Mixed Messages

On this week’s Eggerss Report, Karl discusses the mixed messages from the White House that were sent to Wall Street regarding a trade deal with China.  Karl explains which parts of the market moved the most this week as stocks rebounded.

Transcription:

Hey everybody, welcome to The Eggerss Report. My name is Karl Eggerss. I’m your host, as always. Our telephone number, 210-526-0057. Our website, EggerssCapital.com. If you’ve been with us for a while, you know that web address. You’ve probably been on the site many times, and if you’re new, go check it out. We put a lot of stuff on there. That’s the technical word, “stuff”. We put on there articles we write. We put on there interviews we do. We put on there the podcast that we’re doing now. We also put video, which is something newer we’re doing. And they’re short two- to five-minute videos on tips and things for you to think about in terms of, it could be anything from pensions and long-term care and you name it, it’s on there. We try to cover a wide variety of things, really to help educate you and make you a better investor, make you a better individual when it comes to your personal finance.

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All right, a crazy wild week. We’re going to talk about what was moving the markets, and I’m going to ask you a question right now, and I want you to … I’m not going to be able to get the answer, but it’s something for you to think about. What did you do this week, if anything? What do I mean by that? Did you buy, did you sell, did you hold? What did you do? So think about that for a minute while I run through some of the things that were moving this week.

Some of the big movers … and by the way, let’s go over the indices for a minute. The Dow Jones for the week was up about 2.3% after being down 3% the previous week. S&P up about 2-1/2% after being down 4% the previous week. The Q’s, which is led by mainly technology stocks and Apple, up about 1.7% for the week. The big shining light was emerging markets, up almost 6% this week. Big move. And we also saw small caps up 4-1/2%.

But kind of the … You’ll have to forgive me, I’m struggling with some seasonal things, so voice is an octave lower, clearing my throat a little more. I’ll try to mute when I can. But you’ll have to bear with me, so I’ll make it through it. All right, some of the things that were some of the outliers. Semiconductors bounced back. They’ve been shellacked. They bounced back pretty strong with about 7-1/2% gain this week. Home builders up about 7%. The airlines up about 6%. Steel stocks, material stocks up about 6%. The banks up 6%. Those were some of your biggest movers on the upside.

On the downside, oil down 7% this week. Ouch, that was a nasty week. Commodities in general down a little bit, about 1-1/2%. Nothing major. Bonds were a little bit weaker. So really overall … and by the way, utilities were down. Some of that risk-off stuff. Gold miners down a bit. Nothing really big, except for oil itself. Treasuries down a little bit. So the big move, most of it was to the upside.

So let’s talk about kind of how we got here. Monday was interesting. Monday, market’s up, everything’s looking pretty good. It’s up about 350. Great, we came off a bad Friday, it’s up 350, everything’s going pretty good. And then we start to fade when there’s more tariff talk. China comes out, tough talk. We fall, we fall, and then it starts accelerating, doesn’t it? We are down 550 at one point, so you’re talking about a 900-point move, and then it bounces, and we finish down about 300. It was a big reversal. It was not as big as I would have liked to have seen, but it was big, and it really felt like a washout.

So sure enough, come back on Tuesday, consumer confidence 18-year high. And by the way, even though consumer confidence is something we talk about as a coincident indicator, I mean, it doesn’t really tell you much about the future with the stock market, or the past. But it does tell you, sometimes it leads a recession quite a bit. That hasn’t turned down yet, so if it starts to turn down, that could tell you something about a future recession. So watch that.

Now, this is what’s been interesting. How persistent has that selling been? Well, it was the 28th consecutive day on Tuesday that the S&P did not have back-to-back up days. That was the longest streak since the Great Depression. Think about that. We didn’t have back-to-back up days in 28 days, so pretty much every day felt like we were going down. Now yes, you got some up days, but for the most part it was up a little bit, down a lot, up a little bit, down a lot. But no back-to-back up days in 28 days. I mean, when you get a statistic that says this hasn’t happened since the Great Depression, pretty amazing.

