Chris Versace is joined by portfolio manager Louis Llanes to discuss quality companies, heeding technical signals, how to listen to defensive and other stocks, and answer member questions.
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00:00Hey folks, welcome to the latest Stocks and Markets podcast at The Street.
00:06I'm Chris Versace, Portfolio Manager for The Street's Pro Portfolio, and joining me today
00:11to talk about all things stocks, markets, and maybe even something in between is Street
00:17Pro contributor Lewis Laynes.
00:19In addition to Lewis's work for The Street Pro, he's a wealth advisor for high net worth
00:24clients.
00:25He's also the author of The Financial Freedom Blueprint and The Handbook of Risk.
00:32Lewis, welcome to the podcast.
00:37Thanks.
00:38I'm glad to be here.
00:40Well, let's kind of kick things off, Lewis, because I get the sense that you're a newer
00:45contributor to The Street Pro Portfolio.
00:47So you may not be as well known to some of the members as some other contributors.
00:52So how about kicking it off with a thumbnail sketch of your background and how that's
00:58come to influence your investing style?
01:00Oh, that's a great question.
01:02Well, I got started in the business a long time ago.
01:05I've been in the business for 30 years.
01:08And I started off as an investment consultant for a company called Kemper Securities.
01:13Oh, yeah.
01:14Yeah, yeah, yeah.
01:15And so I kind of teethed on that.
01:19I was a financial analyst intern when I was in college, and I always had, I fell in love
01:23with investments around 1987, just before the market crash.
01:29And ever since then, I've been in love with the business, I fell in love with economics
01:33and finance.
01:34So hang on, hang on.
01:35So the crash didn't scare you?
01:37No, no, no.
01:39It got me excited because I learned, I actually was at that time more involved with more like
01:45thinking global macro.
01:47You could be short, you could be long, you could be commodities, stocks, bonds, currencies.
01:52So I've been in a lot of different areas in the business.
01:54So I started off on, I guess, the kind of the sales side where you're going out and
01:59finding clients.
02:01And I learned very quickly at that time that many of the incentives at the larger Wall
02:07Street firms were not necessarily aligned with making money.
02:11And we had all the research, right?
02:13All the recent, I was like, this doesn't make sense.
02:16Like I'm in this business to make money.
02:18So I got a CFA and a CMT, and I thought that was going to help me.
02:22And it did in a way just to kind of understand language.
02:25But I think if I had to only have one designation, a CFA or a CMT, I would say I'd rather have
02:30the CMT.
02:31And a lot of people think that's heresy, only because it helps you understand that markets
02:37are not rational and the market can serve you.
02:41So I went through kind of a metamorphosis, because early in my career, I was very value
02:44oriented, studied Warren Buffett, loved Warren Buffett.
02:49And I was really into the value type of investing.
02:52And before the dot-com bubble, things were working pretty well.
02:55But then this strange thing happened.
02:58We had all these companies were going straight up, and they had no fundamentals.
03:02Let me guess, pets.com, eToys, right?
03:08Exactly.
03:09And it was one of those things where I learned a valuable lesson there, because I was studying
03:14the fundamentals.
03:15We were value oriented, and we were losing.
03:17We lost like 30% of our assets to outflows at that time, mainly because they were going
03:22to, I won't name the names of the fund managers, they were going to certain fund managers that
03:26wound up losing like 70% of their value in the following years.
03:32So I really, really learned a lot during that.
03:34It kind of changed my whole outlook about how you have to understand behavioral elements
03:40as well as the fundamentals, because they can vary so much.
03:44And when you say behavioral, right, there's a couple of ways to kind of view that.
03:48There's the behavior of consumers, there's the behavior of corporations, corporate spending.
03:52Are you talking about that or something else?
03:54No, I'm talking about investor behavior.
03:58I'm talking about the fact that we all are irrationally, it doesn't matter how smart
04:02you are, we all have these natural tendencies to be irrational, and there's groups, there's
04:07crowds thinking and understanding the psychology and that you need to have the market serve
04:12you.
04:13So sometimes things can be way out of whack, and you need to understand that.
04:17And sometimes you have to understand that you may have to sell more technically oriented.
04:22And also on the flip side, sometimes the technicals will clue you into something that's happening
04:27fundamentally that you don't understand yet.
04:30So using the technicals for that, that's very important.
04:33Well, I'm glad you brought that up, because at the Pro Portfolio, like last August, coming
04:38off of July, early August, and then even in April, we put some capital to work because
04:43we were looking at the technical setup in the market, being oversold, where the oscillators
04:48were, even though there was some uncertainty still ahead, we kind of figured that the odds
04:54of it getting dramatically worse from here were extremely low.
05:00Typically, when we manage the portfolio, we do a bit of a blend, where we're fundamental
05:06thematics and we pay very close attention to the technicals.
05:09In other words, no silver bullet.
05:12Yeah.
