and you know, with a
(34:06):
money market paying five percent, that'syour hurdle. Now, five percent is
a pretty good rate to return overover one year, in my opinion.
So you know, now we're tryingto find companies that A we think can
do well, do better than fivepercent per year. But B I forget
what I was going to say youyeah, yeah, yeah, just that
(34:27):
I guess you can can do betterthan five percent per year. So that's
the hurdle. And you know,not oh, that's what I was gonna
say. Not only companies that cando better but five percent per year,
but that can do well in ahigher interest rate environment as well. You
know, that's important. You know. I think I think what we'll see
in the next year or two issome companies really thrive no matter what interest
rates are. And I think we'rekind of we'll get away from that.
(34:49):
Okay, companies need a low interestrate environment to be successful, we're going
to see a lot of like youknow, the cream rise to the top
or whatever that. You know.Yeah, the good companies do well even
in a relatively high interest rate environment, right, you know, right,
because they plan, they know thatthat that's those those environments are gonna they're
(35:10):
gonna happen. Yeah, you know, yes, it was beneficial to have
a lower interest rate environment, butthey didn't need the low interest rate environment
to you know, achieve earnings growth, and a lot of companies probably did.
But I will say too though,I do think that when when he
talks about you know, you talkabout having cash. Yeah, you can
sit in cash, but but Ithink Buffett and Monger, you know,
(35:31):
we're always looking for opportunities with thatcash. I know just from reading you
know, Berkshire Hathaway's quarterly reports andfines with the SEC. You know,
they do own a lot of shorterterm treasuries, but they're always on the
hunt for better investments because the problemwith shorter term treasuries or whatever the case
may be is they're gonna mature andmaybe they're paying five twenty now, but
(35:53):
they might they're not gonna mature obviouslya shorter term treasure is gonna mature.
But also they have more money marketsthat are completely available, so I didn't
want to misspeak. But if it'sa money market, you could see that
rate go from which is also tiedto the Fed funds rate to a great
extent. You could see that gofrom five twenty to four seventy to four
to twenty to four thirty. Andwhat happened at that point time in November's
(36:17):
market performance is and indication of that. As interest rates go down, the
value of stocks, stocks become moreattractive. So I think you've got to
be careful about parking money there.But abuff It's saying, look, cash
is better than mediocre opportunities. Yeah, for sure, you know, And
I think that's you know, that'syou know, that's what I would take
(36:40):
from that. Let's see here,now, this is a good new technologies.
I'm personally skeptical of some of thehype that has gone into artificial intelligence.
I think old fashioned intelligence works prettywell. That's interesting. You know,
we have obviously investments in artificial intelligence, but you know, I think
what we've done well is invest incompanies that maybe have their foot in the
(37:05):
door and artificial intelligence, but don'trely on artificial intelligence for current revenue.
Make a Microsoft like you know,yeah, Google, Microsoft, Amazon,
companies like that. So yeah,you know, I don't know. I
don't. I guess I'm not asskeptical as he is, as you know,
I think it will work out,but you know, I yeah,
(37:27):
I think I think we need tosee some revenue from artificial intelligence before we
start hopping on a lot of thesecompanies that are you know, I guess,
just riding the wave. Well,and there's there's some that are more
speculative than others. You know,there might be you know, Microsoft's trading
atternear in all time high. Theymay there might be ten twenty thirty forty
(37:47):
fifty points built into Microsoft stock pricebased upon AI, but that company is
not based upon solely, solely thefuture generation of profits through AI. And
it's so I think that's something thatI think that even Charlie Munger would differentiate
between between the two. Uh.You know another uh on learning, you
(38:10):
know, it's a couple of things. I constantly see people rise in life
who are not the smartest, sometimesnot even the most diligent, but they
are learning machines they go to bedevery night a little wiser than when they
got up, and boy does thathelp, particularly when you have a long
run ahead of you. He saidthat at the USC Law School commencement addressed
(38:30):
back in two thousand and seven,so more than fifteen years ago. And
you know, and and I thinkI think it was poppy, and I'm
sure it was poppy. He toldme that, you know, you get
up for work. Every day yougo to work, you know, you
get ready. You know you're readyfor the game, meaning that you're basically
you suit up, you're ready toplay. Every day you do your best
and nothing bad is going to comefrom all that. And you know,
(38:53):
I saw it was like some podcastsor something said that the other day.
He's like, you know, hewore an entire it was like an entire
podcast on how just showing up isninety percent of the thing is BS And
I'm like, that's not true.I agree, showing up is is,
in my opinion, the foundation ofsuccessful people. And not everyone shows up.
(39:13):
Yeah that's true, but just showingjust showing up is yeah, I
think fundamental and building better habits andbetter qualities, so you know, yeah,
yeah, yeah, I mean thinkabout think about the employment where we
live in now, if people justshowing up, you know, I think
if you just show up and doyour best, good person, you know,
(39:34):
you know, a lot of peoplecan do a lot of jobs in
my opinion. You know, youknow, yeah, you have to,
you know, if you have values, if you're enjoyable to work with,
if you show up on time,you know, that goes a long way,
you know. Buffett or Munger alsowent on to say that in that
same vein, I think that alife property lived, a life properly lived
(39:57):
is just learn, learn, learnall the time. One there's this again,
you know, the Japanese thing,but there's this I have it on
my desk. It's like this Japaneseterm shoshin and it's beginner's mind. And
it's a paradox. The more youknow about a subject, the more likely
you are to close your mind tofurther learning. And I think that's important
too, is you know, especiallyin investing, in knowing that you can
(40:20):
be wrong is extremely important in investing. And you know, as you know,
in investing, you are wrong alot, so always learning from that,
never being too confident in your predictionsis important. And yeah, this
is a this is a business oferrors, really, you know, and
we often say that being baseball fans, you know, infield there with or
(40:44):
nine or ten errors basically wins thegolden glove as the best third basement or
whatever the case may be. SoI think it's recognizing when that is an
error. And then and lots oftimes, and Jim Kramer talks about it,
you know, is is it apoor investment or is a company being
mispriced at this point in time?And I think Buffett and Munger would go
on today that that happens quite oftenwhere you know, the stock market is
(41:06):
a voting machine in the beginning andthen a weighing machine at the end.
And I think we mentioned that earlierthat you know, I think it was
Baradshah his interview with Munger. Youknow, Munger stated that, you know,
over the long term, the stockmarket is a rational weighing machine identifying
(41:28):
uh, the appropriate criteria that shouldpush the the individual security one way or
the other. So I think that'simportant. Buffer goes Buffett, or Buffett
Munger goes on to say, letme see what did he say here?
(41:49):
I thought I had seen something andnow I can't find it. Oh.