The FANG stocks entered a bear market, an official bear market in terms of the 20% rule. And the Dow was up 400. After trying to sell off, it pushed up 400. We come into Wednesday, the Dow was up 300, and FANG had a real big reversal. The S&P, by the way, in October had 16 negative days. That was the third worst since 1928 and the most since 1970. So we had these really … I mean, again, some of these statistics, it was a bad October. November’s gotten off on a little better foot.

So we had a big down day Monday, a little bit of reversal, Tuesday up day, Wednesday up day. Then we see Thursday. Interesting change in character. If you noticed, the market was already strong, and then President Trump tweets, “I had a good conversation with President Xi of China.” So the market goes up, but it was interesting that it was a very big change in character. And what do I mean by that? Well, some of the most beaten-down areas of real value really performed strong. I mean stocks up 10, 12, 15% on Thursday. We also saw another big thing, the dollar got shellacked. Remember, the dollar’s been going up this whole year. Goes down really hard, and emerging markets were up 3-1/2%, huge day for emerging markets as a basket. Gold was up, emerging markets were up, beaten-down stocks were up. Really interesting change in character. Only one day, but I hadn’t seen that all year.

Then we come into Friday, we wake up Friday morning and there’s a Bloomberg story: President tells cabinet to draft basically an iteration of a trade deal. The Dow futures are up 350 points, and I’m sitting here watching this, going, interesting. Okay, middle of the night, they’re drafting a trade deal? I mean, correct me if I’m wrong, but that seems pretty simple, right? Draft a trade deal, like you’re just going to whip it out on a notepad. So a lot of people were skeptical, but 350, great.

Then a report comes out from CNBC, one of the reporters said, “Hey, I just talked to senior officials with the White House. They’re saying that story’s not true.” Futures drop about 150 points. They’re still up 200. Then we get the jobs report, better than expected, right? Good report. Wage growth, good report. So now we turn our attention back to the Federal Reserve, and the market’s okay, and then it starts getting weaker and weaker and weaker. Then the drama starts, and this was in my opinion quite ridiculous, and I’ll tell you my takeaway of it.

The drama was, you start to see Larry Kudlow, who’s the old CNBC employee, always bullish, always looking on the bright side of things, free trader. Tariffs aren’t free trade, so I find that interesting that he’s hung around this long. He comes out, kind of a positive tone, and market kind of likes it, goes up a little bit. Then he comes out later and says, “No, no, no. We’re far away from a trade deal, and it’s not looking real good.” So the market goes back down and says a trade deal’s not imminent, and we’re a ways off. And the Dow goes down, and it’s down 300 at one point.

Then President Trump comes out and says, “I’ve been talking with the President of China. Progress is being made, and they want a deal, we want a deal, and progress is being made. And hopefully, we’ll get something done.” And the market rallies into the close, still finishes down 100 and some odd points on Friday. But this narrative coming out of the White House is confusing for the markets, confusing for those trying to figure out a trade deal. Here’s my takeaway. I think that Larry Kudlow wants to see a deal done, wants to get on with this, wants to move on. He’s very upbeat. He comes out and says stuff, then he gets called into the office by his parents or the principal, and says, “Quit saying that stuff. Quit saying that. We need to keep our negotiating power. We need to save face here. Don’t say that progress is being made and all this stuff.”

To me, you have two parties here. President Trump, who’s a negotiator, but he also wants the stock market to go up. So you almost have Larry Kudlow and President Trump on one side saying positive things. We’re making progress, it’s looking pretty good. They sometimes get reined in a little bit. Then you have guys like Navarro and Mnuchin, who are in the Trump White House, who are very cold-blooded negotiator … Wilbur Ross, you know, these guys are saying, “We’re doing tariffs, and we’re going to get what we want, and we’re going to fix this China deal.”

The President seems to be kind of in the middle, but he’s more on the Kudlow side, where he wants to portray that things are progressing along, because he knows the market’s falling, and when he mentions positive things it goes up. And so they have this very mixed message, and it’s ridiculous, because every time they say something unscripted, the markets move wildly, and your 401(k) moves wildly, and your accounts move wildly, simply because of their comments.

