Gary Determan:
It’s time now on KROS for Financial Focus brought to you by NelsonCorp Wealth Management. The opinions voice in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representatives securities offered through Cambridge Investment Research Incorporated, a broker dealer, member FINRA, SIPC, Investment Advisor Representative, Cambridge Investment Research Advisors, Incorporated, a Registered Investment Advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. Now here’s today’s Financial Focus program.
Gary Determan:
Well, it’s not the first Wednesday but we’ll do here, January 8, Dave Nelson in. Didn’t want to bring you in on New Year’s Day.
David Nelson:
Yeah, right. Well, I appreciate that. Hanging out a little bit, getting ready to getting pumped up and watching some football. So it’s a great day for football and anyway, I’m thrilled to be here this morning.
Gary Determan:
Let’s take a look back to 2019 before we get into 2020. Just an overview of 2019 for NelsonCorp Wealth Management.
David Nelson:
Okay, so market’s cooperated. Did amazingly well as far as for the year and so the ripple effect of that are our office, spectacular to say the least. Things are good. I mean, we’re just chatting here briefly about the office and the quad cities and Davenport specifically that will hopefully be starting, as far as in March. Looking forward to that, as far as building that, getting that set up. We’ve got a nice location down there and things should be pretty good, as far as hopefully by the end of the year, we’re up and running and have that operation going. But overall, just a good year. I mean, if you look across the board as far as the major categories of investments. Real estate had a great year. Stocks had a great year. Specifically the US, much more so than the international markets, but international market’s quite good. Bonds actually had a decent year.
David Nelson:
So, I mean, again, top to bottom, pretty good year. As always, I’m always talking about what can go wrong, and again, I think that’s what people want to hear. They don’t want to hear what can go right. That stuff is easy. It’s what can go wrong, and what can go wrong when we look at today, there’s a lot of expensive stuff out there because of the push that we’ve had. I mean, any time you’re up 20-30% in a given year in something, you probably pulled forward some big returns and that’s the concern. But 2019, good year and again, across the board, as far as getting back to our office, specifically, we’ve had a lot of head count, I think we’re up to 23, 24 individuals now as far as between accounting and the financial services side out of the Clinton office, working in Dubuque, Clinton and Davenport and fortunately doing a really nice job. We’ve got some really talented individuals, to say the least. So we’ve been very blessed in that regard.
Gary Determan:
Looking back, did you ever envision what-
David Nelson:
Never.
Gary Determan:
…what would transpire? I mean, you’re talking about the three offices you’re going to be building in Davenport. Over 20 people, the accounting part of it now. I mean, there’s no way you could have imagined that 20, 30 years ago.
David Nelson:
Never, and I’ve had people bring it up and I’d say I’d like to say that this was the master plan, but there was no plan, it was just grinding out and just work hard. I said growing up I learned a couple things from my parents and that is hard work and honesty and I think if you do that, I think you can be very successful and have a happy life. Certainly from our standpoint, it hasn’t been easy by any stretch of the imagination. Going back to the 80s, boy, it was… I left a job making $22,000 a year back in 1981-
Gary Determan:
Which wasn’t bad money.
David Nelson:
…which was good money back then. I mean, that was $9.90 an hour I was making, as far as, and I had benefits coming out my ears. Left that and two years later, my gross income was a little over $6,000. So needless to say, I was second-guessing myself all a lot along the way there. But stayed with it and I’m glad I did. It’s been a great, great career. Got several family members as far as a brother that’s been working with me for a while. Brother-in-law I’ve been working with for a long time and now a son-in-law and two sons and I may be even forgetting one. I think that’s it, but it’s desirable. A lot of people, “I don’t know how you work with your relatives.” I said, “Well, when you have outsiders, there’s always issues too.” I mean, there’s going to be problems, but I parallel it this way. I said, “It’s 90/10. 90% good, 10% bad. Most employees it’s probably going to be 50/50. So, you know, it’s a win. It’s worked out to be a really good decision.
Gary Determan:
You know, I don’t want to say things have snowballed, but any idea how this all came about, that this growth came about?
David Nelson:
So it’s several different directions and some of it, to a degree, planned. Not the specifics that have taken place, but the concept. You know, the accounting, we said 20 years ago, we want to do it and we’re just big chickens and didn’t really pursue it like we should have. And finally, we pursued it and that took off and that’s working out to be a really good decision. I think the business model of the future is having law, the accounting, as well as the financial planning side of it under one roof and that’s certainly what we want to do and I think that’s made a big difference.
