Paul and Evan discuss the holiday season and how most investors have a large U.S. rally on their Christmas wish list this year. Listen along to hear the two advisors share why putting your hope in the industry and large U.S. companies usually leads to watching markets and having your emotions pulled around by things you can’t control. Later in the episode, Paul brings up how loyalty used to be meaningful to your insurance company and why it is important to occasionally shop around to see if there is a better deal.
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Paul Winkler: All right, welcome. This is “The Investor Coaching Show,” pre-Christmas Investor Coaching Show.
Evan Barnard: Yes.
PW: We got Christmas bumper stuff?
EB: Oh, good.
PW: I’m asking.
EB: Oh.
PW: I’m asking. I don’t know. I’m not in charge of that. I only look like I’m running anything.
EB: In the land of the blind, the one-eyed man is king.
PW: That’s right, baby. And I am totally one-eyed king.
Hopefully, we do. We’ll see. We’ll see how it goes.
Yeah. Fun, fun, fun stuff. Man, how are you doing?
Evan Barnard here with me. We hadn’t really talked too much before we started. We just kind of get in here and sit in front of the mics and go.
EB: I’m just crashing the party.
PW: That’s right. I know. I love it.
EB: Yeah. Actually, it’s going well.
PW: Do you, like, Christmas shop, or does Cindy do all that stuff?
EB: That would be a Cindy task.
PW: There you go.
EB: I just write checks. Literally.
PW: Man after my own heart.
EB: Well, of course, both boys are married and so forth. And anymore, it’s just easier to send them a check for Christmas and they can get what they want ahead of time, whether they use it for a trip or use it for something else. And then that’s my game plan. And then Cindy still takes about three months and finds little things to put in a box and mail out to Washington or Florida or wherever they’re at.
PW: Oh, yeah, I suppose that’s practical. All right. I guess we get practical as we get older. So what?
EB: Yeah.
PW: Oh, man. Yeah. So fun. Just fun stuff.
PW: I enjoy this time of year. I enjoy the drives home at night and watching how everybody decorates their houses.
EB: It’s interesting you bring that up. And it’s a little bit like music. And you being a musician, hopefully this will resonate, but music does tend to reflect the economy. And I think Christmas lights have taken on that characteristic this year, because we live out in the sticks.
PW: Oh, that’s interesting.
EB: A lot of people have decorated this year. I mean, it’s significantly more than normal. It’s really been fun to see.
PW: Well, I saw something about Christmas music making a huge comeback.
EB: Okay. Yeah. Makes sense.
PW: I guess people are feeling pretty decent. It was on Channel 5 this week, and Ben goes, “Is it just me or does it feel like everything has been up and down all year long?” I said, “It depends on what you listen to.”
EB: Yes. Yeah.
PW: There have been a lot of really positive things that have happened this year. And I said, “If you look at what has caused their productivity increases.” And I said, “You look at oil prices, I saw somebody had made a post filling up their tank and going, ‘Merry Christmas,’ to me. ”
And I’m just excited about what’s been happening there. And I think just jobs, data, everybody said AI was just going to kill jobs. And it’s just been flat, which is actually okay when you have a lot of people that are worried about losing their jobs, but there hasn’t been that necessarily as much as it’s just been flat.
You don’t have job losses. It’s just new jobs that are coming on are displacing anything that might be going away, but that has been fairly decent data coming through there. Inflation data’s been coming through fairly decent, which is a big deal.
EB: It’s under control, that’s maybe an overstatement, but certainly much tamer than it was a couple, three years ago. And just thinking about employment.
And I don’t want to swerve into the political side of the fence here, but they talk about investing, so we can talk about economics. But an interesting stat that I heard this week, and I think it was on CNBC, was that American jobs have increased by three and a half million people, none of which were government public sector.
PW: Yeah. I have heard that.
EB: And as a function, I think of some of the self-deportation and so forth, the closing of the border, more Americans are working than had been in prior years. And to me, that was really encouraging.
PW: So what Ben was asking about, he said, “Well, it seems like everything’s been up and down.” And I said, “Well, yeah, from a standpoint, there are winners and losers and everything.”
EB: Sure.