Really what’s happening here is, we know that China, there probably is progress being made, there’s conversations ongoing, but a trade deal is going to take weeks and probably months to get a real cohesive trade deal. Now, they can always say we have a framework for it, and we’ve got some of the big stuff agreed upon, but you don’t go and write up a memo and say, “Draft me up something, and we’ll take it to them.” That’s not how this works, so it’s going to take longer than just hey, a trade deal’s done. I don’t see that happen. I see progress being made, they’ll float that out there, but both sides are still negotiating.

Now here’s what interesting. I was in Washington, DC for most of the week on business. Got to attend a speech from Janet Yellen. I know, wasn’t the most exciting thing in the world. I should have found something better to do, but I’m a finance guy, so I was there, right? Also Niall Ferguson, who you’ve probably heard of. His take, and I agree with this, and I’ve been saying this, is that China, they have been getting what they want for years, in terms of trade, in terms of being able … They have all this growth, they’re bullying people around, and everybody’s kind of acquiesced to China, because it’s the almighty China. They’re growing, they hold the key to global growth.

Well, then comes along President Trump, who just, I mean, puts them on their heels and says, “We’re not doing that anymore. China’s economy slows a little bit, their stock market starts tanking. Meanwhile, the U.S. is holding up very well until October, and Niall Ferguson’s point is they haven’t seen this before, they’re on their heels, and I agree with that, and they don’t have a lot of choices here. So something will eventually get done, but it is going to take a while. And it was a interesting point that China is used to being the bully and now they’re getting bullied, and they don’t like it, but there’s not much they can really do about it. So this is dragging on a little bit. And we have public forums like Twitter that allow people to say what they want off the cuff, like President Trump does, and they say things in non-prepared remarks, and so you get those back and forth. But to me there is negotiating, both sides, just like with Mexico, both sides know they need each other, China may need us more than we need them, and so I do think a deal will get done. I don’t think it’ll be a long, cold war, but there’s other issues here, right? You’ve heard about trade secrets being stolen just recently, and the Department of Justice cracking down, so it’s not just about trade, there’s all kinds of things going on.

So it’s a complicated situation, but if something was going to done it’s probably after the GT20 summit where they’re going to meet. So that’s what was interesting about this Bloomberg story, which turned out to be false. So here we are, and the markets are going back and forth, so that’s what’s going on with China.

So you have two big issues right now, we have the tariff deal, and you can see how the markets react when it looks like something is going to get done, they run up, industrials run up, small caps run up, everything looks great, and then you have the bigger issues, I think … Maybe not the bigger issue, but as equally important issue, is interest rates and what the Federal Reserve is going to do, because we’re starting to see some signs that things that are decelerating a bit in certain areas. And of course because we have recency bias what do we refer to? 2008, that was the last, great horrible recession we had so every recession will be like that. What if we have a mild recession?

So while I was in Washington DC, I attended this Janet Yellen speech, she’s no longer an employee so she did not have prepared remarks, it was a sit down interview with Steve Liesman from CNBC, and essentially here’s the takeaway, she says we need at least a couple more rate hikes, right now the Fed’s is kind of projecting five more over the next 12 months, she says we need at least a couple more. She says she thinks growth is going to slow next year, she thinks that we may have a recession in 2020, so in my mind I’m going wait a second, if you think we’re slowing down and we’re likely to have a recession in 2020, why on earth are you telling us that you think the Feds should keep raising interest rates? That seems contradictory. If they thought a recession was coming, wouldn’t they not doing anything so that they could eventually lower them?

Well, she also made some comments that essentially point to the fact that she is more worried about runaway inflation than she is about a recession. In other words, we need to keep tapping on the breaks because we don’t want to see inflation runaway. In other words, we don’t want to see 70 style inflation because that’s really bad. So what we’d rather do is keep putting on the breaks, slow the economy and, if we have a recession, so be it, it’s not a big deal, we’ll have a couple of quarters of negative growth, and we can deal with that. That’s her philosophy. I don’t know if that’s Jerome Pal’s, but that’s her philosophy.