David Nelson:
The other things that’s made a big difference, just the visibility. Through a lot of the speaking that I’m doing now, as far as around the country. I come across individuals, as far as from other offices that will want to talk to me. Like the example over in Honolulu. This was a gentleman, he’s 64 years old and he said, “I’ve been a lone wolf way too long and you have a lot of stuff that I need and I want. Bottom line, can we put together some type of a partnership?” And so that’s how that came about. We’ve got one north of Chicago. Same thing, same concept how it came together. I was telling the story. Actually, I was in Honolulu speaking, and he was in attendance and one of the phrases that I brought up… The topic was about bringing family members into the industry. The pros, cons and some advice, as far as what to do. And I brought up, I said, “I feel very comfortable having my kids basically be at poverty level, as far as their income level.” And the room erupted, to a degree, I think they thought I was joking, and I wasn’t joking.
David Nelson:
I was very serious as far as I want my kids to get it. I want them to suffer like anybody in this industry’s had to and many other walks of life. It was not going to be an easy path and they weren’t going to be treated any differently as far as than somebody else. So, again, good work ethic and so they’ve been through the last, I don’t know, seven years, probably, give or take, working either part-time with me, going to college and/or now working full-time. It’s been a grind for them as well, and that’s what I wanted. I want them to understand the both sides of it. This isn’t, as my sister brought up years ago, “Must be nice to have a schedule that’s flexible.” And I said, “Well, I don’t stop.” My day is 18 hours, probably, is a pretty normal day thinking about or being at work and so it just doesn’t shut off and that’s just the choice I’ve made. I mean, other people are doing what I do, but they don’t put in that effort, but I believe this is the correct way. So they’re paying a price too, and in that regard, been really good.
David Nelson:
I think it’s been that and the other really important piece was bringing in back office people. In other words, people that aren’t interfacing with clients and so we have an individual as far as that’s doing that. I went up, I spent a whole bunch of money to have this person, it’s called strategic coach. The guy’s name is Dan Sullivan, he’s in Toronto Canada, and he’ll be a coach and you go up there and you write a massive check. And it’s a three-year commitment and you’ve got to go there. You’ve got the hotel, the flights, all this stuff, in addition to the fat fee you’re paying this guy. What I came back with were two things. He says, “You’re really good at two things and only two things and you’ve got to understand that. You’ve got to act on that.”
David Nelson:
So for me what it was, is it was going to be interfacing with clients and it was going to be doing this type of stuff. Whether it’s public speaking as far as TV, radio, doing it as far as in group gatherings, whatever. That’s what I need to focus on. He said, “The rest of the stuff, you’ve got to find people that are good at that and people that want to do that type of stuff.” And so I have that person behind the scenes now and our operation today, I’m willing to bet, in 10 years, will be triple the size we are right now. We have a business model that works and we have a business model that we’re able to… We spent an enormous amount of money building this stuff out and bottom line, it’s ready and so many outside offices are tapping into that and subsequently allowing them to grow quicker and us to grow quicker and do a better job as far as the individuals we work with.
Gary Determan:
Now, very interesting listening to you talk about the growth of NelsonCorp Wealth Management. Of course, you’ve been there from day one, naturally. But you know, sometimes you see businesses, and I’m sure you’ve seen it a lot more than I, that things are going well. So let’s expand our horizons a little bit more, then things don’t go as well.
David Nelson:
Correct. The key is personnel running that. I mean that’s where things start falling apart. Having competent people, committed people. As far as outside locations, offices, whatever it happens to be. So we’ve been very hesitant. I mean, when we set up our operation down in the quad cities, that was the first expansion, it took, I think it was eight years before we had a person down there full time and I kept getting so much static from people. “Why do you have the office if you don’t have it staffed?” I said, “Because I’ve worked 30-plus years at that point in time, I am not going to put my reputation at stake with some stranger that I’m not familiar with.” Because, again, obviously, in the line of work that we’re in, we’re advising people on really important stuff, that being money. We’ve got to have the correct people. So we had a couple from here move down to the quad cities and so that was now the core to be able to oversee it.
David Nelson:
We’ve grown to a point, and for those that don’t know, we’ve got a little slip down there. Just a 1200 square feet. We’re inside a strip mall-type set up and it’s worked. It’s been okay, but again, it’s at a point where it’s not going to be big enough. We’re in discussions down in the cities, as far as with a separate accounting firm that we think we’re probably going to be putting something together with as far as down there. They’ll probably have a big chunk of the operation as far as in the cities. We’ll stay in our back yard. They’ll stay in their back yard. It’ll be a really good set up as far as down there.