05:13And I think the, I actually think the bottom up technicals are really even more valuable
05:19for me, because they lead you to individual securities that are starting to have change
05:24before the fundamentals actually reach everybody's knowledge.
05:27So hang on, hang on, hang on.
05:29Just for the listener, when you say bottoms up technicals, because I think a lot of folks
05:33are familiar with, you know, the 50, the 100, the 200 day moving averages, relative strength
05:38index levels.
05:40Are some of those what you're referring to when you say bottoms up technicals, or are
05:44there other things you're looking at?
05:45I mean, looking at individual stocks and individual bonds, individual currencies and commodities
05:51and seeing what the supply and demand dynamics look like.
05:55For example, right now, the interest rate, you know, people are thinking the interest
06:00rate is going to go down, but for some reason, the technicals are saying, are basing, saying
06:04that possibly rates could be going higher from here.
06:07So you have to kind of, I like to match my fundamental thesis with the technicals.
06:12I'd rather have both going on at the same time than one or the other, you know, and
06:18not to get off on a tangent, but we can, maybe we should talk about this later, but the interest
06:22rates are very giving mixed signals right now.
06:25But to get him back to the kind of the background story.
06:27So I started off, you know, as a fundamental guy, I learned a lot about that, why technicals
06:32are important and understanding that.
06:34And then I went to go work for a hedge fund and I worked in a global macro space.
06:38So I traded stocks, bonds, commodities, currencies, long and short, I was programming, programming
06:44algorithmic models before it was cool to say algorithm.
06:47We didn't even use the term algorithm.
06:50You know, that was back when, you know, we had satellites, you know, the internet was
06:55not a thing.
06:56We used Instanet and we called the trading floor to trade the S&P futures.
07:00Instanet.
07:01Oh boy.
07:02Yeah.
07:03So I learned a ton there about, you know, backtesting and I learned that what's good
07:09about backtesting, what's bad about it.
07:12And so I do use a lot of quantitative analysis to help me understand what's happening.
07:18But I don't believe, I personally don't invest in a way where it's fully systematic.
07:24So I like to use systematic type algorithms to help me with position sizing and things
07:30like that, but not necessarily for security selection, a hundred percent.
07:34You could do that and do very well.
07:35But for me, I'm not comfortable with it because I know so many of the flaws of it.
07:40Unless you're trading like a massive portfolio where you're doing a lot of different strategies,
07:46I don't really feel comfortable with a hundred percent systematic investing.
07:50So I kind of went down that direction.
07:51So, you know, as you can see, I've been in different camps.
07:54I've studied the bottom up, like the stuff that's really traditional, return on invested
07:58capital, you know, high quality management, valuation.
08:01And when I was in that phase of my career, I really came up with this concept of QVT,
08:07quality valuation and technicals.
08:09And I still use that today.
08:10It's kind of my major dimensional way that I look at the market.
08:13It's like, how well do I know this investment?
08:16How sustainable are these cash flows?
08:18Real basic stuff.
08:19And what am I paying for it?
08:21And that's kind of the backdrop.
08:22And then it's like, what are the technicals saying right now?
08:25Is it early?
08:26Is it not?
08:27You know, maybe I'm wrong.
08:29Sometimes you think you know the quality and the valuation and you're just flat out wrong.
08:32So when you're kind of sizing that up, not so much the technical part, but the quality
08:37part, right?
08:38Are you also factoring in historical analysis of the company, past valuation multiples,
08:45as well as what you're seeing on the peer front?
08:47Yeah, I look at the past numbers just to try to understand it.
08:51What I'm really trying to understand is, what are the drivers of revenue?
08:55What's going to drive revenue to go up?
08:57What are the drivers of expenses?
08:58Just understanding what those are.
09:01And then like, how well can I know them?
09:02I mean, if it's a really volatile expense structure, I may not be able to make any kind
09:08of a beat on it, have any kind of a beat on it.
09:11So I'm trying to understand like how knowable it is.
09:13You know, like for example, Spotify, I'll just use Spotify as an example.
09:17I think Spotify has got a lot of, there's a lot of knowability with Spotify.
09:20There's competition, things like that.
09:21There's a lot of knowability, but it's overpriced in my opinion, based on free cash flow and
09:25things like that.
09:26Still like the company.
09:27You know, Uber is another company that I have a position in that I like it.
09:33I think it's a great company, but you can't say like it's like an amazing valuation based
09:38on how I'm looking at it.
09:39Other people may have a different view on it, but it doesn't mean I'm not going to own
09:42it.
09:43So that's one of the, you know, one of the things I've learned is that if you have something
09:46that's good, you probably want to stick with it.
09:48You probably, you may want to change your sizing, but don't just dump it just because
09:53it's overvalued.
09:54I learned that mistake in other bull markets, you know.
09:58It's funny.
09:59I do know that there are a lot of folks out there that get overly focused on price targets,
10:03right?
