Common Myths Busted with Tom Plumb of Wisconsin Capital Management

Episode Transcript

Speaker 1 (00:03):
Thirtickden Wi b A and Ask the Experts, joined this
morning by chartered financial analyst Tom Plumb. Tom comes to
us from Wisconsin Capital Management their website whizcap dot com.
That's Wi scap dot com again. You can learn more
about Tom and Wisconsin Capital Management all on their website
whizcap dot com. Tom, how you doing this morning?

Speaker 2 (00:26):
We're doing, Greg Sean. It's a beautiful day here in Wisconsin.

Speaker 1 (00:30):
It sure is. And what a day we had yesterday.
Good good numbers yesterday, and of course always use some
more of that good stuff. And this week we're gonna
kind of pick up. We started a conversation last week
about things like acid allocation, timeframe, volatility versus risk and that,
and we're going to talk about something I know you've
mentioned on the program before. This week, we're going to

(00:51):
talk about continuing along those lines. We're gonna talk about compounding.
But before we get to this week's topic, real quick,
let's talk a little bit about Wisconsin Capital Management. Talk
a little bit about you, talk about your son, Nate,
and exactly how Wisconsin Capital Management came to be well.

Speaker 2 (01:05):
Wiscon's Capital Management was started in the nineteen eighties by
myself and a couple of partners, and after a few
iterations about the last more than a dozen years, Nathan
Plumb joined me as a full partner and we're working
to provide portfolio management, investment analysis and how that fits

(01:27):
into personal planning like estate planning, tax planning, and how
you can apply expertise in the investment markets to your
own personal needs.

Speaker 1 (01:38):
What about, of course, you are a CFA Chartered Financial Analyst.
For folks that aren't familiar with that designation, let's talk
a little bit about what that is and what makes
it so unique.

Speaker 2 (01:48):
Well, the CFA started a long time ago, and it's
a professional designation where you have to show that you
have a certain number of years that you've operated and
show that you've hatch certain ethical and professional standards, and
then you take tests each year for three separate years

(02:12):
different aspects of investment analysis. And assuming that you lead
all those requirements and continue to mean that you're able
to keep this designation of CFA Chartered Financial Analysts, we
mean that you have analyze investments and their merits and
how to apply the individuals.

Speaker 1 (02:32):
Tom do you think foundations Do you think that there's
a lot of confusion sometimes for the I know that
over the years that there's been attempts to maybe make
it more you know. I remember like with credit cards,
there's always even to this day, they're still very confusing
to understand the terms. But there used to be Remember
like the first credit card I ever got in my life,
there was like fifteen pages of stuff that you know,

(02:53):
the average person we'd never we'd never can be able
to fully understand or consume. I'm assuming there's even probably
some lawyers that read that stuff. We're like, wait, what
the heck is going on in the financial world. It
seems like they've tried to simplify that. Do you think
they that there's still some some confusion on that side
as well, Tom Well.

Speaker 2 (03:10):
I certainly think there is. There is a certified financial planners,
which are people who again look at investments basically from
an aspect of how they historically have acted, and then
they'll try to help you with your financial planning, what
will happen to your investments over time, and whether or

(03:31):
not you're saving to meet your goals. An analyst actually
looks beyond what the actual what you know. We actually
look into what makes those numbers and how they apply individuals.
So a certified financial planner wouldn't necessarily be certified to

(03:54):
question some of the assumptions there. Nathan and I like
to look at those assumptions are there, what are the
environment that pay those things work, and how that environment's changed,
And we'd like to look at the underlying investments to
see if they make sense. And we'll contain to make
sense in that crazy changing environment.

Speaker 1 (04:16):
You know, I always I always comment about other aspects
of life, Like I always say, like, don't necessarily take
a brilliant person to figure out if you're on a
plane and it's got trouble, you just go, hey, there's
something wrong with this plane. Takes a real specialized person
to know how to how to address that. You know,
for folks that look at pilots and don't understand what
their skill is, they're able to very quickly figure out
and assess and really write the ship. And it sounds

(04:39):
to me like a chartered financial analyst is similar to
that in that there's there's this area of expertise that
it's more than just saying hey, something's happening. It's it's
looking deeper to saying something's happening. This is why and
this is how to respond.

Speaker 2 (04:53):
That's what we're certainly trying to do.