David Nelson:
The outside offices, and again, excluding Dubuque and the Davenport office, is probably the area that’s most intriguing to outsiders, and that is that, again, people have that our own little offices set up and they’re interfacing with their clients on a day-to-day basis. Many of which are, to some degree, a one-man show, a one-woman show and so they don’t have a future plan as far as for their operation, if something were to happen to them. If they became disabled, died, whatever, and so the one in Honolulu, very much that way. He’s bringing kids in, eventually, to the operation. But he needs some stability as far to it, that’s what we’re going to bring to the table there.
David Nelson:
The two offices in Des Moines that have their, again, own office, and we do the back office stuff. Neither one of them have any, they have a support person, but they don’t have anybody stepping in as far as to interface with clients. So we have a buy-sell agreement as far as to provide that. And we have, fortunately, sources as far as we believe, to find good people as far as to do that. We won’t have anybody from here that will be working that, but we’ll get somebody as far as out there. So it’s an interesting approach, and again, in my wildest dreams I couldn’t have done this as far as I don’t have the skill set.
David Nelson:
As far as going back to the coach that I went to, as far as to slap me around and made sure that I was doing what I should do. He basically said, “You focus on what you’re good at.” And what I’m not good at is personnel. I hate it. I’m not good at it and subsequently we got somebody as far as in that position, behind the scenes. I have no idea how computers work. I don’t want to know how they work and bottom line, we’ve got people as far as to take care of those functions. We’ve got great office staff that’s been taking care of things. Communicating with clients on a very regular basis. Organizing all the gatherings. I’m going to be down in the cities here in about two weeks on WHBF, channel four. They have a morning half an hour program where they bring in community people to talk about what’s happening and a round-table of some sort. So I’ve never done that before with them, but looking forward to that.
David Nelson:
Again, it’s just trying to take what we’ve basically learned and built and help other individuals help other individuals and that’s the goal. We want people to be financially independent. That doesn’t happen easily. There’s a quicker and a better way oftentimes, and again, our goal is to try and help people get to that point that they want to get to.
Gary Determan:
And visiting with Dave Nelson, very interesting. We didn’t know we were going to talk about this subject.
David Nelson:
I thought we were going to talk about basketball.
Gary Determan:
Oh yeah. I am going to see your girls on Monday-
David Nelson:
All right. Good, good.
Gary Determan:
…they’re playing a ballgame with Dubuque Waller. But let’s take a look at 2020 now.
David Nelson:
Sure.
Gary Determan:
How do you see things?
David Nelson:
So I’m nervous, but I’m always nervous. I think I’m a little more nervous now than most times, and it goes back to what I hinted at earlier. There’s different way to measure, as far as markets and how expensive they are and how they’re not expensive, what have you, at the various levels. And there’s a lot of different paths and ways to go about calculating that. The most common is a PE, price to earnings ratio. It’s a way of looking at earnings versus the current price and then putting a multiple on that. History says 15 to 17 is pretty normal, as far as for that measurement. Today we’re north of 20. That makes me nervous. Now is that the highest it’s ever been? Nope. Is it the lowest it’s ever been? Nope. But the average, we’re up what’s called one standard deviation above it, which makes me nervous.
David Nelson:
Other methods of looking at this. My favorite is probably what’s called the Schiller Index and this gentleman Schiller, he’s a professor at Yale. He’s a very bright man and he’s created an index and it’s called the Schiller Index after him. So he’s most well known for his real estate index where, again, you try to… because real estate is so fragmented. Is real estate overpriced locally here compared to Santa Monica, California? I mean, it’s very difficult. So he’s created kind of a method, in a way, to kind of organize that and to try to help people make better decisions. He’s also created one, which isn’t as well known, as far as for the stock market. And what he basically has done, is he’s taken a different approach than what most people and how they value the market.
David Nelson:
Most of the time it’s valued on projected earnings. Okay, what’s going to happen tomorrow? Well, he doesn’t do that and the reason he doesn’t do that is, he says, is because they’re always inflated. They don’t happen. We have Wall Street analysts that, “Oh, this company’s going to make $8 a share and it ends up being six.” Well, that’s a big difference when it comes to what the stock is worth. So what he does is he looks in a rear view mirror and he goes back over a 10 year period. In the last 10 years, the market did this. The next 10 years, we think it’ll do this, if the history repeats itself and this pattern continues. Basically what he’s concluded, in a nutshell, cutting to the bottom line. If you’ve had a good last 10 years, the next 10 years aren’t going to be as good. That’s the conclusion.