She also made a couple of comments that inflation is going to be in this certain level, but she said something interesting, she said, “I think our economy is only capable in the US of growing around 3% over the long-term due to the number of people we have in this country. It’s only capable of growing at 3%, unless, A, we open our borders more and bring more people in, or B, we have a rise in productivity.” And then she said, “But we don’t know what moves productivity, we don’t know what increases it or decreases it. We thought we did but we don’t know.” So she thinks 3% is kind of the number.

So that was the takeaway, but to me it was interesting to hear her say, essentially, that the recession was better of the two evils. Now, remember, we’ve had 10 years of stimulus and the economy is just now getting going, so do we have … With 10 years, so now the economy is starting to get going and now they’re going to put the brakes on.

So let’s see, I mean, again, if you look at certain models, interest rates should probably be higher, but the stock market investors don’t like rising rates. We just know that. So conditions are getting tighter. So that’s really, to me … You can back, and some Jerome Pal comments early October, the early start of this whole stock market selloff that we’ve experienced.

Now, let’s focus back on the stock market, so I asked you at the beginning what did you do this week, I like to ask that when times get volatile, one thing that you don’t do when things are stretched to the downside, as they were last week, and it’s clear we’re going to get a bounce, we always get a bounce, always when we have these conditions. Always. You can go back in time, always. What we don’t know, how high the bounce is going to be, and the harder part if what you do with the bounce. In other words, we fall, let’s say we bounce up halfway back up, that’s the test. Does it roll back over and head back down again? Or, does it keep going like a V? Normally, it doesn’t go like a V. It goes like a W. So if that low we saw on Monday was the low, then maybe, maybe, we bounce more and we go back down and test that at some point. That is not fun. That is never a fun thing to go back down to where we were, but that is.

So, what do you do during this time? Well, you have some options, you can buy when it’s depressed and then bounce when we get a bounce, you sell. That’s short-term trading. You could do nothing, but the thing you don’t do is sell into that panic. Again, we had forced sellers, we had algorithms, I mean you saw fast things were moving, so a lot of computers moving things around, so hopefully most of you didn’t do anything. And if you did anything, you bought some things on the cheap. I mean, like I said, there were stocks this week up 15 and 20% that are good quality companies that just were going down because they were stocks. So, what did you do? Let me know if you can. Email me, karl@eggerscapital.com.

I am curious because some people lick their chops when they see this type of action, some people can’t stand it, but we have these episodes. Look, we have 10 to 15% selloffs almost every year. This year we’ve had two of them, but we have them almost every year, so if you’re going to invest in stocks, you have to put up with volatility. What we’re trying to identify is are we in a bear market or not, and we don’t know that yet. Nobody knows that. The permabears, the fear mongers, are going to say that, yes, we started a bear market, we’re in it. The permabulls will always say buy the dip, buy the dip, buy the dip. As you know, I try to remain flexible, I start with somebody’s asset allocation, we’ve talked about that the last several weeks, how much stocks should you even have in a great time, and then within that bucket of stocks, how much of it do you want to reduce risk as times, trade, all those types of things? That’s when you kind of get in the weeds a little more, but you have to start with allocation first.

But, are we in a bear market? Nobody knows. What happens is at some point when go into a bear market, the stocks do peak, there is some date that’s the high, but as I’ve said, rarely do you see the market cruising up, sell straight off and that’s it and it never comes back. More than likely what you would see is a rally back up to highs, maybe even go to new highs, or they fail and we see a lot less breadth, as in B-R-E-A-D-T-H. Not as many stocks participating, in other words, at that old high. That’s what we would look for, is there a deterioration going on in the market, and we haven’t seen a lot of that. We saw swift selloff, not really dissimilar to February. The only difference is February, we had a real volatility spike, almost a tail wagging the dog due to the various ETFs we’ve talked about in verse, volatility, ETFs, things of that nature, this was a little different. We saw the VIX spike, but we really didn’t see the real fear. We saw the VIX get up in the mid-20s, high 20s, it never really touched 30, it’s still good, so it’s elevated. It’s elevated, but it’s not all out panic yet. That could happen. But we need to see the deterioration.

