Announcer:
It’s time now on KROS for Financial Focus, brought to you by NelsonCorp Wealth Management. 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. Registered representative securities offered through Cambridge Investment Research Incorporated, a broker dealer member of 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:
Good morning. Welcome to the program. First Wednesday of the month, so the program is live. We’re going to continue to the bottom of the hour. Joining me on the phone is Dave Nelson. Good morning, Dave.
David Nelson:
Good morning, Gary.
Gary Determan:
So how are things going, sir?
David Nelson:
It’s a challenge like everybody else is dealing with right now. We’re very old school. I like sitting down with clients. I like getting the white board out and kind of trying to illustrate what’s taken place and walk them through as far as what’s happened, what we think is going to happen, etc. Needless to say, that’s not happening for everybody’s safety, what have you, so it’s been a challenge.
David Nelson:
But what we’ve basically done is we’ve tried to adapt, make some modifications. We’re doing a lot of call-ins these days, as far as where we open it up to clients to call in, and spend some time with them that way. Did one yesterday, and again, if time permits I’d like to maybe walk through some of that stuff.
Gary Determan:
Oh, that would be great. Yeah, we’ve got the time. We’re going to the bottom of the hour today, sir.
David Nelson:
Perfect. So big picture, and I don’t want to just have this be a monologue. I mean, if there’s something that you’d like to interject, please feel free. But big picture, what we’ve been discussing as far as with clients is kind of an analogy as far as that you’re driving on an interstate, and this is old school too. Again, this goes back probably 30 years ago, but I think it’s very applicable today, but you’re on the interstate. You’re driving at 70 miles per hour. Up ahead, it looks like there’s some fog there. The question is, what are you going to do? Are you going to drive faster, trying to get through it? Or are you going to drive the same speed, take your chances? Are you going to slow down some? Are you going to stop and just wait for the fog to clear?
David Nelson:
I think that’s what’s taking place as far as with individuals in the investing world today. At least it should be, it should be going through their head and it should have been probably taken place a month or two ago. So it’s basically getting clarity and being able to see through the fog and that’s really kind of the crux of what we’ve been talking about. The first bullet point that I really spent a lot of time on is the rally that we’ve had. So the market sold off the Dow, peak to trough, not quite 40%, but pretty close to it. Now we’ve rallied back from that and it’s been a pretty substantial rally that’s taken place.
David Nelson:
But if we analyze the rally, what we see is that it’s been concentrated in a very few number of stocks that have promoted and motivated this market to go up. That’s not healthy longterm. Now I’m not saying this doesn’t happen and hasn’t happened in the past, but longterm that’s not necessarily what we want to see. We’d like to see it broader.
David Nelson:
Just to give you one example. So the S&P 500 Index, like the name implies, it’s 500 stocks. Of the 500 stocks, if we were to break it down and say the top 10 stocks, how impactful are they when we look at the whole index? The answer is the top 10 stocks are 26% of the entire index. 500 stocks total, 10 of them make up a quarter. So again, this is unprecedented. We’ve had levels similar to this in the seventies before, but in the seventies we had a crisis that unfolded afterwards. This is a topic I’ve brought up probably for the last six months. We’ve been chatting about it here, as far as on the radio, on TV, etc, as far as letting clients know. Again, not a healthy condition.
David Nelson:
The next bullet point we kind of hit on and again, this one can take literally five, 10 minutes as far as to kind of walk people through, but it’s volatility as far as it’s defining risk and look at volatility, and then we’re discussing outliving your money. Most people, when they think of defining risk, they think in terms of the volatility that takes place in the market. We try to make that distinction. Again, in today’s world with CDs that are paying essentially close to zero, bonds that are paying, depending on what bonds you look at, if you bought a 10 year German bond here, you’ve got to pay them, as shocking as that sounds, that’s a true story. It’s negative 7.7%. But in the US we have high yielding type bonds today, a 10 year bond paying roughly 0.7%.
David Nelson:
So again, we’re in different times. So cash is pretty close to zero. We have bonds that are maybe 1% to 2%, maybe even 3%, depending on the quality of the bonds that you’re looking at. So those two become less and less day by day attractive. So then we go back to the ownership assets, which would be real estate, which again, I think people kind of think they understand it, but as we’ve seen, since the top of the market here a couple of months back real estate’s been thumped really, really hard as well. Then the other ownership would be stocks.