PW:
But from a market standpoint, if you look at large U.S. companies from when I was doing that interview, it was up 14%, the S&P was. And I said, “Other areas of the market are up much greater that you wouldn’t think about.” And we talked about international markets being up 40%.
EB: Still.
PW: Yeah. I mean, it is. It’s huge. So those market segments.
And my wife sent me something this morning, Deb sent me something saying that emerging markets have been rocking. And I was like, I was so childish.
EB: Well, shifting conversations …
PW: I said, “Man, most people don’t own that stuff.” I was just so childish. That was very un-Christmas-like.
But seriously, I mean, it’s just the whole thing about diversification. I have something on that today, as a matter of fact, and I’ll talk a little bit about it in a second. But it was just that whole idea of I could scream at the top of my lungs, “Diversify, diversify, diversify.”
And people just go, “Eh, I have to be diversified. I’m with a huge mutual fund company and they wouldn’t possibly not be following the rules of investing.”
And I’m like, “No, they aren’t. How do I get you to wake up and hear this?” But they aren’t.
But there was an article, it was titled, “Do You Really Know What’s Inside Your 401(k)?” So I’ll talk a little bit about that.
But there was another article that I thought was interesting, which was with the S&P 500. And it was about certain companies with a tech rally going on, the tech rally has not been helping, or the lack of tech rally, I should say, the tech backing down has made it just darn near impossible for American investors who are very, very focused on S&P 500 type companies to be doing well. And they’ve been really struggling as a result of that.
PW: “As the stock market rally broadens,” was the title of the article, this is from MarketWatch, “it’s tough for the S&P 500 to keep advancing without tech.” And they were walking through … it was a really, really interesting chart.
I’ll try to do my best to explain it to you out there listening what it looks like, but it was communication services, healthcare, both off really, really good. Consumer discretionary, financials, not quite as much, but not bad. Consumer staples, and then it was showing the S&P over this period, it was since October 8th. For some reason, they chose October 8th, because this is when this turnaround started happening.
Then, in the second half of the chart, you start to see negative returns. So you see 6.2% return for communication services, 6.2 for healthcare, consumer discretionary is 3% return, and financial is 1.7, and staples 1.6. And the S&P is up 0.3.
Then you go, “Well, why is it only up 0.3?” It’s because materials are down, negative. Industrial’s down, negative. Energy down, negative.
Real estate, down, negative 2.3, technology down 3.3, utilities down 5.4. So it’s saying literally all of this stuff that was super, super, and technology in particular, down 3.3%. Significantly, a big part of the S&P 500 has just been … it’s taken it on the chin.
So they basically found that if you look at what’s been happening, it illustrates how hard it is for the market to make headway without technology participating because of that. And this guy, this one person they’re interviewing, he says, “Well, we push back on bubble analogies. We push back on that between the current AI boom and the dotcom era in the late 1990s that ended with a bust.”
Oh, excuse me, it’s a lady. Marci McGregor, head of the chief investment office’s portfolio strategy at Bank of America’s private bank and Merrill Lynch Wealth Management, in a phone interview.
“And of course, we’re pushing back on this idea.” They’re saying that with the AI boom, the market’s really pushing back at time, showing some degree of skepticism to McGregor’s thinking, making the current enthusiasm distinct from the euphoria.
This is different now than what we were seeing in the late ’90s. And there may be some differences, no question. History repeats, but it doesn’t repeat, but it rhymes, right?
EB: Yeah.
PW: Then they had this other person from State Street who says, “We don’t think it’s a bubble.” Even if it maybe had a couple hiccups along the way. They said in a phone interview, “We have high conviction in technology.”
Now, Evan, if somebody has high conviction, what does that tell me about their investing strategy? What are they doing?
EB:
PW: And feeling good about it, though, because they have high conviction that it’s the right thing to do.
EB: “I’m confident that I’m right in predicting the future.”
PW: Right, exactly. And that’s what hit me.
PW: It says, “The bull market’s been running for three years now,” and this reminded me of something that Ben said on the Channel 5 thing. He said, “That’s been running for three years. It just feels like it ought to back off and it ought to go down.”
And I said, “Well, you’ve got a one-in-four shot that you’re right. Yeah. That’s the way it works. You’ve got a one-in-four shot that you’re right that it’s over and then the markets go down.”