Speaker 1 (04:55):
Sean talking this morning with chartered financial analyst Tom Plumb
with Wisconsin Capital Man. So this week we're going to
be doing a bit of a myth Busters edition, and Tom,
let's start off with a little quote from Winston Churchill
that you that you shared with me. Let's talk a
little bit about that quote and why it's why it's
pertinent today's to today's conversation.

Speaker 2 (05:15):
Winston Churchill once said, however beautiful the strategy, you should
occasionally look at the results. And what that means to
us in the financial planning and financial investing markets is
that there are a lot of different theories. There are
a lot of different cycles in the investment markets, but
how they're applied, how they're working on your behalf, that

(05:36):
can be a real challenge to look at and try
to determine how they'll be in the future. So what
we found is that a lot of times there's general
rules of thumb, if you will, and they are being
used to give people advice or to tell people how
they should invest their funds. And sometimes when you look

(05:58):
beyond what this historical numbers are or what made those
historical numbers, and take them apart, you can come up
with a whole different solution or a whole different scenario.

Speaker 1 (06:11):
Tug this morning with Oh, go ahead, and I dont
mean to interrupt their Tom talking this morning with Tom
Plumb of Wisconsin Capital Management online wizcap dot com. That's
wizcap dot com, wyscap dot com. Of course, Tom is
a chartered financial analyst with Wisconsin Capital Management. So as
we mentioned that last week, of course we talked about
acid allocation, timeframe, volatility versus risk, and I know we've

(06:33):
talked in the past a little bit about about compounding.
What are we going to address this week, Tom.

Speaker 2 (06:39):
We're going to talk about a couple of the myths
out there that actually can prevent people from reaching their
financial goals. One of them is a concerning diversification and
how that can help you or how it may not
help you. And I think there's a couple myths right
along that subject that I think are pretty One thing.

(07:02):
A lot of people know the Dow Jones industrial average.
People more often talk about the S and P five
hundred as a real gauge of what's happening in the
stock market. In the United States. But when you look
at these five hundred companies, often are being told that
if you invest in some type of index fund or ETF,

(07:24):
you could be diversified. But again, looking beyond those numbers,
the top ten companies in the S and P five
hundred are almost forty percent of total. The top twenty
percent are over it'suly. The top twenty holdings are over
almost fifty percent of the holdings. But that means is

(07:46):
that these twenty stocks have more influence on what the
S and P five hundred does day to day, year
to year than the rest of the four hundred in
aging stock. So you're really not diversified when you look
at do I diversify by putting my money into an

(08:07):
index product the S and P five hundred. The top
ten companies in that who have the greatest influence on
the direction and the amplitude of the S and P
five hundred. Eight of those are technology companies. They may
be wonderful companies, and there's great reason why you want
to invest in them, but diversification probably is not the

(08:31):
reason because they're going to act just some of the
similar inputs that are going on in the economy that
are affecting overall the technology sectors of the market.

Speaker 1 (08:44):
Tom is for a lay person, I guess I look
at like the S and P five hundred, I think
it's fascinating because I think a lot of times I
look at it, even myself, and I think others probably
look at it and say, well, it's a little bit more.
Maybe it's more balanced in like sect sector wide and
different different sectors, different weightings. And when you start to
point out things like you know, some of these, you

(09:05):
know you always think of like the rising tide lifting
all boats. Well, it seems like the tide is in
the SP five hundred only handful of a handful of
different different stocks that are very heavily heavily pulling the
rest the rest along with them.

Speaker 2 (09:20):
Correct, one handful is very concentrated, and that's how that's
the biggest effect on the S and P five hundred
and the returns. So the technology sector has certainly been well,
and because it's done so well, that means that it's
grown as a percentage, and then now it's just sort

(09:40):
of it's an incredible amount of late waitings. They've actually
had to read assigning companies because they were getting into
way too much involved in their technology sectors. So companies
like Lisa and MasterCard, which choose to be considered technology
or uh technological finance companies, they've moved those out of

(10:04):
that category. They've moved companies out because there's such a
high concentration that the S and P five hundred could
no longer be considered a diversified index.