David Nelson:
So we all know, I think at least we all know that stocks and real estate, if you look over long periods of time have paid 5, 6, 7, 8%. As far as, as an average, the problem is you don’t buy the average, you buy today and you take what the today dishes out. Now, if a person were to buy this stuff, say two months ago, three months ago, today, you’re probably sitting with 20% less money that you invested. That’s in stocks and that’s in real estate, and that’s part of the price tag.
David Nelson:
So when we talk to clients, we go through, cash is pretty much zero, but you still probably want some there. Bonds are pretty darn low yielding as well, so we want some, but we don’t want too much there. Stocks and real estate pay the highest returns over a period of time but you have to know roughly when to own this stuff and when not to own this stuff. So again, that’s very key as far as to understand it.
David Nelson:
We tell clients when we have these discussions, there’s none of us that are perfect. Our job is to try to help them make better decisions pertaining to their money. In the discussions we go through we ignore because we have no competence when it comes to discussing the pandemic and how that affects the human being aspect. We do have competence when it comes to, how does this affect your wallet? It’s really key as far as to understand how this is impacting and how potentially it’s going to impact you tomorrow.
David Nelson:
So the discussions we have with people and we’ve had for nearly 40 years with people, is that we will be wrong at times and when we’re wrong, we hope that the losses are very minimal. Nobody’s perfect. Nobody knows the day to invest, the week to invest or the month. We’re trying to get the quarter right and if you can get the quarter, it will really help you minimize as far as some of your losses and it’ll maximize the gains.
David Nelson:
But when we’re wrong, and every person that we work with in this office, 1500 individuals, clients that we work with, when asked, when we’re wrong, do you want us to be wrong being too conservative or being too aggressive? As I’m sure you can guess, Gary, it’s always too conservative. “Hey, I don’t want to stick my neck out. I worked too hard for this money. This is all I’ve got,” etc, etc. So we say, we get it, and we’re not going to take undue risks. We’re going to take calculated risks as far as when appropriate. When not appropriate, we’re basically going to protect your money.
David Nelson:
To amplify what I just said, we have an army of people, that are empowered as far as to help in this decision making. We’ve got an outside entity that we write checks for six figures every year for independent research to help us help our clients make better decisions. They’re a bunch of nerds selling data to these nerds that are buying their data to help apply it to a client’s particular situation. Then on top of that, over the last seven years, we’ve hired two full time people that are solely focused as far as helping us make better decisions. There’s nobody out there as far as in the quad cities, there’s nobody in town here that’s going to these extremes. We oversee a lot of money, a lot of people’s hard earned money. We’ve got to make sure that we help them make good decisions. Is this a good time to take a break, Gary?
Gary Determan:
Yeah, that would be great. Again, Dave Nelson, NelsonCorp Wealth Management. Interesting things that you have to say. What are some of the reactions you get from the people you’re talking with, Dave?
David Nelson:
We have terrific feedback. I mean, the emails come flooding in after we’re done, saying, “Hey, we really appreciate the insight.” Again, it’s not to bore people to tears, it’s to try to bring value to the table. Give them stuff that’s helpful. Give them stuff that helps them hopefully relax a little bit more because as we tell people all the time, you basically hired us to do the worrying for you. We want you to go out, we want you to do what turns you on. Spend time with the kids, the grandkids, fish. I don’t care what it is, garden play in the grass, whatever, doesn’t matter, our job is to do this and then to communicate to you what we’re doing and why we’re doing what we’re doing.
David Nelson:
So it’s been really good. We’ve learned something. I mean, this has forced our hand to do things differently and we’ve really found a terrific way to communicate. So we’ve got clients in literally 40 States. This is a medium now that we can use going forward that we haven’t used in the past and certainly will be using it as far as in the future.
Gary Determan:
Yeah, no doubt. Good point. So, Dave, you’re telling me you’re doing quite a few of these call-ins with your accounts.
David Nelson:
Yeah. It’s been really helpful. Again, how do we communicate on a regular basis with individuals when you can’t get together face to face with them? This has been terrific. Most individuals that we work with have at one time at least tuned in. This is the third series that we’ve done. We went live yesterday at 10 o’clock and then 6:00 PM. We had a whole bunch of people. I think the first one, we had a little over 100 people that called in. The second one was over 200, and got some really good feedback. Again, these are some crazy times that we’re going through. I think you know Gary, and anybody that’s listened before, and I think the office in a big way, but certainly myself, have really strong opinions. I think there’s a lot of bad information out there that people hear and sometimes internalize.