So technically it can. But at any point in time, that’s all you’ve got: You have a one-in-four shot that markets go down. You’ve got a three-in-four shot that they go up, and I want to be on the side of higher percentages.
EB: Yeah. Let the math work. I mean, casinos don’t build buildings because they don’t understand probability.
PW: No, that’s exactly right. And so you hear these investment managers — and I’ve gotten to the point where Evan and I have talked about, “Do I mention the name of this company?” You and I have said that before.
EB: Yes. Yeah.
PW: And I’m at the point where, yeah, I’m going to mention it because people believe. And I remember, I’ll never forget when you did “Navigating the Fog of Investing,” remember that theater?
EB: Yeah.
PW: That you actually had that in.
EB: Oh, down in Franklin.
PW: Yeah. It was fairly close to when you first got to Tennessee.
EB: Yeah. It was ’09 or ’10. Yeah.
PW: And I’ll never forget, when that movie was over, and there were a lot of people that had no experience working with us or hadn’t actually physically talked to us or had us look at their investment portfolio. And I was telling a friend of mine just now, I said, “We physically have to look at a portfolio. And here’s why I have to look at it, because you will not believe the stuff that we’re talking about is happening to you.”
And I will never forget, there was a lady at the end of the documentary, and I walked up to her, I talked to her afterward. And she said to me, she goes, “Yeah, wow. Yeah, that was crazy stuff.”
EB: Hopefully, she wasn’t a client yet.
PW: No, she wasn’t. No, I didn’t yell at her. I’m very nice that way.
EB: No, I meant that her advisor wasn’t doing that.
PW: Oh, that wasn’t you.
EB: That was me.
PW: No, it wasn’t you. No, it was not. That’s hilarious.
EB: We ought to play that again sometime.
PW: Yeah.
EB: We have to do that.
PW: Navigating?
EB: Yeah.
PW: It is really good.
EB: It’s a little bit dated.
PW: And the principles.
EB: But so is Christmas service and Easter service. I mean, you know how it turns out, but it’s still important to be reminded of these things.
PW: It’s really funny you say that it’s dated. And I think back to writing “Above the Maddening Crowd.”
EB: Yeah. Yeah. That would be Paul’s first book, for you new listeners.
PW: And writing it and having just the bad fortune of finishing it using the year-end 2007 data.
EB: Yeah.
PW: Just before the biggest market downturn since the ’70s, maybe? I think maybe we could say —
EB: Yes.
PW: Yeah.
EB: The ’70s or ’29, either one.
PW: Yeah, probably ’29. You’re probably right. It was probably back in the Depression. I mean, we had the biggest market downturn.
I’ve re-written it several times to re-update the data, not really a total rewrite, but a decent one. But the beauty is, I just never had to redo the principles. See your point about navigating the fog of investing and it being very current as far as what’s in there.
EB: Same stuff goes on.
PW: But this is it. And this is kind of the way I want to end the segment, just talking about what is it? Why is it that this stuff doesn’t have to change?
And it’s based on the idea of market efficiency, which has been a big deal on this show from day one. Adam Smith, “The Wealth of Nations,” wrote a book about how markets work.
There were some people that were smart enough to take what he wrote and say, “Hey, you know what? Maybe we ought to build an economy based on this idea. Maybe we ought to build a nation.”
And that was “The Wealth of Nations.” What is it that we could do that would make America a success story? Because this was written in the 1700s, 1790s. What could we do?
Here’s what we could do: We could have the government back out. We could have the government exert less control. We could have the government not set prices.
We could have the government not try to determine what products that the public might demand. We could do something that would be different than anything that has ever been done before.
We could let the market set prices as far as what they should be paying for goods and services. We could have this thing called the invisible hand, he called it.
That actually, it’s just the sum total of all of our supply of labor, the demand for labor, the demand for products and services, the tastes of people that are buying things. We could let that dictate what prices should be rather than some boardroom of really smart people that tell us that, “Hey, you know what? We have strong conviction.”
EB: “Buggy Bucks are the wave of the future.”
PW: Yeah. “We could do that and we can build an economy better than anybody has ever seen in the history of earth.” And by George, he was right.
EB: They did it.