Speaker 1 (10:17):
Talking this morning with Tom Plump certified chartered financial analysts
of course with Wisconsin Capital Management Online wizcap dot com,
that's wi scap dot com. Working through some bit of
a MythBusters edition of the program this week, Tom, what
about things like smaller companies and some of those those
value plays and value companies out there, also international? I

(10:38):
think sometimes people look to those what's the what's the
myth in that in that area?

Speaker 2 (10:42):
Well, well, because the stock market, the S and P
five hundred has become so weighted by technology and growth,
a lot of financial planners tell people, well, we should
diversify by investing in those different sectors. But value companies,
international stocks, stocks, and they look at them and say

(11:02):
they all enhance your return and reduce your volatility. But
when you again go through those numbers, you'll see that
small cap stocks did great, and they added to this
whole myth in the nineteen seventies. Any other time, if
you take the last one hundred years and take out
the nineteen seventies, they did not add to your return,

(11:24):
and they actually added to your volatility. Same thing with
international stocks. When you look at the nineteen nineties, they
did extremely well compared to the US market, and because
of that, people think, well, then I can invest in
international stocks. They'll diversify me. But when you listen to
the news channels in the morning, the first thing they

(11:46):
say is, in response to what happened in the US yesterday,
Asian markets did this, European markets did that. So they
are all interconnected now, and they do not reduce your
value activity, and in fact, they've actually reduced your great
to return. And certainly the other view that some people

(12:08):
have is value companies. They talk about the growth stots
like that, they have my first Saft, even Apple, Teslo
name those companies that they've done so well that we'll
get a reversion to the mean and people will be
able to buy companies that are at cheaper prices. But
those companies are cheaper prices for reasons. Their values if

(12:32):
that value goes up, but they're not necessarily values if
the valuation stays low and they don't grow.

Speaker 1 (12:41):
Talking this morning with Tom Plumb. Of course, Tom comes
to us from Wisconsin Capital Management the website wizcap dot com.
I hope you get a chance to check that out
to day if you haven't been there before. Great day
to learn more about Tom and the team at Wisconsin
Capital Management. Also great data start that conversation. We are talking,
you know, things like portfolio management and other services offer
to you from and his team. Again, you can learn

(13:01):
more online whiz cap dot com. That's wis cap dot com.
Got a few more myths, We're gonna do some more
mythbusting with Tom. We will do that next. In the meantime,
head on over the website wiscap dot com. That's wiscap
dot com. More of Ask thee Experts with Wisconsin Capital
Management comes your way next right here on thirteen ten
Wi B A. Thirteen ten Wi b A and Ask

(13:26):
the Experts. Joined this morning by Tom Plum. Of course,
Tom comes to us from Wisconsin Capital Management. Online whizcap
dot com. That's wis cap dot com. Great place to
get to know Tom and the team at Wisconsin Capital Management.
Of course, also a great opportunity there if you're looking
to set up an appointment, start that conversation. Great day
to do just that. Again. The website wizcap dot com.

(13:48):
That's wiscap dot com a little bit of a MythBusters
edition this week talking about some of the myths out
there that are really and Tom expressed very well in
that earlier segment, really holding people back. Sometimes in Tom time,
we always hear about time and time isn't a very
important tool when it comes to investing, but it's not
the be all and end all. Let's talk about about

(14:09):
that myth.

Speaker 2 (14:11):
Well, you know, Sean, when we talk about time and
great return, that that really makes that eighth wonder of
the world. A lot of times advisors are other people
tell you that you can't select the most lucrative investment,
so you should really think about time and time is

(14:32):
really important. We often tell our clients the best time
to start investing is yesterday's second as time is today,
So it's really important that you start to let that
compounding that time work for you. But the other really
significant point is your way to return and your rate
to return is going to be based on the types

(14:54):
of investments you have and then the individual investments that
you have. So when we look at the difference between
for example, if you started investing today for the next
thirty years for your work environment, and you put one
hundred dollars a month in over thirty years, you'd have

(15:17):
about thirty seven hundred dollars that you invest in, and
the five percent compound rate to return, you'd have well
over twice that amount in your accout at the end
of that thirty years. But if you can skew the
investments to make sure that you're participating in better returning

(15:38):
assets and you could get a seven and a half
percent return, for example, you'd end up having another four
times what your original cash investments have been. So it's
very important that we structure investments that allow people to
participate in the best sectors, and then, as we've said

(16:00):
last week, make sure that those sectors that you can't
take that volatility like money you're going to need in
the next year or the next few years, reduce the
amount that you exposed to that high, higher returning investment
that actually has more volatility, and allow them that return

(16:20):
to CoCom for.