One of the main things that getstaught in modern universe to the education is
that a vast diversification is absolutely mandatoryinvesting in common stocks. That's an insane
idea. It's not that easy tohave a vast, plethora, plethora of
good opportunities that are easily identified.If you've got only three, I'd rather
(42:15):
be my best ideas instead of myworst. You know, that's a little
that's a little narrow, but youknow, I know Fagan Associates, we
try to invest in four or fivecompanies over four or five industries, so
you're looking at probably fifteen to twentyfive stocks that comprise the vast majority of
our portfolio. I think also WarrenBuffett said, you know, consolidation is
(42:35):
for getting rich, diversification is preservingwealth or something good point, And you
know most of our clients are inretirement phase, so you know, yeah,
maybe you know, I don't know, maybe I think I think about
twenty stocks. Is a good diversityis a good amount of stocks where your
portfolio can still do well, butis diversified enough to really protect you from
some downside. You know, obviouslysome their markets and downturns in the market
(43:01):
at fifteen to twenty five securities.And that's well. Also, I've been
telling people a lot, I meanyou mentioned this a month or two ago
that look, I mean, ifyou're sixty two, sixty three, you
know, and God bless you.Let's say you have a million dollars.
You know, you're not going towake up with ten million, you know,
without taking an undue amount of risk. Yeah, the flip side is
(43:22):
you don't want to wake up withzero, you know. Yeah, one
to ten million is not going togive you the pleasure in life that the
million to zero is going to giveyou the heartache and disappointment. At sixty
or sixty two years older, sixtyfive, a lot of our clients are
that age. So you know,our job is to protect make sure that
their standard of living is protected throughthe through the rest of their life.
(43:43):
And also there are state planning needsor healthcare needs and whatever you know,
so that that that is important.So I think, you know, I
would agree that lots of times there'sover diversification, but fifteen to twenty five
securities in a portfolio, you know, is about right now. If you
have we do have some like JETPI, jep Q things that you know,
equity income funds that you know protectyou from the downside while also right in
(44:06):
providing some income. So you know, but yeah, yeah, so I
would say fifteen to twenty securities isabout right. You know, you could
have a three month treasure bill,six month to twelve month treasure bill and
I would just lump them as onesecurity. Really, you know what I
mean? One? So you know, so don't look at your portfolio your
client of ord's all I got twentyeight or I got twenty seven. A
lot of these kind of flow together. They overlap a bit captal gains things,
(44:27):
right, so there's a lot ofdifferent things like that. What else
you got anything in there that livewithin your income and safe so that you
can invest learn what you need tolearn. I don't know with the last
part, but yeah, I meanlive within your income. That's an obvious
thing. You know, try toif you can. I know a lot
of Americans can't. So you knowa lot of these financial and financial advising
investment quotes that come out, youknow for the a lot of Americans that
(44:51):
it's not possible. But you know, if you have the ability to live
within your main live within your incomeand yes, it save to invest.
And you know maybe one of thelast or two or three is right above
that aeron on that same page.You don't have a lot of envy,
you don't have a lot of resentment, you don't overspend your income, you
stay cheerful in spite of your troubles, you deal with reliable people, and
you do what you're supposed to do. All these simple rules work so well
(45:15):
to make your life better. AndI think that's in four or five years
ago in an interview in CNBC,he said that, So I think that's
a big thing. I think,you know, in this business, in
business in general, and life ingeneral, it's easy to envy the people
with more, the people that seemto be doing better, the people everyone's
doing better on Facebook and Instagram.You know, I think millennials just cance.
(45:37):
They need five hundred and forty fivethousand dollars of income a year to
be happy. That's just Isn't theresome sort of benchmark? What's what's the
mouth? I mean it used tobe seventy five grand, but I mean
that's I don't know's I think it'schanged a little bit for inflation obviously,
but yeah, you know, Ithink social media makes it hard to be
happy. I worry about that forJude a lot. You know, yeah,
yeah, at a year and ahalf, you've just missed social media.
(45:59):
Really didn't get social media to likeI was in my in college.
So you know, the people onsocial media are getting younger and younger,
and it's just yeah, just aI don't know what it will do to
the mental health of great Now.Now you're worried about something about you.
Now that means I'm gonna not sleep. Thanks a lot. The kid's a
great kid. He's a beautiful kid. As far as his personality, he's
(46:22):
he's a he's a light of yourlife and Lauren's and mine and moms.
I'm sure everybody so, but thatis true. You know, he says
on big tech regulation, I wouldnot break them up. They've got their
little niches. Microsoft maybe has anice niche, but it doesn't own the
earth. I like these high techcompanies. I think capitalism should expect to
get a few big winners by accident, and I think that I think that.
(46:44):
You know, now, you couldsay that's self serving, but uh,
there's a lot of talk now especiallywith the uh the current FDC chair
woman Khan I think is Lena Khanis her name in the Democratic administ trying
to, you know, go aftersome of these big companies. I think
they're making a mistake because they're notjust competing against other companies in the US.
(47:06):
They're competing against global the global economy. And we may we may think,
well, we're more liberal then Europe, and that may be the case
because they're very tight with their withtheir regulation. But you're also competing against
you know, up and coming economieslike China and India who're gonna wet you
know, especially India let their winnersrun. China not so much. It
seems like, you know what else, give me, give me one final
(47:29):
one air that I can that Ican take and and and we can we
can. Let let our listeners moveon to the Victorian. Both the power
of compounding interest and the difficulty ofgetting it is the heart and soul of
understanding a lot of things I don'tknow well, compounding our savage into the
market. Invest what you can,it'll do well over time. And I
(47:51):
think that's important. Chart your ownpath, find your own journey. And
I think one thing about Charlie Mungerif if if I had to say,
you know, absent a description ofas an investment person, a man with
impeccable integrity and the yeah, andthat's important in financial business. You know,
if you ever go for a financialadvisor interview in ra A, you
(48:12):
know, make sure that you knowyou you can trust that as a person
they seem like a person of integrity, because you know, that's that's a
huge percentage of this business is justworking with someone who you can trust and
you know it's a fiduciary. True. That'll just about do it. If
you want to copy the article,email me at Faganassociates dot com. Check
us out on the web at FaganAssociates dot com. Colls five one,
(48:36):
eight, two, seven, nine, ten forty four. Have a good day.
Good morning, and welcome to theCapitol District's Money and Investment Program. You
are listening to the Fagan Financial Report. I'm Dennis Fagan's sitting here with my
son Aaron, as we do everySunday right here in News Talk E ten
and one oh three one w Gy Uh. Victorian Stroll Day, Victoria,
Troy. Yeah, you're working atit right, yeah, chamber.
Yeah, so it should be fun. It's a little rainy out, so
(00:24):
that's not the best thing, butyeah, you know, it's a it's
a good day for it's like thetwo hundredth years. So it's like of
the Twesday Night before Christmas, whichwas written in Troy. Yeah, New
York. So yeah, I thinkit's like kind of that theme. Yeah,
it's always good to see Victorian peoplewalking around. Yeah, it's fun.
It is, you know, itgets you in the Christmas Spirit fire
truck ride. So so Mom andI will go down there and you're going
(00:45):
down it's or Lorna jut No hissoccer today. He's on the pitch.