PW: This is why when you listen to the academics that we quote here on this show, they will tell you that communism, socialism, despite what your liberal friends say, that socialism is what they use in Sweden, Norway, and Denmark, it is not. They will tell you adamantly that socialism is not what they’re practicing in those countries. No, it is what they tried in the ’70s and ’80s, much to the chagrin of the populace, because they suffered greatly.
But what they did was they actually exercised capitalism. But anyway, they said the academics would say, “Socialism, communism, we see it in North Korea, we see it in Cuba, and we see it in active management of investment portfolios.”
And the problem that most investors, the problem that they have is they don’t realize. It’s like if you grew up in Russia and you grew up walking into grocery stores that were empty all the time.
EB: One kind of bread.
PW: That was normal.
EB: If they had it. Right.
PW: That was normal.
EB: Yeah.
PW: And you come to America and you go, “I love it. I love America.” What’s that guy? I forget the other Russian guy.
EB: Smirnoff.
PW: Yeah, Smirnoff, right? What did he say?
EB: “What a country.”
PW: “What a country.” Thank you. Thank you. Totally, thank you.
The memory department here. Evan is my memory department. So yeah, “What a country.” If you never came to America to see our grocery stores, you wouldn’t know that that’s what you should experience.
EB: Correct.
PW:
And I think that that is the problem, and that’s what this show is all about.
EB: Yeah.
PW: All right. They’re hooking us up here, Evan. Let’s hold, guys. I’m with them more traditional.
EB: I’m picturing the scene in “Home Alone” where he’s dancing to this song —
PW: Oh, is he?
EB: — to keep the crooks from coming in the house or something. Oh, man.
PW: I hadn’t seen that movie in forever. And yes, I did see it. Aren’t you impressed?
EB: I am. That’s kind of a goofy movie. Launched a career.
PW: I guess. For who?
EB: Macaulay Culkin.
PW: Oh, is that what launched his career?
EB: I think so.
PW: Okay. All right.
EB: His brother was in that.
PW: I’ll believe you.
EB: For whatever reason, that never took off.
PW: Insurance rates should fall next year. People ought to be happy about that. There haven’t been all of the disasters that we’ve had in previous years.
Not as many disasters as we’ve had in previous years. I guess wildfires are maybe down a little bit, severe thunderstorms, maybe down a little bit.
EB: Hurricanes down.
PW: Yeah, they were worried. They were worried that they were going to lower the rates too much.
EB: I don’t think you can worry about that.
PW: I think you know, isn’t that funny about the media? It’s like, “Oh my gosh, something good is happening. I’m worried that they’re going to undercharge.”
EB: They’re going to swamp our phone lines saying, “The rates are too low.”
PW: I know.
EB: “Please raise my rates.”
PW: That is just so the media. That’s just the research.
EB: It is. Fear sells.
PW: Yeah. What’s the research on media reporting? If it’s really positive information, nobody engages.
EB: Right.
PW: If it’s negative information, you got a great engagement. And if it’s in the middle information, there’s just in the middle engagement.
EB: Yeah.
PW: But it’s just so funny how we as humans just go for the negative. And it’s like, why do we do that? Well, I’ve got something I can protect myself against.
So reporting on negative things gets our attention. If it’s positive, I don’t have to do anything. All’s good. It’s just how this stuff works.
PW: But it’s the reinsurance that they’re actually looking at.
And I thought it was just interesting, they said car insurers have been aiming at lower rates to grab market share. And it just reminded me so much of a conversation, Evan, that I had with a car insurance guy, an exec.
I came in here, and I was working with him on his financial planning stuff. And I looked at him, I said, “So you’re an actuary that does this type of work with car insurance and homeowner’s insurance.” And I said, “How do you guys set prices?”
And I thought it was going to be a really nerdy conversation. And he goes, “We just look at the competition. We just charge a little bit less when we want to build new business. We just look at what they’re charging and we just undercut them.”
I said, “You don’t look at claims?” “No, no.”
EB: Was he serious?
PW: He was serious. I thought it was the funniest conversation.
And it’s just like, “Yeah, it is.” And the reason I’m bringing this up is that if you have auto insurance or homeowners insurance, which you probably do if you are a driver or if you own a home or if you’ve got renters insurance.