10:04So, you know, if you have a stock that's, you know, say hitting your price target, like
10:08a hundred dollars just to make it easy, right?
10:11I would sit back and say, okay, what's, what's ahead that could lead me to revisit that price
10:17target?
10:18But some people they're, they're, they want it now.
10:20Do you know what I mean?
10:22It's like, it's here.
10:23What do we do?
10:24Whereas I think sometimes you have to let things play out because there's always more
10:27information coming, whether it's industry data, company data, or even as simple as,
10:33as we're taping this, this week, there's a big TMT conference that, you know, almost
10:38halfway through the quarter is going to give a lot of insight to what's going on.
10:42Or not.
10:43Yeah.
10:44And then you can flat out get it wrong.
10:45So let me tell you, one of the things that I learned when I told you I did a lot of back
10:49testing and simulations, and what you find out is you make your returns on very few securities.
10:54And when you get something right, the biggest thing, that old adage, let your profits run
10:58and cut your losses short is probably the most important rule in investing, in my opinion.
11:03As soon as you know you're wrong, get out.
11:05And if you're, if you're not sure, if things are working out in your favor, be a little
11:09bit apprehensive or a lot apprehensive to just unload that security and how much you
11:14let that security drift in size is a function of risk, really, you know, and then other
11:20opportunities.
11:21So if other opportunities that are coming up, and you say, for example, let's use Apple
11:25as an example with Warren Buffett, who did a brilliant move by tearing it, pulling it
11:29back.
11:30That's the way you do it.
11:31You pull it back.
11:32You don't get rid of Apple.
11:33You just pull it back and then you put it in something better if you can.
11:36And if you can't, then it should go in cash.
11:38So you just said a minute ago that if something's not working, get rid of it.
11:42Right?
11:43100%.
11:45If you're wrong.
11:46Well, all right.
11:47Right.
11:48But what happens at times like we've seen, you know, let's use March and April where
11:51you could be a hundred percent right on the data, but the stock and the market are moving
11:55against you.
11:56Do you stick with it?
11:57Do you, do you grit your teeth or do you let it go?
12:02So I've gone through in my career, I've gone through different phases and what I found
12:06works better for me is to stick with it.
12:08So it's to stick with it unless there's something new coming in.
12:12So early in my career, I, you know, you can test back, test stops and stops.
12:17No matter how you analyze using a stop, it's going to always lower your performance.
12:22It's just, it's weird how that happens because you're truncating things.
12:25You'll have a stock that will come down and then it'll invariably turn higher and especially
12:29that's why quality is so important.
12:31The better that quality is, then you don't want to have a stop.
12:35You might want to buy more, but position sizing is a whole nother thing and we can get into
12:39that.
12:40But you don't want to let those losers get away from you and especially if you have a
12:45large size in it, you know, and I don't like to let a single position have so much input,
12:50you know, the contribution to the portfolio's returns to get so out of whack that it's driving
12:55the entire portfolio.
12:56So I limit that too.
12:59So that's more quantitative.
13:00So let's put some figures around that, right?
13:03So it sounds like what you're saying is mid single digit, depending on the number of positions,
13:09in terms of position size, you're not going to let something grow to 10, 12% of the portfolio.
13:14When you're getting to 10, then you're starting to get a little bit too big.
13:19Now if you're just trying to swing for the fences, because I'm looking at return per
13:22unit of risk.
13:24So if you're looking at return per unit of risk, you don't, you know, based on what I
13:27have not only back tested, but in real time, 10% is about where you want it to cap out.
13:33But if you're basing it on, I want to really hit the ball and make a ton of money, you've
13:36got to let that thing ride.
13:37You got to let it go to 30, 40% of the portfolio.
13:40And most people cannot handle that kind of risk.
13:44And I manage money for high net worth people, and they don't want that kind of risk.
13:48So generally, most stocks, they hit around 8%, no matter how good it is, I might be paring
13:54it back.
13:55Okay.
13:56Now you just said something that you're managing money for high net worth individuals.
13:59I mentioned that in the introduction, but how is managing money for high net worth individuals
14:05different than say, communicating your ideas or your thoughts to regular everyday individual
14:13investors?
14:14Are there certain things that you have to account for that maybe individual investors
14:18you don't?
14:19Well, you're talking about high net worth individuals versus like, just non high net
14:25worth individuals?
14:26Or are you talking about-
14:27Just the average, hey, I got, you know, X amount of dollars in my Schwab account.
14:32I'm interested in building it.
14:34I subscribe to the Street Pro because I want some insight, that sort of thing.
14:38Well, you know, I think the conversation is surprisingly similar.
14:43High net worth individuals have the same wishes, desires, fears.
14:47They want to send their kids to college.
14:49They don't want to lose their wealth.
14:51We all have the same emotional backdrop.
14:54I think what is different is that taxes are a big deal for them.