David Nelson:
So it’s not perfect, but it’s probably the most reliable. But that doesn’t help you as far as day to day. That’s looking at long-term trends. So then you’ve got to drill down and try to get in tighter and try to look at it today and say is it overpriced, and that’s where some of these other things come into play. But bit picture, there is no question about it, the US stock market is expensive. I don’t care what anybody says. It’s kind of like talking about whether we’re in a recession or not in a recession, a year ago and two years ago and whatever. Nobody wants to use the R word because this is just really poison for the market. The reality is that many parts of the world have been moving backwards, not forward. The US has been pretty much the exception, as far as in that regard. US the odds of recession this year are pretty minimal, but minimal is typically going to be 10-20%.
David Nelson:
Recessions come out of nowhere. People think it’s easy to predict. It’s not. So we don’t really know, and that’s the stuff that keeps us awake at night. So why does it keep us awake at night, is because we have the bulk of the people that we work with are self-made. What they have is what they basically have worked for. They don’t have an extra half a million or million dollars in their account. Whatever they have in their account, they need the income from that and if this thing gets torpedoed and the bottom line it rolls over in a significant way, they have a big problem. That’s a huge responsibility that we have as far as to help people make good decisions pertaining to their money.
David Nelson:
Now, everybody wants the upside and nobody wants the downside. So the goal is to try to help get them a lot of the upside and minimize the downside. When you look in the rear view mirror at stuff like that, what it does is it allows your money to compound faster. And the way I try to illustrate that is through a gentleman, he’s the most brilliant person I’ve met as far as investing. His name is Peter Lynch, and Peter Lynch said you’ve got to give everybody this test, and I know I brought it up as far as in the program, but we probably have a few new ears that haven’t heard this before. This is really important folks, as far as pertaining to investing. Really important. That is you have a block of money, so let’s just use a hundred grand, $100,000 for an example.
David Nelson:
The first year, you’re up 50%. Next year down 50%. Where are you? Well, your impulse says you’re back to where you started, but you’re not. So you started with $100,000 and grew 50%, so you’re at $150,000. Now it gets cut in half, it drops 50%. You’re not at 100, you’re at 75,000 and he said, “That’s how I manage money. You’ve got to understand as far as this is the secret. You’ve got to learn to cut your losses.” How many times have you heard people say, “Well, I’m young enough, I can ride it out.” What the heck does that mean? That is one of the dumbest comments I think I’ve ever heard, but people have it in their head because of people in our industry that have polluted their brain with that type of information and it’s wrong and again, the bottom line for people to amass money so they can be financially independent at some later date, they have to learn to cut their losses.
Gary Determan:
I hope people are enjoying this, because they’re…. You are-
David Nelson:
I’m wound up this morning.
Gary Determan:
You are on a roll here this morning. There is no doubt about that. So 2020, you’re a little nervous about it-
David Nelson:
Yes.
Gary Determan:
…but you know, just stay the course, I would imagine, sound advice will be the best.
David Nelson:
Sound advice will be the best and again, don’t ignore indications as far as that things are beginning to wobble a little bit. And again, what we’re doing, as far as for clients, this is our job on their behalf, is to make the proactive moves, not wait to react after the fact, but proactive moves. So one of the proactive moves is we’re much more apt to buy international emerging markets than the US. Now we still have a fair amount of US stocks, don’t get me wrong. But we’d like the future of the other areas because they’re’ cheaper. Bonds concern us, there’s a better way, probably, than bonds as far as for most individuals today, to look at supplementing the bond position in their portfolio. Lastly, real estate’s had a really big run. Be careful there. We see it locally, as far as how prices have come down, farmland. That’s totally different than the world we exist in, which is publicly traded stuff, but that too is quite expensive.
David Nelson:
So just be careful. In 2020, if you’ve been invested the last several years, you’ve made a boat load of money. Don’t continue just to keep riding it and saying this will continue forever because it’s not going to. So probably some good advice. Take a few bucks off the table, be hard on your people that you’re working with. Make sure that they give you good answers. Ask some good questions about playing defense at certain points in time, and if you don’t get the answers that you’re looking for, call somebody else, because there are people out there that understand how to protect your capital.
Gary Determan:
David, thank you.
David Nelson:
Thank you, Gary.
Gary Determan:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. egistered representatives securities offered through Cambridge Investment Research Incorporated, a broker dealer, member FINRA, SIPC, Investment Advisor Representative, Cambridge Investment Research Advisors, Incorporated, a Registered Investment Advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information visit our website at www.nelsoncorp.com
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