EB: Follow the law, anything crazy.
PW: If you don’t want to just throw caution to the wind. It’s interesting because in the old days, when I sold insurance — in the deep, dark days, as I kiddingly call them — 30 years ago, it behooved you to stay with the same insurance company for a long period of time because you got benefits for loyalty.
And the reality of it is that, and I got this from Consumer Reports themselves, they actually did a ton of research on this, but they said, “Those days are gone.” And I thought that was interesting.
EB: I agree. I agree. I mean, my agent even, this was now years ago and he had switched companies.
EB: Some firms try to price to buy the business, and then they just raise your rates fairly quickly. So you really do have to shop it every few years. And you want to make sure you’re comparing apples to apples, right? You don’t want to change coverage necessarily.
PW: Very, very true. And for the average person to do that, it’s hard to do, but there are certain things. As a matter of fact, in my book on financial planning, I talk about a little of the stuff that I think that you ought to be looking for, liability insurance and liability limits and things like that. But yeah.
EB: Well, talking about rates and paying attention to rates, the fact that you can’t just assume you’re going to stay with the company long term. I was speaking with someone last week, a former service member, as I am, and we were talking about USAA.
PW: Yes.
EB: And we were talking about the fact that their insurance rates have just become way less competitive than they used to be in the past.
PW: Aren’t they still doing dividends for you, though?
EB: They are.
PW: Okay. All right. And even after dividends, they’re still less competitive?
EB: Yeah.
PW: Oh, interesting.
EB: And we were talking about it. And so some of it, I think, has to do with the risk pool, which could affect other companies too. But originally, USAA was for officers only.
PW: That’s right.
EB: And then added enlisted and then added families and so forth.
PW: Yeah, you have moral hazards, is what they call it.
EB: They’re now the same group of people that’s got State Farm or Geico or Progressive or whoever.
PW: Oh, that’s so interesting. Yeah, because so often we talk about your credit score and people say, “Well, a credit score doesn’t matter because I don’t borrow any money.”
And I’m like, “No, your insurance rates can be based on it because the insurance companies don’t have a whole lot to go on for character.” Does this person, do they pay their bills on time? Are they somebody that’s likely to defraud an insurance company?
So, therefore, the insurance company will look at your credit score and say, “Okay, if this person has a high credit score, they have character in one area. They’ll probably have character in another area.”
And what you’re saying, which makes total sense to me, Evan, is that if you have an officer, to get to that level, you probably are a person of fairly … This isn’t universal because you’ll have people that are of low character.
EB: Irresponsible.
PW: Irresponsible people that reach those levels in the military.
And now that the masses are more in these companies, you don’t have the advantages anymore. That makes a whole lot of sense to me.
I remember when I sold auto insurance and homeowners insurance. Now my parents are both gone, so I can tell this story. But what happened was I was trying to get Dad. I was working for a huge insurance company.
I said, “Dad, I want to quote your auto insurance and your homeowner’s insurance.” He goes, “Okay, Paul. Yeah, go ahead.”
And so I quoted it and I came back and I said, “So what are you paying?” He tells me what he’s paying and I said, “Well, look, I can get it for you for this.” “Oh, okay. ”
And I was like, “Well, Dad, don’t you want to do this?” And he goes, “Yeah, okay, I’ll think about it.” And he pulls me aside later and he goes, “Don’t tell your mother this, but the dividend I’m getting from USAA is enough that it’s actually still way cheaper than you.”
And actually, he was an officer, but it was kind of funny. I learned, I don’t know what lesson I learned. It wasn’t to keep the stuff from Mama. Oh, I knew I was taking a risk when I told that story.
EB: Hey.
PW: But anyway, so yeah.
EB: Just don’t look under the bed, honey.
PW: That’s right. So anyway, yeah.
It’s a different deal than it used to be.
Advisory services offered through Paul Winkler, Inc an SEC registered investment advisor. The opinions voiced and information provided in this material are for general informational purposes only and not intended to provide specific advice or recommendations for any individual. To determine what investments are appropriate for you, please consult with a financial advisor. PWI does not provide tax or legal advice. Please consult your tax or legal advisor regarding your particular situation.
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