He's on the pitch at eleven thereand we're excited. Takes eighteen months old,
so I'm guessing they just like throwballs out there and kids just running
to see what happens, you know, little scrum kids. Yeah, scrum
I remember. I remember when youwere playing a long time ago. You
went Sam, you were pretty good. You were good. It was fun,
(01:07):
you know. You know. Soanyways, as we get into the
final month of the year, it'sbeen I think unpredictable. I mean,
I think when we're coming into theyear, and you know, I think
that's the thing that you know,the passing of Charlie Munger will get into
great length. At the passing ofCharlie Munger, most people refer to Warren
Buffett as the Oracle of Omaha,and yet I would call Charlie Munger one
(01:33):
of the two oracles of Omaha.Really they've been they've been partners for so
long decades. Yeah, and hehas a lot of wit and wisdom as
it pertains to investment in life thatyou know, I think the listeners will
appreciate. And we'll talk about thatin the second half and really cover the
whole second half talking about Charlie Munger. An article by Julia Laroche and Adriana
(01:53):
bel Monte uh has forty four memorableCharlie Munger quotes about life in the market.
So we've picked out a few ofthose, and I think you can
learn a lot about if you're aclient of ours, we have tried to
embody and embrace a lot of Mungerand Buffett's qualities to the best of our
ability. And if you're not aclient of ours and you do it on
(02:15):
your own, you think you shouldlook up that article Julia l Erosion that
in Adriana Belmonte wrote forty four memorableCharlie Munger quotes about life in the markets.
And also, I think you'll appreciatethe second half because there's lots of
food for thought. You know,I think you know, no matter what
your investment approach, your investment styleis, I think what you know,
(02:36):
I think the basive, like yourportfolio and your asset allocation should be,
you know, kind of what CharlieMungers and Warren Buffetts is. Obviously,
you know, fundamental investing good companies. You know, strong management, strong
fundamentals, and you know, Ithink that goes a long way with all
companies. And you know, Ithink that, you know, I always
I think I have ten or twelveyou know, Warren Buffett and Charlie Munger
(02:59):
quotes, I might somewhere and youknow, you kind of go through all
companies if you're trying, if you'restarting to invest in a company, you
know, I think it's important tohave a checklist. You know, does
this company have good management, yes, does it have good strong fundamentals yes,
does it have a huge moat yes. So I think, you know,
when investing in anything, it's youknow, what they do well is
that they have a checklist of acompany. A. If you don't fit
(03:20):
these parameters, we're not going toinvest in you. And I think that's
a you know, a good wayif you're picking your own stocks, especially
and also I think you know,and again this is for the second half,
but also when I think I learnedfrom the quote that sticks in my
mind off it was Buffett or Mungerthat said, you know, there are
no balls and strikes. You know, it's not like it's strike too when
you've got to find a good stock, or it's or if you've got three
(03:43):
balls and if you just wait itout, you'll get on base. No,
there's no balls or strikes. Waitto you see a fat pitch and
you hit it, you know,And I think that's what you know.
That's so we'll get into that inthe second half. But suffice to say
that November, you know, you'rereally closed. We closed out November a
positive note on both the stock andthe bond side. And I think you
(04:04):
look at November from the S andP five hundred standpoint, the third best
month in a decade you look aton the fixed income side, bonds,
you know, one of the bestmonths in over thirty years for you know,
intermediate longer term about like seven orsomething like that. A lot of
bond funds were up that I thinkin the aggregate, the agg was up
(04:27):
about four percent, still in thenegative. Year to date, we've had
the ten year move from four toseventy or four to eighty back down the
four to twenty five. So we'lltalk you know a little about the numbers.
But you know, I think thatyou know, you're gonna hear a
lot of prognostications about the market.Hey, you know, take them all
with the grain of salt, becauseyou just never know what the market is
(04:49):
going to do over the short term, you know. And I think next
year will be the first year ina long time that you're going to see
the introduction of fixed income for capitalgains as an investment approach. Probably I
have never in my career. I'venever been around for anything like that.
(05:10):
And what do you mean by that, Like, you know, the value
of bonds going down, going up, going up? You know. So
yeah, perhaps next year, perhapsnext year, so you know, if
we are done cutting rates, youknow, so I think that could be
a thing that we might see.Yeah, yeah, so the Fed might
be done raising rates, you know. And if that's the case, and
I think you saw this this pastthis past month. You know, if
(05:33):
you take a look at UH atfixed income, Well, how can fixed
income or how can bond funds goup by seven or eight percent if they
only pay four or five percent ininterest? And it is because as interest
rates go down, the value ofbonds go up, just like we saw
the last year for sure, asinterest rates went up, to value of
(05:53):
bonds went down. And we're actuallyeven if we close out this year with
intermediate longer term treasuries, this willmark the third consecutive year where we had
a negative total return. Is thatthe first time ever? That's the first
time ever. So, so you'reright, I think next year could be
setting up as the year four fixedincome where fixed income perhaps returns when you're
(06:14):
taking the consideration the interest payments,let's say four or five percent, and
then the appreciation on the bond.Should interest rates continue to come down,
in the aggregate, the total returnthe price appreciation and the and the interest,
you know, could approach what thestock market has to offer for twenty
four, you know, and justthinking out loud a little bit, it's
gonna be interesting to see what happenson the equity side. You know,
(06:34):
Historically, h interest rates go down, stocks tend to do better. But
you know, stocks are already they'renot cheap here. If you look at
the you know, Ford Ford peratio of the S and P five hundred,
you know, it's kind of nearthe top of its historical average at
twenty one. So it'll be interestingto see what happens with stocks this next
(06:55):
year again, you know, aftersuch a good year this year and prices
fairly valued in my opinion, andyou know that's not to say. Before
the show, we were kind oftalking about, you know, what,
what what do we want to what? What are some names? Some are
some sectors that we think will dowell next year despite earnings ratios that where
(07:16):
they are now, you know,and we mentioned like total return, we
mentioned maybe searching more for total returnnext year. Just to name, you
know, two stocks and two orthree two stocks that we own, two
ETFs that we own for customers thatmay be going to add to Exon Mobile
and Johnson and Johnson for total returnon the individual stock side, and also
a couple areas that have been outof favor year to date, energy and
(07:38):
healthcare, big pharma. And thenon the ETF side, jef B,
the JP Morgan Preium Income and alsothe one that invested in as dec oriented
stocks j p Q. Both payyou know, seven or eight percent distribution
rates. So even if the stock, even if it goes nowhere, you're
still compensated for you know. Oneof the things I was saying tho,
(07:59):
if you look not saying thinking asas we're getting ready to talk about this,
is that if you year to year, like when you prepare for the
next year, you have to havean overall type of you know, posture,
you know, a baseline case,and then that baseline case gets adjusted
over time, you know, allthe while staying within your your strong suits,
(08:24):
staying within you know your your areasof competency, and I think as
long term, long term secular growthareas growth investors that on the on the
stocks, here's here's how we investlong term secular growth. On the stock
side, invest in invest in bondsfor income rather than growth, so so
intermediate that and that implies intermediate termfixed income and secular growers like Alphabet and
(08:48):
Amazon and Apple and the like.And then we kind of we kind of
on the peripheries use uh use usecompanies and and and exchange traded funds and
mutual funds that we think are goingto do well over over like a shorter
intermediate term period of time. Soa long term bias towards secular growth,
(09:11):
long term bias towards intermediate term bonds. On the equity side, intermediate and
shorter term bias probably you know forthe periphery moving more towards you know,
stocks with dividends. But if youlook out over the past three years there,
I mean, AI through a hugepositive wrench into technology this year.