David Nelson:
What we want to do, is we want to tell people from real life experience. I used to tell this story all the time, as far as Money Magazine. This was 15, 20 ago, and clients would want wander in with Money Magazine and say, “Well Money Magazine says to buy this.” I said, “I assume by you pointing to that, that you think that individual there is really knowledgeable and maybe has a little extra insight as far as to help give you an edge by doing this. Just curious, as far as they printed it and took a week to get it to you in the mail, and what have you, etc, etc. Do you really think you have an edge? I mean, at the end of the day, do you really think you have some special insight here?”
David Nelson:
I don’t want to be sarcastic here, but what I want to do is state facts now on top of that, and this is the gospel truth. If you go back and you look at the main writer, I’m going back again, 15, 20 years ago, the head writer at that point in time, writing all these articles was a gifted writer. The person came from when they came to Money Magazine, the prior job was popular mechanics. Try that on for size.
David Nelson:
That’s what we have a lot as far as that’s out there is people that are gifted as far as individuals, whether it be writing, whether it be speaking, but they have no experience of being in the trenches and dealing with real money, with real people’s money that they care about. They haven’t listened to the individual to try to determine what their goals and objectives are with this. They’re just writing generically that, hey, this is a good idea. Sometimes it is. Most of the time it doesn’t apply as far as to that individual’s particular situation. So what we try to do is again, to bring it back, make it real as far as their particular situation. So is that all right, Gary, if I slide on to a few of these others?
Gary Determan:
Yeah. That’s no problem, Dave.
David Nelson:
Let’s do it.
Gary Determan:
You’re doing a great job. I’m listening to what you have to say. It’s very intriguing.
David Nelson:
Perfect, so I’ve gotten through four, I’ve got a long way to go. I’ve got 12, so I’d better fly here as far as to try to get through this, but let me hit 08 and 09, the prior crisis, the Great Recession as we call it. The Great Recession, by October of 08, the market dropped 38% and people thought it was over. Then the market started rallying and then it kind of went down a little bit and then it rallied, and then it went down.
David Nelson:
So five times it did this up, down, up, down, up, down. It finally ended on March 9th of 09, so we’re going from October of 08 to March 9th of 09, so give or take five, six months later. The market at that point in time was down 57%. Most people thought at 38%, it was over. It wasn’t over. So that’s what makes us very nervous in periods of time like now.
David Nelson:
Now there is a difference between 08, 09 and what we’re going through right now. The government intervention, as far as putting money into the system was much slower then. This time we learned from that experience, so the politicians, as well as the federal reserve intervene rapidly, and with bazookas, not with guns, but with bazookas to try to stop this.
David Nelson:
Now time will tell whether it’s right. I’m not smart enough to know if it was the right thing or not. On the surface it certainly looks like it was right and it stopped the bleeding, but in a year, give or take, maybe even two years, we’ll be having discussions as far as how we’re going to pay for this stuff. It’s still too early and I’m not suggesting that again, it was wrong, but I am saying it has to be paid for. So the difference in 08, 09, [inaudible 00:15:21], let’s not forget that as far as what we’re going through.
David Nelson:
Next big item is a Breath Thrust. Now, it’s a crazy term. Breath Thrust. Basically, simplistically what it is, is heavy volume of buying as far as in stocks and very little selling. If you have multiple days that this takes place and you have levels of 10 stocks up for every one stock down, that’s defined as a Breath Thrust. Now we have short term Breath Thrusts and longterm Breath Thrusts. The short term fired, which is a fancy way of saying they engaged. Again, that’s a really good sign. The longterm Breadth Thrusts haven’t engaged yet. Again, that’s what keeps us very apprehensive as far as getting too bold in the market as we see it today.
David Nelson:
Another tool that we use as far as to measure risk, because that’s basically what we do. We don’t manage money, we measure risks and we help people make informed decisions as far as how much risk and is it worth taking the risk at this point in time? One of them is called risk on, risk off. As you can probably imagine, risk on is going to be typically small cap stocks, stuff that can pay you really, really fat returns, really good returns. High yield bonds, crude oil, things of that nature. That’s going to be in the risk on category. The risk off I think would be probably pretty obvious. Treasury bonds, so government, bonds, utilities, consumer staples. Guess what’s winning today? It’s not the risk on stuff that’s winning yet. It’s the risk off that are still in charge. Again, that makes us a little concerned about tomorrow.