14:58And so we're having to deal with, okay, I've got this like very large position in whatever
15:03the company may be.
15:04And we got to figure out like, what's, you know, do we start paring it back?
15:08How do we pair it back?
15:09How do we keep our tax level down?
15:11There's more finessing going on there.
15:14And there's more stuff involved with estate planning and things like that, that you have
15:17to concern yourself with and trust.
15:20Whereas when you're building and you're not at that level, the best thing there is just,
15:25you know, keep your income up and then to save like crazy and to just keep investing.
15:30Just keep investing.
15:31Don't let the market news mess with yourself and stay disciplined with an approach that
15:37is based on economics, not on emotion.
15:41Stay level-headed when things are really, really, you know, everybody's happy.
15:44Bring yourself down to be a little bit more mid-level when everybody's really upset.
15:48Bring yourself up.
15:49I learned that from Tom Basso, one of the market wizards who I've spent some time with
15:53talking about lots of different market things.
15:56You know, that is probably one of the biggest pieces of advice that I've learned that's
15:59been helpful for me is always bring yourself to the center no matter what's happening.
16:04Okay.
16:05And for the very new who are just getting into investing, you know, there's a lot of
16:10commentary out there about, oh, you should have two months, three months worth of expenses
16:14banked then start taking your discretionary income and, you know, funneling that and start
16:20investing kind of slowly.
16:23Any words of wisdom to the newer investors that we have?
16:27So there's two types of newer investors.
16:30One is one that wants to do it themselves, that's interested in it, that's highly capable
16:35of doing it themselves, like maybe they're an engineer or something like that.
16:39Their psychology is different than say somebody who's got a job, they're like a manager or
16:43something like that and they don't have time for that.
16:46You know, you have a different kind of a view on how to do things.
16:49But my advice is generally to continue to invest based on the long term.
16:53It depends on how old you are, obviously.
16:56But to have more of a longer term view and to have one, again, based on an investment
17:01strategy that's based on economics, not on emotion.
17:05The biggest problem you get is like, for example, let's say you're a doctor.
17:09You're going to hear all sorts of things in the operating table or when you're doing whatever.
17:13And those clients that I have that are in those fields, they tend to have all sorts
17:17of things like, hey, what do you think of this?
17:18They're hearing all these things and people will talk about, you know, all the things
17:22that they made money on.
17:24Nobody talks about the things that they lose money on.
17:26So just keep that in mind.
17:30People that are talking a lot about their book, about how much they just made money
17:32on this, that, or any other, you know, I have found that they never talk about their losers
17:37and you just got to, they're probably not doing as well as you think they are.
17:41I think that's true.
17:42But I also think that, you know, to me, talking about what went wrong is probably far more
17:46interesting than what went right, because you could be right for all sorts of reasons.
17:51It's only in breaking down, I think I call it, and you're talking about doctors, so,
17:56you know, a little pun, stock topsy, right?
18:01Let's break down, let's do the autopsy on the stock.
18:03Where did we go wrong?
18:05What could we have learned or seen better?
18:08What other data should we have paid attention to?
18:10And it's...
18:11Oh, yeah.
18:12Your mistakes are, it's all about learning from your mistakes, for sure.
18:17Yeah.
18:18I mean, it's not fun.
18:19Don't get me wrong.
18:21It's far more insightful.
18:23But with that, Lewis, let's move along and kind of talk about some things that are happening
18:26now and just get your take on them.
18:30You know, as we're taping this, we're just coming off a rather large move in the market.
18:34A lot of it has been spurred very recently by this rollback in tariffs, this de-escalation,
18:40if you will.
18:41What do you make of it?
18:44Well, I kind of expected there to be a rollback from the very beginning because it was a
18:51shock that came to the system on the approach.
18:54There's a difference between how the initial communication, like, to the public on how
18:58we were going to deal with tariffs.
19:00You know, it wasn't feasible, like, right on its face.
19:04We knew it wasn't feasible.
19:05So we knew there would be some pulling back.
19:10And I think that it will continue to be more kind of a normal negotiations.
19:14I think what was good about that approach was that it got a lot of people talking very
19:18quickly and that the ball is moving a lot faster than say it would have been had we
19:22traditionally gone country by country, you know, and it also exposes the landscape.
19:30And I think that was that that kind of change, that approach did expose the landscape very
19:34quickly in terms of where various countries land.
19:38So in terms of as an investor, I think that the biggest thing is that you just have to
19:43understand that there's going to be winners and losers in this.
19:47And my biggest take on this is that most of what I'm seeing in the trends are really
19:55pointing towards interest rates staying higher, not going lower.
19:59And I can give you examples.
20:01Well, you can, but I'm more interested in why you think that's going to happen.
20:07Because if you look at the trend, that one is a trend of more capital investment, more
20:11capital needed here in the United States.
20:14Right.