(09:31):
Nobody after last year's tobacco really intechno information technology, nobody thought that we'd
have the year that we had foryou know, Apple in video, you
know, Microsoft, Adobe. Imean those are some of our larger holdings.
Apple be in our largest holding,and I think give you Microsoft's right
(09:52):
up there, and Videos right upthere. Alphabet another another great performer this
year. So AI through a positivewrench. Last year, the Fed you
know, hiked and hiked and hikedin and the market probably didn't foresee that.
And then and the S and Pwas down twenty five percent at its
worst point in twenty and twenty two. Twenty and twenty one was a rebound
(10:13):
from the pandemic. The pandemic.So every year brings with it something new
and something something that's you know,kind of the market didn't expect. I
will, like you go to say, and I'm sorry for taking up so
much time, but you know,if you look at the S and P
five hundred, and I was lookingonline, the S and P five hundred
closed at forty five sixty seven onNovember thirtieth, twenty and twenty one,
(10:39):
and forty five sixty seven point eighton November thirtieth, twenty and twenty three.
You know, and so you havetwo years of nothing, and yet
if you stretch that out, Ithink the market's done. You know,
a lot better if you look outthree, four or five years, you
know for sure? Yeah, AndI think you know that that that goes
to no matter what type of itkind of wrench is thrown at you in
(11:01):
any one given you as you stretchtime out, it does you know more
predictable. Yeah. I think wetalk about this once in a while.
Is that you know, sometimes theseare the hardest times. You know.
I heard you on the phone withsomeone the other day talking about you know,
I think they came over about youknow, a year and a half,
two years ago. So yeah,it's sometimes when the market goes nowhere,
it's it's the hardest time to investbecause what am I doing here?
(11:22):
You know, when it's going down? I think you have okay, you
know, you could say, hey, maybe I'm getting stocks at better prices,
which is which is true. I'mgetting you know, I'm dollar cost
averaging into the market. But sometimeswhen the market's going nowhere, you know,
it gets fatiguing mentally. You know, you have the schwab a lines
app on your phone or Fidelity appon your phone or whatever, and you're
checking it every day and you're notseeing anything happen. And I think you
(11:45):
know that then all of a suddenyou're seeing commercials pop up for high yielded
savings accounts at four and a halffive percent. So I think it's you
know, sometimes it's tempting to takeyour money out of the stock market,
you know. Yeah, when whenthe market's kind of just you know,
tread and water for a while,and you know it's not when you're in
the midst of it. It neverfeels like it's treading water. No,
right, right now, right,that's a good point. You either feel
like it's going up or down.Yeah, you know, I probably like
(12:09):
treading water in general. You know. One of the things we wrote,
I think almost a year ago,were some bullet points as the longer lasting
issues to keep at the top ofour mind, and one of them was,
unlike the past couple of bear marketswhere investors witness the V shaped bottom,
this should be more of a youor a process rather than an event,
not to whereas we believe the bottomwill ushure in a new, longer
(12:30):
lasting, more durable market. Blahblah blah. But this, the fourth
bullet there are was more a componentof traditional, longer lasting bear markets.
And this is what you were justreferring to is the emotional strain it places
upon the investor. And just asbull markets place pressure on investors sitting on
the sidelines, bar markets exert thesame force on those that have money in
(12:52):
the market. And I think thatis what you're what we're referring to,
is that stress that investors feel.If I were to say, okay,
and what we'll speaking to that oneof our clients. The market's going nowhere
for two years? You know,what am I doing here? What am
I doing here? What am Idoing? Why don't we take a look
at the numbers in the market there. I don't know if you have them
in front of you. As faras the statistically, obviously another good week
(13:13):
in the market. You know,we're we're getting towards our our all time
record highs in a few indices,but the Dow Jones Industrial Average was up
eight fifty five thirty five to closeat thirty thix thirty six thousand and two
forty five fifty, up two pointfour two percent for the week, up
nine point three five percent for theyear, trailing twelve month, up five
point two seven percent, one pointfive percent from its all time highs.
(13:37):
Sm P up thirty five twenty nineto close at four thousand and five ninety
four, up point seven seven percentfor the week, up nineteen point six
seven percent for the year, trailingtwelve month up twelve point eight four percent
percent from record high four point twoone percent. NAS Like up fifty four
eighteen to close at fourteen thousand andthree oh five, up point three eight
percent for the week, up thirtysix point six seven percent for the year,
(14:00):
percent to obtain a new high tenpoint nine to one percent. US
total market up five twenty seven totwenty four to close a forty five thousand
and eight oh five, up onepoint one six percent for the week,
up eighteen point nine one percent forthe year, a trailing twelve month up
eleven point nine percent, six pointeight six point three eight percent from its
record high. Russell two thousand,another good week, up three point zero
(14:22):
five percent, up five point sevensix percent for the week, twenty three
point seventy five percent off its recordhighs Utility is up ten point zero three
to close at eight seventy six,up one point one six percent for the
week, down nine point four fivepercent for the year, eighteen point two
percent off its record high. Transportsup three sixty nine to close at fifteen
thousand and four to sixty three,up two point four five percent for the
(14:43):
week, up fifteen point four toseven percent year to date, nine point
two five percent from its record high. So now another good week in the
market, you know, led bythe Russell two thousand, we're seeing rates
go down. You know, Ithink, as you said at the beginning
of the show, was the itwas the best week for bonds in a
(15:03):
long time. I don't know,you know, bond what up seven eight
percent for the month. So yeah, you know that, I think that,
you know, obviously the Russel twothousand was most influenced by that,
in my opinion. So a goodweek to start December really well. Yeah,
the last week in November, Yeah, Russell two thousand said, you
(15:24):
know, up because interest rates weredown. And most people don't realize that.
Russell two thousand are you know,the second third thousand largest American stocks,
and they there's a lot of debtinvolved there and with those companies and
a lot of them are in anunprofitable industry. So yeah, they you
know, they rely on debt forgrowth, so that debt becomes a little
bit more expensive as interest rates goup. So I think if you were
(15:46):
to take a look really at thelast two weeks of the year, from
eleven seventeen to eleven thirty, that'swhen the Russell two thousand, you know,
you know, really or extra thelast just the last week really really
began to shine. What do youthink of just breaking down those numbers a
(16:06):
little bit? And look, youknow you said to me this this past
week, you know, maybe andI agree with you one hundred percent,
you know, week to week,two week, come on, you know,
you know, even even the lasttwo years, the S and P
five hundreds unchanged. And yet yetif you look at the average over the
past three years, the S andP five hundred is going up an average
(16:30):
of eight percent over the past fouryears and average almost about nine to eighty.
The average return over the past fiveyears has to be ten sixty.