David Nelson:
Next item, Spanish flu. Why do I bring this up? This took place in 1917, 1918, 1919 era during WWI. The bottom line is that particular flu was three phases. It was three ways. The first was a big wave. Wave two, wave three weren’t as big, but they happened. Again, this particular, if you listen to the medical experts, not people shooting off their mouth, but the medical experts, they’re still concerned. I’m still concerned, and I’m concerned about the human beings, but I’m also concerned about the impact it’s going to have on our clients as far as their net worth statements as well.
David Nelson:
Again, I just want people to be aware, as far as that. Warren Buffett, smart guy. Warren Buffett is sitting on $137 billion, $137 billion that’s sitting in cash right now. He’s down 21%. If you invested with him 1/1 of this year and you looked today, you’re still down 21%. He made some blunders, as he says, as far as with the airline stocks, he’s been hammered as far as the airline stocks, but the guy’s a billionaire and he’s done it through investing. He’s just been beyond brilliant, but he’s sitting with $137 billion in cash for a reason.
David Nelson:
Next bullet point, All Cap World Index. I spoke about the S&P 500 earlier. The All Cap World Index, as you can probably imagine is a world index. 47 different countries, small cap, large cap, mid cap. Now, if we look at this, we’re talking about the globe as a whole, the big economies. I mean, obviously the little economies aren’t factored in here, but 47 pretty big horses as far as in this race. If we look at that index and we look at how much the United States contributes to that index, we’re at 58% of the overall index. 7% is number two, and that’s Japan.
David Nelson:
Again, why do I bring this up? Because the advance that we’ve had has been very narrow. Narrow advances, in other words, few stocks advancing most, stocks sitting idly watching is not healthy longterm as far as the market is concerned. So 58% US, 7% Japan in number two slot. Again, everybody else much, much lower from there. So we want it to broaden out, we want a healthier market.
David Nelson:
Chevron, Chevron is a big oil company, everybody’s probably heard of them. We’ve had a lot of questions as far as about oil recently. We actually put out a three page kind of summary of what it looks like. We got a ton of people calling saying they want to buy oil because it’s been slammed. This was probably about two weeks ago and it’s got to go up from here, so we want to buy it.
David Nelson:
Little do they know as far as what they’re buying, they’re not buying oil, they’re buying futures contracts and futures contracts, as our farmer friends know are basically, I’m going to buy the option on this and then I’m going to turn around and sell this option before I have to take possession of the grain or before I have to take possession of the oil, in this example.
David Nelson:
What happened two weeks ago was that oil went negative. Just stop and think about that. How does something go negative? But it did because people had these contracts that they bought knowing full well, they can unload them hopefully for a higher price, but they couldn’t unload them, so now you have a dilemma. You have to take possession of the oil. Well, where the heck are you going to put it? The swimming pool is only so big. The tub is only so big. You’ve got to take possession.
David Nelson:
So what ended up happening for this to go negative was that you had to pay people to take your oil. Can you imagine that, pay them to take your oil? So again, it’s understanding that the marketplace out there, it seems so easy. It’s come down so much, it’s got to go up. The people that bought mid, late in the game, they lost a fortune. We’re not talking about a 10% loss. They lost, depending on when they bought, probably at least half their money, if not all of their money, depending on when they bought. So we don’t want that. So I know we’re getting close on time here. What have we got, Gary?
Gary Determan:
About a minute.
David Nelson:
A couple of minutes?
Gary Determan:
Yeah, you’ve got about a minute, Dave.
David Nelson:
About a minute. So just quickly, more calls, and again, let’s learn from other people’s mistakes, okay? So Martha Stewart, when she went public, give or take 20 years ago, her company, the phone rang off the hook around here. People wanting to buy Martha Stewart stock. As we told them then, and we told the UPS people when they wanted to buy it 20 years ago, when they went public, is we said, just wait, don’t try to buy in the IPL. Wait, six months to a year, you’ll be able to buy it cheaper, and they were. This crises and oil is too dangerous for the average person to be wandering into. Don’t do it. It’s a dumb move. If you go in that direction, almost 100% a dumb move. Don’t do it, play it safe, and again, seek out some good, competent advice.
Gary Determan:
Great advice from coming from Dave Nelson. Dave, thank you so much and be safe, okay?
David Nelson:
Thank you. You as well, Gary.
Gary Determan:
Thank you.
Announcer:
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. Registered representative securities offered through Cambridge Investment Research Incorporated. A broker dealer member of 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.