20:15If you look at economics 101, if the demand for capital goes up, that real interest rates
20:19generally go higher.
20:21Right.
20:22Secondly, we have the immigration issue.
20:24Right.
20:25So if you have if you have wages, wage pressures going up, that's inflationary.
20:29Right.
20:30So a lot of people think that interest rates are only a function of inflation.
20:33They're not.
20:34They're a function of different things.
20:35Right.
20:36They're efficient.
20:37They're related to the demand for capital.
20:39They're also related to inflation as well.
20:41And capital flows in general.
20:44So if you look at it from really multidimensional standpoints, it looks like that longer term,
20:50they need to stay higher if those trends stay in place.
20:53Now, we could have a short term cyclical thing, right?
20:58That changes that where it kind of comes down.
21:02But I think longer term, the base interest rate is probably going to be higher than it
21:07was before.
21:08We were doing some crazy things with interest rates and that's got to be over.
21:11Right.
21:13And so we need to adjust our discount rates and how we value companies and the stock market
21:18in general is not really reflecting that, I don't believe.
21:23OK.
21:24OK.
21:25So you're saying that in terms of either growth expectations because of potentially higher
21:28interest rates or even, you know, most people quickly look at the P.E. valuation, but let's
21:33just say valuation metrics.
21:36Yeah, I think so.
21:37I think I think that there are some companies that still need to come down in price.
21:42And I think there are other companies that will benefit greatly, like like the gains
21:46that we're going to get from A.I. and productivity gains.
21:49I think that's very, very real and it's going to be substantial.
21:53But I also think it might there might be a lag there between like when we realize that
21:57fully and and other other dynamics, which will it's not going to happen in time for
22:02it to keep those rates down is what I'm saying.
22:05Right.
22:06You know, because typically gains in productivity, you know, that allows you to, you know, have
22:11a faster growth rate and not have inflation.
22:14Right.
22:15Are you saying the market might be once again getting ahead of itself?
22:19I still think, you know, the market I don't like general market timing is really difficult.
22:24Yeah.
22:25I believe that the overall market, if you had to kind of make an educated guess, is
22:30still ahead of itself, even though we've had a drop down, everybody's excited.
22:35And technically, we broke a very important level yesterday.
22:38You know, up to almost 3 percent on the S&P yesterday.
22:42And there was a there was an overhead supply level where there was a lot of selling interest.
22:46A lot of sellers were there and, you know, a lot of stops got blown out yesterday.
22:51And and so now the question is, are we going to clear that technically?
22:55So I'm looking at it from both angles, fundamentally and technically.
22:57So you're right now the technicals are refuting my fundamental viewpoint.
23:01So you're watching the 200 day, the 100 day, looking to see if we get some support or that
23:07becomes resistance.
23:09No, I'm not looking at the moving average.
23:11I'm looking at the levels itself.
23:13OK, so we we had basically we went into new highs and we had a bunch of support levels
23:18where, you know, the market bounced off those levels.
23:21Then we cracked. When you crack through those support levels, there was a lot of buying
23:25interest at those levels.
23:26Right. When you crack below it, that becomes what's called overhead supply or or roll
23:32reversal resistance.
23:33But where there's sellers that like likely want to sell there.
23:36Well, we did get a sellout.
23:37We got a rejection to those levels where the market sold off and then we gapped up and
23:42we broke through those levels yesterday.
23:44Right. That was a very important technical, you know, from a technician standpoint, that
23:47was very important. But, you know, keep in mind, it may not hold.
23:52I don't I don't know that it's necessarily going to hold.
23:54I don't really make long term investment decisions based on that.
23:57I'm just looking for clues.
23:59So what's certain companies like DocuSign, however, got a very big bullish signal, you
24:05know, throughout this. They had a nice base and it broke out very nicely.
24:09And that company still has a reasonable it's not it's not inexpensive, but that company
24:13has reasonable, reasonably good business model.
24:17So, Lewis, when we talk to other technicians, right, the concept of follow through
24:22testing, that sort of thing is something that they tend to talk quite a bit about.
24:26So given the scenario that you just described, what would you be looking for for some
24:32positive follow through that tells you that, yes, the market will go higher from here?
24:37Well, I think looking at individual stocks is the best thing to do in this kind of a
24:42situation, really always, because the leaders, the companies that have the good business
24:47models, if they start moving higher, then that's telling you where, you know, we're
24:50really in a bull market.
24:52And we very, very well may be heading into another leg up.
24:57This is what I told you. I like it.
24:59I like it better when my fundamentals match with the technicals.
25:02Right now, that's not happening.
25:04And because my fundamental thesis is still at least sideways, if not negative, whereas
25:10the technicals are telling me the exact opposite.
25:12They're saying you need to be long right now.
25:14OK. And a second ago, you mentioned, you know, paying attention to individual stocks,
25:18you know, a certain key group.
25:21What are some of the ones that you pay attention to?