So you know, then when youbreak down week to week to week,
are we really adding any value?You know? You you know, do
you think, yeah, well,not the radio show. But when you
say when you hear okay, andwe watch a lot of CNBC and Bloomberg,
(16:52):
and you know, I know youget frustrated with that, and so
do I it's like, what's thevalue in in in this this this hour
in the market or the biggest hourin the market, or the halftime report
this or that. I know,it's I know, it's a show you
got to do, just like ESPN. But in general, I mean the
fact that the market was up ordown? What can we glean from it?
I think more so trends. Arethere any trends developing that you look?
(17:15):
What's your thought process? What areyou know, what are some medium
long term issues that you could seein the market, you know, developing
a thought process for for your assetallocation in your portfolio? Is that there's
I think those are some things thatwe try and do you know, give
a give I guess listeners a glimpseof how we invest in you know,
uh, I guess the parameters thatthat we have when when investing in companies.
(17:38):
But yeah, sometimes you know,the day to day, week to
week things get you know, myopinion, I guess a little boring,
but you know, meaningless meaning meaninglessmore than boring because it's not boring,
it's entertaining, you know. Ithink you know, and I think listeners
like even hearing about individuals companies,you know, individual trends that we see.
But yeah, it's what I'm saying. More more, I think as
(18:00):
we look at the week to weeknumbers, we try to look for like
patterns developing. You know. Youknow, week to week is a summary
of you know, five day todays, you know, and then months
to months and quarters the quarters inyears years. So I think when i'm
when I look at this week,you know, no, it doesn't mean
(18:21):
anything. But the Russell two thousandand second, third thousand largest American stocks
up three percent, the S andP five hundred one point seven seven,
the Nazaga point three to eight,the Dow up two point four two tells
me there was a cyclical bent tothe market this past week. What I
mean going into twenty twenty four,I mean, have tech stocks run their
(18:41):
course? I think you've been sayingthat a little bit not run their course
but could use a breather? Issomething? Yeah, yeah, fairly valued?
Right? If if tech stocks arefairly valued, then given the fact
that tech you know, no,yeah, but yeah they are. But
I think you always have to realizethat you could be wrong. Look at
CRMs, so definitely all time,yere look at Snowflake, you know,
(19:03):
both companies that had a very verygood earning, So you know, yeah,
I think, you know, Idon't want to begin with the Charlie
Munger quotes, but he says somewherethat like, you need to have two
or three of the best twelve companiesin the world to succeed, and I
think every investor needs to know that. Is like, you know, I
think one of my two largest holdingsare Google and Amazon. I think they
might be a little bit overvalued,but I also know they're a significant part
(19:26):
of the S and P five hundred, so I know they'll move with the
SMP five hundred. So you know, correlation to the stock market, in
my opinion, is one of themost important things that you can have as
an investor. I had one likeone of my professors in college used to
say that, like he wan ahedge fund, and he always had seventy
five percent of his money correlated tothe S and P five hundred. Sometimes
(19:48):
at twenty five percent was in onestock, like Tesla, but other times
it was in twenty But you know, the correlation to the market is extremely
important for any investor in my opinion, because you know, over time the
market does about ten percent per year, and going forward, if history is
any indicator, it should do that. That's in a full economic cycle.
That should also be the case.Yeah, because you know, because you
(20:11):
don't want to wake up twenty yearsfrom now have the S and P five
hundred to ten percent and you dotwo because you thought you were smarter than
you actually were, or you're reallysmart, but you basically were zigged when
you should have zagged. So that'swhy you want to have some correlation to
the market. And it's paid offfor our clients really in spades over the
(20:33):
longer haul, you know. AndI think the other thing too, Aaron,
is we also try to be proactivein the in the in the way
we think. That's why. Youknow, everyone says, well, Apple's
your largest holding, Well, ofcourse it is. Apple's the largest company.
It might be, but our averagecosts or Unicust is thirty six dollars
and fifty eight cents, and it'strading at one ninety, you know,
(20:55):
so obviously we're buying it when itwasn't you know, a household name.
You know, you look at youin video. Our average cost and that
is eighty dollars and it's four toseventy, So it's not like that was
one a stock that oh everybody wasbuying at that point in time. And
I pretty much thank you for thatstock, uh Regenerate on four sixty six
to eight twenty five when we've gotsome clunkers in it too, But even
(21:17):
uber we paid thirty three for it. Was just now it's being included in
the S and P five hundred andfifty six. I guess my point is
that you try to spot trends,you know, stick with them as long
as you think that they're they're they'rethey're uh, you're accurate in in that
identification, and then and then getoff of it when you when when you
when you when you find out you'rewrong. But so if I look at
(21:38):
this, I would say, okay, hum, are we going to see
a more cyclical bent next year?Dow up up eight hundred and fifty five
points see the CRM and Dow isa dollar weighted index, you know,
helped help the Dow a lot thispast week as opposed to the market capitalization
waiting next like the S and Pfive hundred and the NAS DEC. But
still we had a cyclical bent.So is Boeing gonna do better next year?
(22:00):
Is Johnson and Johnson. Johnson andJohnson, you know, has been
a lagger thus far this year,but with a three percent dividend, you
know, I think it, Ithink it it certainly bears watching. I
think also when you to take alook at Johnson and Johnson, you're also
looking at a company with you know, with a lot of potential UH in
their in their pipeline, and theyalso have front of the front of the
(22:21):
store type of UH offerings as well. In five days it was up.
It was up four point sixty ninepercent this week, you know. And
I guess I'll close out with Ithink that the problem with right now is
that we are getting towards the endof the year, so there's a lot
of tax laws, tax laws shufflingpeople shuffling their portfolios ahead ahead of next
year. So you know, youlook at that and go from there.
(22:42):
Also, and I know we've gotabout a minute ago, is interest rates
on mortgages have come down, andif they continue to come down, I
think next year the lows of theworld there at a look, yeah,
you know, and and and andand even the homebuilders. If you look
at the Uh, what's the symbolin the home builders x x XBH.
(23:03):
I think yeah, I'll get itover the over the break is xl BAH
XHBA XHB home Builders. I thinkthey'll boby picking up a little bit as
well for next year. So that'swhat we're looking on. I do like
I do like Low's just because oftheir I think they're in a win win
situation. As far as I thinkit's a well run company, it's fairly
(23:26):
valued. So yeah, So rightnow, it's ten thirty on the station
depend upon for news, weather andinformation. We are going to get to
some of the quotes that Charliemongers hassaid over the years, and uh,
after the break, we'll spend asecond second half on that. But it's
ten thirty on the station you dependupon for news, weather and information.
News Talk ten and one O threeone w G Y, Good morning,
(23:48):
Welcome back to the second half hourof the Capitol District's Money and Investment Program.
You're listening to the Fague and FinancialReportum, that's Fagan sitting here with
my son Aaron as we do everySunday. And you know, not that
we knew Charlie Munger, but wesaw him many many times on CNBC along
with his partner at Berkshire Hathaway,Warren Buffett, and known for really his
sharp wit, his candor, Ithink, and obviously his investment acumen.