So again, it’s too early to tell if this is turning into a bear market, I don’t think it is yet … Again, for you, that doesn’t mean you don’t do something about it, but what you don’t do is, again, sell when it’s whooshing down, because you don’t have to.

Now, there’s all kinds of things we use as advisors, indicators and whatnot, but there’s also some anecdotal evidence we use. For example, when markets are running up, how many people are calling us, telling us, get rid of all that conservative stuff and buy me more stocks? That’s a contrarian sign. How many people are saying I’ve seen this before, this thing is going down like ’08, get me out? How about CNBC specials? Markets in turmoil? Have you ever seen those? You’re close to some sort of bottom when those are on the screen.

So there’s all this kind of stuff we try to put in together, and again, say where are we in the big scheme of things? So, we feel like we’re getting to a trading bottom, we’ve had it, we’ve had a bounce, now comes the hard part. And if you go back to February of this year you will see that typical test of the lows, we fell on February, we bounced up, almost went back up to the highs but not quite, then we fell in March and in April, and it was like, oh no I should have sold, I should have done this, and then what did we do? We rallied all the way up until September, October.

So we had some nice trading setups, things of that nature, for clients of ours that had cash on the sidelines or needed reallocation, we were buying. So, now where do we go? Because again, this bounce, while was a good bounce, it’s what I would call a rip-your-face-off rally. You probably haven’t heard me say that phrase in a while. It’s a rally that makes you regret not buying at the lower levels. Did you feel that way this week? It really didn’t feel that way. I mean, yeah, we had some big days, but a rip-your-face-off rally in today’s DOW Jones would be something like, I don’t know, 1,200, 12,000 or 1,100 points in one day on the upside of the S&P? That’s a rip-your-face-off rally. Everything is green. Everything is green and you literally go, I should have bought when I had the chance, what was I thinking? Your emotions swings from fear and pessimism, get me out at whatever cost, which may have been Monday, to all of a sudden why didn’t I buy? Those types of emotions will drive you nuts and they will cause you to lose money over the long-term. You have to have a plan going into it, and it’s not easy. Listen, not of this stuff is easy, computers take over all that stuff, but still, we have a emotions. And the good news is other people do too, even the professionals. I’ve been around a lot of professionals.

I was at a conference this week with a tone of professionals, institutional real estate people, mutual fund managers, advisors, you name it, they’re all emotional. They’re all emotional. And because of that, there’s opportunities in the market. Look, a stock doesn’t go down 8% one day and then back up the next day 8 or 10%. Did the company change that much in one day? No. Their emotions did. That’s the part you have to control, and it’s not easy but I have to do it. But a rip-your-face-off rally we haven’t really seen yet, where we literally go, man, what was I thinking, the market sold off 10% and I didn’t buy anything. We haven’t had that yet.

So let’s see, let’s see what we get here. It would probably be preferable to have a few flat days, volatility comes back down a little bit, we move sideways, kind of digest all of this … We haven’t seen that either. We’ve just seen big up and down moves.

That’s where we are. Now, one of the big things that happened this week, and I mentioned FANG earlier, is that Apple sold off on Friday, right? Apple’s down like six or seven percent on Friday. In fact, it accounted for over 100 Dow Jones points. And therein lies the issue we’ve been discussing the last several months. You have cap weighted indices. The Dow Jones, the Standard and Poor’s 500, the triple Q’s, those all have Apple in them. And they have other stocks. And they have heavy weights. So when Apple gets hurt, they’re going down. We’ve seen some days lately where overall, there’s a lot of green on the screen. And, again, most of you are working or retired. You’re not watching the screen like I am. But I watch. It’s really interesting to watch, sometimes, where the Dow may be down 150 points, and yet my screen’s mostly green. And it’s because a few stocks in the indices are pushing it down. Meanwhile, the overall market is doing pretty well.

That’s the opposite of what we’ve had the last five years, right? What we’ve had the last five years is a few stocks leading the way up, and a lot of stocks not going along for the ride. So the more you diversified, the more you didn’t do very well. And 2018 has been really, the year … Even up until October, it was the year diversification didn’t work, right? In fact, if you simply had 60% of your money in the Standard and Poor’s 500, and 40% in the broad based bond index, this was one of the first down years that’s had in a long time. Stocks and bonds aren’t working. And actually, I think it was one of the few down months.