25:23The ones that tell you, hey, we're going higher.
25:26Hey, look out.
25:27There's two there's two groups that I like to look at, and I don't want to mention too
25:31many names because I'm trading the names right now.
25:33I just give one or two.
25:35So one I would look at, like from a defensive standpoint, I would look at like a
25:40Constellation, STZ, because that company has a good business models undervalued and
25:46it's more defensive in nature.
25:48If that one is doing a lot better than, say, some of the growthy names like like a
25:52DoorDash, for example, then I, you know, or like Adobe.
25:56I think Adobe is in range right now, like in buy range, in my opinion.
26:00You know, you know, if those if the Adobe's of the world are doing better than the
26:04Constellations, then that's telling you bull market.
26:08They both have good fundamentals, but one's more growthy and the other one's not, if
26:12that makes sense. Yeah.
26:14So Fortinet is another one, FTNT, you know, and then more of your stalwart companies,
26:20you know, like like a McDonald's or like a American Express.
26:24Like, how are they responding?
26:26You know, to to the market.
26:28So and I want I want to really emphasize that I don't trade like heavy into the
26:33market, out of the market.
26:34You know, I'm more core long term and then I trade around it.
26:38So the bulk of the money is long term.
26:40And then, you know, so so that's how I look at the market.
26:43I also like to look at the companies that are like really fast growers that are just
26:47breaking into profit territory.
26:50You know, those types of companies, are they taking off in a big way?
26:53Because if they are, that means bull market.
26:56They always lead.
26:57Yeah, I think it's a greater appetite for risk is kind of what you're saying without
27:01saying it, right?
27:02Yeah. Yeah.
27:03Bitcoin. Bitcoin takes off, you know, that's telling you something.
27:07And right now, I think we've got the first kind of green light for many technicians.
27:12And and so and like I said, a lot of times the technicals will lead what the
27:17fundamentals will tell you.
27:18And we'll talk about it three months from now, you know.
27:21I kind of like I'm getting I'm getting over a cold and I've got a little bit of even
27:25though I don't smoke, I have a little bit of smokers cough, so I apologize.
27:29I mean, let me shift gears just a little bit and then I want to get into member
27:34questions. So, you know, we're coming off this trade deal.
27:39You know, we'll have to see what happens with inflation in the Fed.
27:43You know, there's the wild card of what happens with tax reform.
27:47Does it happen? Does it not happen?
27:48Earnings expectations for the second half of the year.
27:51There's a lot of moving parts that I think are going to come together, you know, June,
27:55July and August as we, you know, get ready for the seasonally strong part of the year,
27:59you know, September on the real year end push.
28:02Yeah. You know, from your perspective, you know, I rattled off a bunch of things.
28:07Is there any one or two things that as we go through the summer months that you'll be
28:11particularly focused on?
28:13I'm really looking at the tax, the tax part of things, because that's really going to have a
28:17big impact. And it's related to, it's also related to what happens with the tariffs,
28:24because there's revenue, potential revenue generation from tariffs, right?
28:28And or or constraints there thereof.
28:31And nobody really knows how the tariffs are going to work out.
28:34I mean, we're still working through it.
28:36But my guess is that it's not going to be a big deal.
28:39But I think the other part of the equation where we're investing more in the United States,
28:43which I do think it will continue to to increase, that will hold up interest rates.
28:48And I think that's going to the real fast growing companies that are way overvalued.
28:52They're going to struggle, I believe.
28:53And before the year started, I wrote an article about how I think that's going to happen and
28:57that we would have big downs and it would be a lot of money to pay for.
29:00And I think that's going to be a big deal.
29:02And I think that's going to be a big deal.
29:03And I think that's going to be a big deal.
29:04And I think that's going to be a big deal.
29:05I think that's going to happen and that we would have big downs and there would be a lot of a lot of chaos,
29:10because whenever you're dealing with policies like tariffs, you know, that's that's a very chaotic type of scenario
29:16because it's game theory.
29:18You don't know how the other side is going to work.
29:20So I'm really looking at taxes.
29:21And I really a lot of people this this whole new thing with the health care equalization of pricing and
29:28pharma, that is a big deal.
29:30That is an enormous deal.
29:32You know, I mean, you think about it like because we have I was looking up and just doing some
29:35research. A lot of countries have, you know, very long term contracts with their pricing.
29:40Right. And they're, you know, Japan, Europe, Canada, they're really price controlling.
29:45Right. And the United States is subsidizing.
29:47And we've been doing that for four years.
29:49In fact, I talked about that when I did my MBA.
29:51It's been happening forever.
29:53So, you know, that if we're immediately going to be doing that, it's going to there's going to be a multiple
29:59effect that some companies are going to do well and some are going to get hurt pretty badly, I think, because if
30:04prices if we move our prices down, who's going to pay it?
30:08You know, are they going to raise prices in Europe?