(24:15):
Charlie Munger died this past week atthe age of ninety ninety. Would have
been one hundred on New Year's Daytwenty twenty four. So also from Omaha,
worked at the same soda shop Ithink as Warren Buffett did at different
times. Jordan Burke joined Burt BerkshireHathaway in the seventies, so you know,
(24:36):
you know, almost a fifty yearif not a fifty year partnership between
Warren Buffett and Charlie Munger. Bothbecame billionaires. And you know, I
think in general, you know,kind of march to their own drummer,
would you say, or a littlebit and you know, so so I
don't know, we picked out somequotes. I don't know if you've got
(24:56):
one you want to start with,but what now, Yeah, we have
already four good quotes and you know, I think will probably take up the
whole entire second half talking about itbecause they relate so much to obviously investing,
as him being investor, but lifeas well. I think life in
investing, and you know, Iguess investment traits that you pick up kind
of they do spill over into yourlife. They do. Yeah, it's
(25:17):
good point. I think it's agood thing to look at. But you
know, I think what we rownthe in the weekliest, you know,
I think who was it? Asksgroup Arrat Shah summarized, you know,
one of the lessons he learned fromthe forty minute conversation with him, and
what he said was he emphasized thatin investing, one encounter's phases of pleasure,
pain, and self doubt, understandingthat these emotions are transient and acknowledging
(25:38):
that markets, over time tend tobe more rational due to their innate nature.
As data analysis machines is crucial.The essence lies in avoiding prejudices and
illusions, finding the balance between selfdoubt and conviction, and fostering resilience duly
tempered with adequate self criticism and agilityto intelligently revise one's own opinion. You
(26:00):
know, I think that's obviously importantin life investing, but also in life
is you know that, you know, having self awareness and being able to
criticize yourself, knowing when you arewrong, and you know, knowing that
you can be wrong, you know, always being open minded to the fact
that maybe you aren't right, maybeit is just your opinion, and you
(26:22):
know everyone else has their own opinionsas in life and in the stock markets.
Assume you're wrong. That's what Iwould think it out. Assume you're
wrong, because if you assume you'rewrong and you're right, things are good.
If you assume you're right and you'rewrong, and you've always assumed that
you're right, then and that's that'swhen you have issues that you think you
know, but that does as youuse the word for you acuies. You
(26:42):
know, this spills over into allparts of your life. One encounters phases
a pleasure, pain, and selfdoubt. I mean, I just with
with you know, with with youknow this is not a but with the
death of uncle Chris four years agotomorrow, having worked together you you with
him for you know, six orseven years, six days a week,
(27:04):
and me with him and being mybrother and your uncle for you know,
twenty twenty five years, six daysa week. You know that that pain
is there, but it's also theflip side. You know that what I
forget what they call that, butuh, you know it's what you know,
what he reminds me of is youknow, I know we both watched
it this week, and you knowLauren's big into this. Not watch it
(27:26):
this week, but you know thatLive to one hundred on Netflix and it's
interesting and you know they go overyou know, these five blue zones in
the world where people tend to livelonger. And you know what they what
all five of them kind of haveis is you know, in the first
episode is Japan, it's called EkeyGuy. It's a purpose. It's it's
(27:47):
dated back hundreds of years to youknow what people having a purpose in life
in whatever that means. And Ithink you know, a lot a lot
of people maybe it's farming or bakingor whatever like like they they were saying
in Japan. But I think CharlieMunger's and Warren Buffett, as you can
see with Proof, is you know, investing, you know, keeping your
mind active, finding it, findingthat purpose of and I think their purpose
(28:12):
was investing in teaching people how toinvest in. It's, you know,
it's a concept of you know,what gives your life worth meaning? Purpose
and I think you know, theyreally really not not did well in that,
but you have found their purpose inlife and that was investing in teaching
other people how to invest. AndI think you know a lot of times
and there's a lot of strategies.You know, you don't want to equate
(28:34):
you know, the stock market togambling, but they really emphasized the complete
opposite of that, and in takinga fundamental, uh you know, data
driven approach to investing in companies.And I think, you know, it's
interesting to see both of them liveto be almost what cential it? Yeah,
you know you know that that whatdid he go on to say in
(28:57):
a that markets tend to be morerational due to their their innate nature as
dated? Okay, the purpose andthat's what I want to say, that
purpose in life. You know againyou know, with investing with Charlie Munger,
but I think you know you broughtup farming and baking. Your purpose
in life does not have to includethe pursuit of you know, some financial
(29:19):
prowess or success. You know,I think you know, a successful life
and this is what you know youlearn from a guy like Munger, is
you know my guess is he wouldhave been successful in anything he did,
and maybe would have died broke,you know what I mean, But maybe
would have done whatever, been thebest baker or whatever. So anyways,
and this is not for us topontificate and what we think, but it's
(29:40):
for Munger. But he also threethese basic rules made me successful in life.
One, don't sell anything you wouldn'tbuy yourself. We are a fiduciary.
Don't work for anyone you don't respectand admire. And three work with
only with people you enjoy. AndI think that you know, if you
dread going to work every day,man, that's a ficult position to be
(30:00):
in. So anyways, so I'mgoing to go right to like in this
these forty four memorable quotes, I'mgoing to find one that pertains to investing.
And that is a couple of things. One is mimicking the herd invites
(30:26):
regression to the mean. And Ithink when you talk about portfolios with one
hundred or two hundred wrap accounts withone hundred or two hundred investments in that
Yeah, And I don't think hemeans passive investing. I think he means,
you know, when you hear someonecome on CNBC and talk about,
hey, where should we go next? That's kind of you know, the
(30:48):
whether we're watching kind of takes place. In my opinion, right, it's
not just like you know, passiveinvesting, it's it's doing what is kind
of in is trendy now right.I agree with that, and I'm thinking
for yourself the other thing too.I mean, when you look at Berkshire's
largest holdings from Apple to American Expressto Coca Cola and forget I think Bank
(31:11):
of America's in there, but they'veheld these four or five companies. They
are the foundation of their of theirportfolio around which you know, they kind
of have a lot more flexibility,but they don't get caught up in the
in the day to day movements ofthe market, and they know these are
good companies that will do well overtime. Correct. You know, maybe
(31:32):
they won't perform like the Googles ofthe world, but they will go up.
And they have a lot of sharesof them just the dividends that they're
collecting from these some of these companiesare you know, in the hundreds of
millions of dollars, billions of dollars, so you know, although yeah,
sometimes maybe Berkshire won't perform like aGoogle or an Amazon. You know,
it won't have the downturns of iteither. It doesn't have the volatility of
(31:52):
it. They don't invest in companieswith the volatility of that. True,
and you know, and he didthey in that same area. Goes on
to say, what everybody, andthis is kind of piggybacking on what you
just said. What everybody has learnedis that everybody needs some significant participation.
And you were talking, you alludedto this in the first half of the
show. Significant participation. In thetwelve companies that do better than everybody else,
(32:15):
you need two or three of themat least, So there is so
even if you think they're overvalued,you still need them in your portfolio to
have the correlation to the market.And that's what I think, right,
And also you don't have to haveyou know, he says you need some
significant participation in the twelve This wasa a podcast podcast that he did.
(32:37):
I don't know if it was recentor not. But in the twelve companies
that do better than everybody else,you need two or three of them.