Now, here’s the test. Jeff Gunlock, who is the new bond king, took that over from Bill Gross, based on just public comments, that title, he made an interesting point. He said, “Look at the 10 year Treasury,” a Treasury bond, 10-year Treasury. It was about 3.1% October first. It was about 3.1 on October 31st. But yet, the stock market had fallen 9 or 10%. If we go back a year, two years ago, what would that have looked like? If the stock market fell 10%, interest rates would have gone down, because bonds went up. People would have left the stock market and bought bonds. His point is, bonds aren’t helping you out. He thinks rates are going higher. They may not go higher, but they’re not going any lower. They’re not helping you out anymore. They’re not the safety net they were.

So a lot of people are going, “Wait a second. I thought I was diversified. I had stocks and bonds.” Know what you own, because, again, what’s happened is the Barcap Agg, which is an index of bonds, the maturity on that, is gone way out. It’s much more sensitive to interest rates than it used to be. And you got to know that. You got to be careful about that. A lot of people are learning that lesson. And they’re also learning the lesson that sometimes you have to diversify out of an index that is so weighted towards Apple, Facebook, Netflix, Google, right? Those stocks, they’re having a rough time of it right now. I mean, you look at Facebook, Facebook’s down somewhere around 30% from its high. Apple, which had been holding up pretty well, down about 11% from its high. Netflix, sitting somewhere down about 27% from its high. Amazon, the most loved company in the world, more loved than Apple, Amazon down around 18%. Had two back-to-back 6% down days earlier this week. Watch that stuff. Because, again, as we move along here, there’s no question. The market is long in the tooth from a normal standard.

Now, we did have a longer than normal recession and a bigger than normal recession in 2008. It stands to reason we would have a longer than normal recovery. And, again, as I’ve been saying, the podcast last week we titled, “Dotcom bubble 2.0.” Why? Because it feels like that, right? It’s not as extreme as the dotcom bubble, not near as extreme. Because, remember, the sentiment was different. All of you, for the most part, were more bullish then than you are now. Because it was easy making money. Everything was going up. And you had a lot of stocks that had ridiculous P/E ratios, and all these things. Now, it’s a little more concentrated. It’s not as extreme. But you still have some tech companies that are loved, over-loved. And they don’t justify the price that people are paying for them.

Now, most of you business owners know that sometimes you could have the price to EBITDA. Right? You know what that is? It’s price divided by earnings before your interest, your taxes, your depreciation, your amortization. It’s a metric that a lot of private companies get valued at. For example, you have a small company. You have about a million dollars of EBITDA, of profits, essentially. And somebody comes to you and says, “I want to buy your company.” Maybe they’re going to pay you five times that, let’s say, okay? Your company’s worth about five million bucks. There’s companies on Wall Street trading at 30, 40, 50, 60, 70 times that. That’d mean your company that has about a million bucks in profits, somebody knocks on your door and says, “I’ll give you 40 or 50 million dollars for it.” Of course you would sell it. But on Wall Street, people buy it. That’s what you’re buying with a lot of these companies.

What I see happening, and what we saw in the dotcom bubble, is it wasn’t everything went down. No. What happened was, the expensive stocks got hammered. The cheap stocks did okay, and actually some of them made money during that time. There were places to hide. And you could rotate into some other areas. It’s becoming more and more important as growth slows down, perhaps, that people shift and say, “You know what? I need to buy a better deal.” And money’s shifting into some other areas. That’s really, really important. And I think that could be happening. It may happen in slow motion. But it could happen.