Speaker 1 (16:22):
You, it's pretty amazing. And you when you when you
think about just you know, small tweaks and the you know,
the ultimate when it comes to proper opportunities for the
greater returns. And as we talked this morning with Tom
Plum with Wisconsin Capital Management, probably very eye opening, very
ear opening to you this morning, some really great information
from Tom. Don't forget if you ever missed part of
the program, you can always listen back on the website

(16:43):
whizcap dot com. That's w I s c ap dot com.
Also available on all the popular podcast platforms including iHeartRadio, iTunes,
h and the like. You can find them there. Great
data Head on over the website wizcap dot com. That's
w I s c ap dot com and Tom. Before
we wrap this week, myth number four. This is a
biggie and it has to do with with people in

(17:05):
the in the financial advisor industry and a little bit
of understanding about their role and what they are able
to do and what they may not be able to do.

Speaker 2 (17:13):
Yeay Jean. One of the things that we found is
that a lot of financial advisors look at investment performance
as a poor letter word. You know, it's very important
that you look at how your funds have done. And
though there's a saying that we all have to put
into everything that says past performance does not indicate what

(17:35):
the future performance will be. Past performance is a learning tool.
It allows you to look at what things you did right,
what things you did wrong. It's one of the reasons
why Napo Plumb and I have our own proprietary nutral
funds so that people can see how their returns have
been compared to indexes that were available or how other

(17:58):
professional investors management firms navigated that time. So we have
one fund that does use stops and bonds and it's
meant to have a balance to the those assets and
that type of risk. But we constantly are reviewing what
we did right, what we did wrong in the environment

(18:19):
we were at, and what the future environment is and
how we should react and how we should invest in
anticipation of those trends, those valuations, those connections between the returns.

Speaker 1 (18:37):
Tom as we as we wrap up this week, any recommendations,
I mean for folks that are that are listening to
the programs saying, you know, loving what they're hearing and
interested in learning more, what steps can they be taking,
What should they be doing as far as as far
as taking a look at at what they're doing and
what could be done better.

Speaker 2 (18:55):
Well, I think that people should definitely take a look
at and objectively look at how they're doing. See if
they're not only in court meeting their plan as somebody
has written for you. But how are your investments doing?
Are they doing what you're expected of to are they
doing what the market allowed you to do? As there's

(19:15):
a lot of literature that tells us that most people
investing in the markets don't match the performance of the
availability of the returns in those different sectors. So you
really need to look at is your portfolio manager, is
your financial planner adding to value? Are they allowing you

(19:36):
to participate in the types of investments that makes sense
for you? And you may find that your accountant or
even certainly someone like our firm will take a look
at your portfolio, tell you how you're structured, what those
goals are, and how to match up with your returns,

(19:57):
and then looking at the overall of how was the execution.
Are you adding value? Are you participating in the markets
you should be participating, and are you avoiding some of
the volatility that you want to avoid? Is your portfolio
structure correctly? Certainly at Wiscon's Capital Management, you would do

(20:19):
that for no charge to look at someone's investment portfolio
and give them some what we think good direction as
to how that portfolio should be structured.

Speaker 1 (20:31):
That's great talk about that portfolio review no charge. What
a great opportunity that is for folks. You've got questions,
you want, of course, have Tom and the team take
a look at your portfolio, get a review. All you
got to do is head on over the website and
get all the information on how to set up an appointment.
That's wiz cap dot com. That's wiscap dot com. Whiz
cap dot com. Of course, Tom comes to us from

(20:51):
Wisconsin Capital Management. It's chartered financial analyst with Wisconsin Capital Management. Again,
that website wiz cap dot com. Tom, it's great chatting
with you as always. You have a fantastic day and
we'll talk real soon.

Speaker 2 (21:03):
Yeah, we'll talk next week about some of the implications
of the tax laws that are affecting people differently than
they have prior years.

Speaker 1 (21:11):
Oh, that's gonna be. That'll be an exciting program for sure.
In the meantime, if you haven't been to the website,
Head on over to whizcap dot com. News comes your
way next right here in thirteen ten, Wiba