He's not saying, oh, wegot to find all twelve. Everybody would
like to find twelve. But youjust need a couple. You just need
a couple winners in your portfolio,either through an ETF mutual fund, you
know, find somebody who does welland over time, or individual securities.
(32:59):
That's what you need. You needsome ten baggers in there to offset,
you know, investments that you knowaren't going to do well, because we
started out with that, you know, adequate self criticism and agility to intelligently
reverse one's own opinion. So it'squite often that you know though they're gonna
In fact, I think Berkshire Hathawaywith Buffett Monger three or four years ago
(33:21):
invested in airlines and got out ofthem shortly thereafter because of because they they
felt like they they had made amistake. So you know, you can
add to Charlie Munger's quotes of youknow, when when you when you,
when you make a mistake, getout, you know, don't and suffer
the you'll suffer the consequences from fromyour clients. Whatever what else you got
in there, any anything you pickedup or you want going to choose another
(33:44):
one or I mean there's so manyof them, right, it takes character.
How about this one when I'm ontoo, is there? Ay?
God, it takes character to sitwith all that cash and to do nothing.
I didn't get to be where Iwas where I am by going after
mediocre opportunity. And I think that'skey too. We've I've been talking,
we've been talking to clients a lotlately, and you know, with a
(34:06):
money market paying five percent, that'syour hurdle. Now, five percent is
a pretty good rate to return overover one year, in my opinion.
So you know, now we're tryingto find companies that A we think can
do well, do better than fivepercent per year. But B I forget
what I was going to say youyeah, yeah, yeah, just that
(34:27):
I guess you can can do betterthan five percent per year. So that's
the hurdle. And you know,not oh, that's what I was gonna
say. Not only companies that cando better but five percent per year,
but that can do well in ahigher interest rate environment as well. You
know, that's important. You know. I think I think what we'll see
in the next year or two issome companies really thrive no matter what interest
rates are. And I think we'rekind of we'll get away from that.
(34:49):
Okay, companies need a low interestrate environment to be successful, we're going
to see a lot of like youknow, the cream rise to the top
or whatever that. You know.Yeah, the good companies do well even
in a relatively high interest rate environment, right, you know, right,
because they plan, they know thatthat that's those those environments are gonna they're
(35:10):
gonna happen. Yeah, you know, yes, it was beneficial to have
a lower interest rate environment, butthey didn't need the low interest rate environment
to you know, achieve earnings growth, and a lot of companies probably did.
But I will say too though,I do think that when when he
talks about you know, you talkabout having cash. Yeah, you can
sit in cash, but but Ithink Buffett and Monger, you know,
(35:31):
we're always looking for opportunities with thatcash. I know just from reading you
know, Berkshire Hathaway's quarterly reports andfines with the SEC. You know,
they do own a lot of shorterterm treasuries, but they're always on the
hunt for better investments because the problemwith shorter term treasuries or whatever the case
may be is they're gonna mature andmaybe they're paying five twenty now, but
(35:53):
they might they're not gonna mature obviouslya shorter term treasure is gonna mature.
But also they have more money marketsthat are completely available, so I didn't
want to misspeak. But if it'sa money market, you could see that
rate go from which is also tiedto the Fed funds rate to a great
extent. You could see that gofrom five twenty to four seventy to four
to twenty to four thirty. Andwhat happened at that point time in November's
(36:17):
market performance is and indication of that. As interest rates go down, the
value of stocks, stocks become moreattractive. So I think you've got to
be careful about parking money there.But abuff It's saying, look, cash
is better than mediocre opportunities. Yeah, for sure, you know, And
I think that's you know, that'syou know, that's what I would take
(36:40):
from that. Let's see here,now, this is a good new technologies.
I'm personally skeptical of some of thehype that has gone into artificial intelligence.
I think old fashioned intelligence works prettywell. That's interesting. You know,
we have obviously investments in artificial intelligence, but you know, I think
what we've done well is invest incompanies that maybe have their foot in the
(37:05):
door and artificial intelligence, but don'trely on artificial intelligence for current revenue.
Make a Microsoft like you know,yeah, Google, Microsoft, Amazon,
companies like that. So yeah,you know, I don't know. I
don't. I guess I'm not asskeptical as he is, as you know,
I think it will work out,but you know, I yeah,
(37:27):
I think I think we need tosee some revenue from artificial intelligence before we
start hopping on a lot of thesecompanies that are you know, I guess,
just riding the wave. Well,and there's there's some that are more
speculative than others. You know,there might be you know, Microsoft's trading
atternear in all time high. Theymay there might be ten twenty thirty forty
(37:47):
fifty points built into Microsoft stock pricebased upon AI, but that company is
not based upon solely, solely thefuture generation of profits through AI. And
it's so I think that's something thatI think that even Charlie Munger would differentiate
between between the two. Uh.You know another uh on learning, you
(38:10):
know, it's a couple of things. I constantly see people rise in life
who are not the smartest, sometimesnot even the most diligent, but they
are learning machines they go to bedevery night a little wiser than when they
got up, and boy does thathelp, particularly when you have a long
run ahead of you. He saidthat at the USC Law School commencement addressed
(38:30):
back in two thousand and seven,so more than fifteen years ago. And
you know, and and I thinkI think it was poppy, and I'm
sure it was poppy. He toldme that, you know, you get
up for work. Every day yougo to work, you know, you
get ready. You know you're readyfor the game, meaning that you're basically
you suit up, you're ready toplay. Every day you do your best
and nothing bad is going to comefrom all that. And you know,
(38:53):
I saw it was like some podcastsor something said that the other day.
He's like, you know, hewore an entire it was like an entire
podcast on how just showing up isninety percent of the thing is BS And
I'm like, that's not true.I agree, showing up is is,
in my opinion, the foundation ofsuccessful people. And not everyone shows up.
(39:13):
Yeah that's true, but just showingjust showing up is yeah, I
think fundamental and building better habits andbetter qualities, so you know, yeah,
yeah, yeah, I mean thinkabout think about the employment where we
live in now, if people justshowing up, you know, I think
if you just show up and doyour best, good person, you know,
(39:34):
you know, a lot of peoplecan do a lot of jobs in
my opinion. You know, youknow, yeah, you have to,
you know, if you have values, if you're enjoyable to work with,
if you show up on time,you know, that goes a long way,
you know. Buffett or Munger alsowent on to say that in that
same vein, I think that alife property lived, a life properly lived
(39:57):
is just learn, learn, learnall the time. One there's this again,
you know, the Japanese thing,but there's this I have it on
my desk. It's like this Japaneseterm shoshin and it's beginner's mind. And
it's a paradox. The more youknow about a subject, the more likely
you are to close your mind tofurther learning. And I think that's important
too, is you know, especiallyin investing, in knowing that you can
(40:20):
be wrong is extremely important in investing. And you know, as you know,
in investing, you are wrong alot, so always learning from that,
never being too confident in your predictionsis important. And yeah, this
is a this is a business oferrors, really, you know, and
we often say that being baseball fans, you know, infield there with or
(40:44):
nine or ten errors basically wins thegolden glove as the best third basement or
whatever the case may be. SoI think it's recognizing when that is an
error. And then and lots oftimes, and Jim Kramer talks about it,
you know, is is it apoor investment or is a company being
mispriced at this point in time?And I think Buffett and Munger would go
on today that that happens quite oftenwhere you know, the stock market is
(41:06):
a voting machine in the beginning andthen a weighing machine at the end.