30:10And I don't know that it's all going to happen all at once.
30:13I think they'll be like dislocations.
30:15And we'll be talking about certain companies that are really going to get hurt by this.
30:19Yeah, it sounds to me like you're saying stock pickers market and know what you own.
30:26Yeah, you got to go stock by stock, especially now.
30:29I mean, we always say that.
30:30Right. And it's kind of cliche and it's kind of doesn't doesn't mean anything to anybody.
30:34Sometimes. But it really does make a difference whenever you have these kind of pothole scenarios.
30:41You could have any any one of your companies.
30:42You just want to look at it and say, how exposed are they?
30:45How are they? How exposed are they to various international exposures, tariff exposures?
30:51You know, that's been making up a lot of a lot of my time lately, actually.
30:56So you're very familiar with the SEC website and pouring through 10 Q's and 10 K's.
31:00Good to know, Louis.
31:01Good to know.
31:03Well, let's just say I don't I used to spend a lot more time doing that than I do now.
31:08I have a network of people that I talk to and that that are doing that.
31:13That's the best use of my time because I am advising clients as well as, you know, so I have, you know, people that trade for me and all that stuff.
31:19And I'm really trying to just set the direction for clients.
31:22And so I'm not I'm not rolling up my sleeves as much reading all the 10 Q's and 10 K's like I used to.
31:30But but I have been there.
31:33Sorry to say, I am still there.
31:34But, you know, tremendous amount of insight and information in those documents.
31:39And you've really got you've really got to read them before you do anything, in my opinion.
31:43But but with that, Louis, let's move on to those member questions.
31:47First one comes from a Street Pro member.
31:50Louis, how do you hedge a portfolio for high net worth clients?
31:55Mm hmm. Well, you can hedge.
32:00It's very difficult to hedge using options and things like that or futures.
32:03Many high net worth clients don't want to have exposures to futures.
32:07The best way to do it is I'm talking about stock hedging, you know, is to do it with a general market to do with the futures market.
32:15It's the best way to do it.
32:17But that's not really generally what I do.
32:19How I actually do it is more by diversification of strategies and diversification of asset classes, diversification of approaches.
32:30And that's really how we like, for example, coming into this year, you know, we put more money outside of, you know, we didn't have all that tech exposure that a lot of people did have.
32:39You know, we, you know, started pulling back on that.
32:42We started buying more into mid cap and lower, smaller cap names.
32:46And I wrote about that on the street.
32:48I also have a very large position in non equity exposure, shorter term fixed income securities, gold.
32:56We've made a lot of money in gold, you know, been on that that from when it was way down and it was basing moving higher.
33:04And it just makes all things point to gold going higher, even from today.
33:08And I've talked about I did pair back from gold, by the way.
33:10But so really own non correlated assets is the other way to do it.
33:16Some private, you know, about eight percent, eight to 12 percent of the portfolio is in private investments.
33:22This is something that's changed a lot since I've been in this business.
33:25We used to be able to get a lot more young companies coming in.
33:28Yeah. Oh, no, you're right.
33:30And we could get those 30 percent, 40 percent returners, you know, and we could buy them right and really profit.
33:38Now, a lot of that gain is being eaten up, you know, initially in the private markets.
33:43And then when they do go public, they're not as exciting anymore.
33:46So, you know, I've had I've kind of been forced to go into private markets.
33:51So you're referring to companies like a Klarna, for example, maybe.
33:55Exactly. So so so regulations have really hurt the average investor, in my opinion.
34:01Now, it is getting more democratized and more people are able to get in.
34:05But now valuations are not as attractive.
34:08I think going forward, we're going to see some people lose money in private markets and get disillusioned with it.
34:14I've seen that happen a couple of times in my career already where high net worth investors in particular.
34:19So we're very careful about private private investments.
34:22I'm very, by the way, I'm very, very leery with private credit.
34:26Private credit's gotten way ahead of itself, in my opinion.
34:29And the the risk spread, the spreads, you know, between the risk free rate and what you're getting on these highly risky debt
34:36instruments are just too small and people are not being compensated for that right now.
34:40All right. Well, we'll come back. Let's let's come back to that, Louis, because I'm happy to say that this is not a one and done
34:47conversation between you and I.
34:49You will be with us every month going forward and we'll even get to tap your your smarts as we speak with some other folks.
34:55So just let's let's table that for now, because I got three other questions I want to get to.
35:00One of them is, Louis, how do you know when to cut a position that isn't working?
35:06What do you look for? So my first, if something happens with the fundamentals that's against what I thought was supposed to
35:15happen, that's the first, you know, that's the first thing.
35:17The second would be the price itself starts breaking down.
35:21A lot of times the price will start breaking down and you don't even know why.
35:24You know, you know, that's that's that's an alert.
35:26It's like I need to look at this more closely because somebody knows something that I don't.