That is very different than the market we’ve been in the last five years. The last five years has been, just stick it into a cap weighted index, and it’ll go up. And we never really sell off very much. And when it does sell off, your bond stuff helps you out. It’s not happening right now. It’s different. The market’s changing a little bit. And I don’t think that’s a bad thing, but I don’t think that we’re going into this overall bear market. And by the way, if we do go into a bear market, again, I think it’ll look different than ’08. See, that’s the thing. That’s our reference point. When people see housing or auto slowing down, they immediately say, “Oh my gosh. It’s crashing.” Look, things cycle. They slow down. We’ve had slowdowns since ’08. 2014, 2016 we had slowdowns very similar to what we’re going through right now. But they were cyclical slowdowns. They slowed for a few months, and then re-accelerated. But we look back to ’08 and think if it slows, it’s got to go all the way backwards and crash. And you just don’t see things repeat themselves like that, “We’re going to have a housing crash in ’08, and then we come back in 2018, we’re going to have another housing crash.” Something else may crash. But it’s going to be different.

I think as we move along, let’s watch. The market will tell you what’s going on. And there were some interesting things that were working in October when not a lot was. But it wasn’t bonds, wasn’t bonds. There wasn’t a lot of things that worked. But as we move forward, let’s just see if the hedge funds and people that allocate money, big money, where they’re putting their new money. Because there is … I’ve said this before. There is a tremendous amount of value out there in the stock market, still, tremendous amount of value. There are some really, really good deals, companies that are producing lots of cash flow.

Hey, and guess what, by the way? I went to another speech. It was a smaller speech. And a gentleman there that used to be a hedge fund manager, he’s now a mutual fund manager, he has a fund. And, essentially, what he does is he says, “Look. We take the best companies producing all types of good cash flow. We look at them like rent houses. We look at what they’re worth. We look at the cash flow they’re spitting out. And we buy them if it’s good. And if it’s not, and it’s expensive, we short another group of stocks.” He’s got stocks he likes on one end, stocks he hates on the other. And he tries to short the bad ones, meaning he’s going to benefit from them falling. And he goes long the good ones. He’s going to benefit from them going up. Here’s the deal, though. He said, “We do that ourselves.” He and his partner do that themselves.

And he said, “But the fund moves a lot, like 15, 20%.” And he said, “We knew the general public would not stick with our returns even if we did well over the long term, they wouldn’t stick with it.” So guess what they do now? Guess what they do? They stick the S&P 500 in as … I think they do something like … I want to say 80%, 60 to 80% of the fund is just the S&P 500. And then on the fringe, the other part, they go long and short. Essentially what you have is something that looks similar to the stock market on a day-to-day basis to keep people in it. And then on the fringe, they’re trying to earn a little bit extra. The only reason that they do that is not because they believe that’s the best thing to do. They do it because they don’t think you, the investor, will stick with it because it’ll be too volatile.

I mean, if you think of Amazon where it is today … You know Amazon fell 95% after it went public? Nobody stuck with that. Did somebody buy Amazon the day it went public and they still have it today? No. Because you wouldn’t have seen … You would have seen almost all your money go to zero. Our emotions, the sentiment of what people feel about things, very important. You do have to have something in your portfolio. Your whole portfolio has to be a strategy that you’re going to stick with. Because if you don’t stick with it, you’ll be selling at the lows. And that’s what you can’t afford to do.

Come up with an amount that should be in the stock market, even if you don’t trade it, even if you just sit there and own stocks. Whatever that number is, it should be an amount that you can sleep with.

All right. I need to go drink some hot coffee or something. Hey, EggerssCapital.com. If you ever need our help, please let us know. Don’t forget to share this. Because a lot of you are listening now because somebody told you about this podcast or our website. Please do that for us, we appreciate it. And, as always, if you need something from me, you can email me directly. I handle my own emails. I try to get back to you. A lot of you have said, “Hey, can you mention this on the show?” Sometimes I forget about it, or we have other pressing things. So I’ll just reply back to you and give you the answer. Have a wonderful weekend. Don’t forget 210-526-0057, EggerssCapital.com. Take care, everybody.

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This show is for entertainment only and information provided by the host, guest, and this station should not be deemed as advice. Your investment decisions should be based on your own specific needs. You should do your own research before you make those decisions. As president and CEO of Eggerss Capital Management, Karl Eggerss may hold securities mentioned in the show for himself and his clients. Just don’t buy or sell anything based on what you get from radio or TV. Use your own judgment, or get yourself a trusted advisor.

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