And I think we mentioned that earlierthat you know, I think it was
Baradshah his interview with Munger. Youknow, Munger stated that, you know,
over the long term, the stockmarket is a rational weighing machine identifying
(41:28):
uh, the appropriate criteria that shouldpush the the individual security one way or
the other. So I think that'simportant. Buffer goes Buffett, or Buffett
Munger goes on to say, letme see what did he say here?
(41:49):
I thought I had seen something andnow I can't find it. Oh.
One of the main things that getstaught in modern universe to the education is
that a vast diversification is absolutely mandatoryinvesting in common stocks. That's an insane
idea. It's not that easy tohave a vast, plethora, plethora of
good opportunities that are easily identified.If you've got only three, I'd rather
(42:15):
be my best ideas instead of myworst. You know, that's a little
that's a little narrow, but youknow, I know Fagan Associates, we
try to invest in four or fivecompanies over four or five industries, so
you're looking at probably fifteen to twentyfive stocks that comprise the vast majority of
our portfolio. I think also WarrenBuffett said, you know, consolidation is
(42:35):
for getting rich, diversification is preservingwealth or something good point, And you
know most of our clients are inretirement phase, so you know, yeah,
maybe you know, I don't know, maybe I think I think about
twenty stocks. Is a good diversityis a good amount of stocks where your
portfolio can still do well, butis diversified enough to really protect you from
some downside. You know, obviouslysome their markets and downturns in the market
(43:01):
at fifteen to twenty five securities.And that's well. Also, I've been
telling people a lot, I meanyou mentioned this a month or two ago
that look, I mean, ifyou're sixty two, sixty three, you
know, and God bless you.Let's say you have a million dollars.
You know, you're not going towake up with ten million, you know,
without taking an undue amount of risk. Yeah, the flip side is
(43:22):
you don't want to wake up withzero, you know. Yeah, one
to ten million is not going togive you the pleasure in life that the
million to zero is going to giveyou the heartache and disappointment. At sixty
or sixty two years older, sixtyfive, a lot of our clients are
that age. So you know,our job is to protect make sure that
their standard of living is protected throughthe through the rest of their life.
(43:43):
And also there are state planning needsor healthcare needs and whatever you know,
so that that that is important.So I think, you know, I
would agree that lots of times there'sover diversification, but fifteen to twenty five
securities in a portfolio, you know, is about right now. If you
have we do have some like JETPI, jep Q things that you know,
equity income funds that you know protectyou from the downside while also right in
(44:06):
providing some income. So you know, but yeah, yeah, so I
would say fifteen to twenty securities isabout right. You know, you could
have a three month treasure bill,six month to twelve month treasure bill and
I would just lump them as onesecurity. Really, you know what I
mean? One? So you know, so don't look at your portfolio your
client of ord's all I got twentyeight or I got twenty seven. A
lot of these kind of flow together. They overlap a bit captal gains things,
(44:27):
right, so there's a lot ofdifferent things like that. What else
you got anything in there that livewithin your income and safe so that you
can invest learn what you need tolearn. I don't know with the last
part, but yeah, I meanlive within your income. That's an obvious
thing. You know, try toif you can. I know a lot
of Americans can't. So you knowa lot of these financial and financial advising
investment quotes that come out, youknow for the a lot of Americans that
(44:51):
it's not possible. But you know, if you have the ability to live
within your main live within your incomeand yes, it save to invest.
And you know maybe one of thelast or two or three is right above
that aeron on that same page.You don't have a lot of envy,
you don't have a lot of resentment, you don't overspend your income, you
stay cheerful in spite of your troubles, you deal with reliable people, and
you do what you're supposed to do. All these simple rules work so well
(45:15):
to make your life better. AndI think that's in four or five years
ago in an interview in CNBC,he said that, So I think that's
a big thing. I think,you know, in this business, in
business in general, and life ingeneral, it's easy to envy the people
with more, the people that seemto be doing better, the people everyone's
doing better on Facebook and Instagram.You know, I think millennials just cance.
(45:37):
They need five hundred and forty fivethousand dollars of income a year to
be happy. That's just Isn't theresome sort of benchmark? What's what's the
mouth? I mean it used tobe seventy five grand, but I mean
that's I don't know's I think it'schanged a little bit for inflation obviously,
but yeah, you know, Ithink social media makes it hard to be
happy. I worry about that forJude a lot. You know, yeah,
yeah, at a year and ahalf, you've just missed social media.
(45:59):
Really didn't get social media to likeI was in my in college.
So you know, the people onsocial media are getting younger and younger,
and it's just yeah, just aI don't know what it will do to
the mental health of great Now.Now you're worried about something about you.
Now that means I'm gonna not sleep. Thanks a lot. The kid's a
great kid. He's a beautiful kid. As far as his personality, he's
(46:22):
he's a he's a light of yourlife and Lauren's and mine and moms.
I'm sure everybody so, but thatis true. You know, he says
on big tech regulation, I wouldnot break them up. They've got their
little niches. Microsoft maybe has anice niche, but it doesn't own the
earth. I like these high techcompanies. I think capitalism should expect to
get a few big winners by accident, and I think that I think that.
(46:44):
You know, now, you couldsay that's self serving, but uh,
there's a lot of talk now especiallywith the uh the current FDC chair
woman Khan I think is Lena Khanis her name in the Democratic administ trying
to, you know, go aftersome of these big companies. I think
they're making a mistake because they're notjust competing against other companies in the US.
(47:06):
They're competing against global the global economy. And we may we may think,
well, we're more liberal then Europe, and that may be the case
because they're very tight with their withtheir regulation. But you're also competing against
you know, up and coming economieslike China and India who're gonna wet you
know, especially India let their winnersrun. China not so much. It
seems like, you know what else, give me, give me one final
(47:29):
one air that I can that Ican take and and and we can we
can. Let let our listeners moveon to the Victorian. Both the power
of compounding interest and the difficulty ofgetting it is the heart and soul of
understanding a lot of things I don'tknow well, compounding our savage into the
market. Invest what you can,it'll do well over time. And I
(47:51):
think that's important. Chart your ownpath, find your own journey. And
I think one thing about Charlie Mungerif if if I had to say,
you know, absent a description ofas an investment person, a man with
impeccable integrity and the yeah, andthat's important in financial business. You know,
if you ever go for a financialadvisor interview in ra A, you
(48:12):
know, make sure that you knowyou you can trust that as a person
they seem like a person of integrity, because you know, that's that's a
huge percentage of this business is justworking with someone who you can trust and
you know it's a fiduciary. True. That'll just about do it. If
you want to copy the article,email me at Faganassociates dot com. Check
us out on the web at FaganAssociates dot com. Colls five one,
(48:36):
eight, two, seven, nine, ten forty four. Have a good day.
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