35:30It could be just panicking or somebody knows and you and you just need to dig, dig deeper.
35:35And sometimes you'll find out it's just something that's temporary and it's emotional, you know.
35:40So you never you never quote unquote know.
35:43OK, you know, you never know.
35:46You just have higher probabilities.
35:47It's all a scale between certainty and uncertainty.
35:51Right. Like, you know, it's a percentage.
35:53And then I position size based on that.
35:55Like for some time, like for some stocks, things will look OK fundamentally.
36:01But the stocks breaking down, you're automatically your position size is going down, you know, when that happens.
36:06But if something becomes bullish about that company and that's happening and you realize that that was wrong, then I will add more to it up to a certain amount.
36:15So you don't ever really know.
36:16But I would say the two big things is price is starting to break down.
36:20That's a warning sign. Look at it more closely.
36:22Second is you just learned something about the company that you didn't know or maybe you didn't get all the research right.
36:28And you need to just course correct.
36:30And course correcting is the most important thing when you're wrong, when you know you're wrong.
36:35Agreed. Agreed.
36:36OK, so I guess, Lewis, you wrote a piece a little while back on The Street Pro about ADMA.
36:42And the question is, how does XERS measure up?
36:46They're both biotechs.
36:47Any thoughts?
36:48I couldn't give you a good answer on that one because I don't have enough research on that company.
36:53I can't tell you.
36:54I'll tell you what, Lewis, right there.
36:56I'd love that answer because too many people like to shoot from the hip just to give an answer.
37:02And I personally, just like you did say, you know, I don't really know enough.
37:08And that's a great answer because the last thing you want to do is give someone bad information.
37:13Oh, yeah. I learned that early in my career.
37:16You know, because because people rely on me every day.
37:19Right. Yeah.
37:20Then when they hear me say something, I'm only going to try to say stuff that I think I have a reasonable basis to say it.
37:26Correct. And I can back it up.
37:28I'm never just going to just I really, really I'm very careful about that.
37:32Excellent. Because your reputation is gold, is everything in this business.
37:38One hundred percent.
37:40I could not agree with you more.
37:42Last member question, Lewis.
37:45And I don't think we talked about this, but how do you start identifying a new position for the portfolio?
37:54It can come from many different ways.
37:56It can come from just it could come from reading The Wall Street Journal even.
38:00It's like you'll you'll we all are endowed with some connecting the dots power.
38:06Love it. Love it.
38:08Love it. And you start seeing something and then you start getting a mosaic.
38:12And this makes a lot of sense.
38:15Sometimes it'll come from just scrolling through the charts and I'm seeing a company basing and starting to move higher.
38:22And I'm like, why is that company moving higher or the opposite?
38:25So a company has gone way down in it.
38:29And like, why is why is that company way down?
38:32You know, sometimes they'll baffle you.
38:33Like right now I own a position in Hershey.
38:35It's come down a lot and I started nibbling on it.
38:37And a lot of people. Wait a minute.
38:39Wait a minute. Did you just say Hershey and nibble?
38:41Yes. I started nibbling on the chocolate.
38:44Yeah, exactly.
38:45It got way ahead of itself.
38:46But now like you can justify its price.
38:49Of course, it's down two and a half percent today, you know.
38:53Anyhow. But yeah, so so it's really connecting dots for me.
38:58And then also talking to a lot of smart people.
39:00There's a lot of smart people that can give you ideas.
39:03And you should you know, you always got to do your own research and never just take a tip on your own.
39:08But I agree.
39:10But listening to other smart people is important.
39:12Yeah. I mean, you got to you have to do the homework yourself even after you get the idea
39:17to understand, you know, what you're owning, why you're owning it.
39:19More importantly, the the handful of times that I've just
39:24taken a flyer based on, hey, you should do this.
39:27I have to say it has never worked out.
39:30Never.
39:33It is a painful lesson.
39:34All right, folks. Well, remember, if you want your question
39:37asked and answered on the Streets and Markets podcast, you have to be a street pro
39:42member. So sign up.
39:44Louis, before we get out of here and believe me when I say this, you've been very
39:48generous with your time today.
39:50Is there any parting thoughts to the audience?
39:52Any anything we didn't talk about that we should?
39:56I think the biggest thing on my mind right now is to stay optimistic right now
40:01because we keep hearing all these negative things, you know, with the politics and all that.
40:05Stay optimistic and just keep a good, level headed, rational approach and you'll do
40:09fine over the long term and not get too upset about the headlines.
40:14I think that's some pretty wise, wise thoughts there, Louis.
40:19You know, if you I think if you become overly negative, right, you look to reinforce
40:24the negative and then you're going to miss the opportunity.
40:27Exactly. Keep your eyes open.
40:29Excellent. Excellent. Louis, thank you so much for joining us.
40:31I look forward to speaking with you in the months ahead, folks.
40:34That is today's podcast.
40:36Thanks for watching.