Brian Perry

In addition to overseeing Pure’s investment offering and platform, Brian works closely with Pure’s financial advisors, helping provide them with the tools and resources necessary to serve their clients and continue the firm’s mission of providing the highest quality financial education and planning to as many people as possible. He has been actively involved in [...]

Is the Federal Reserve about to start cutting interest rates? Can the Magnificent Seven continue driving stock markets higher? Will domestic or international politics sink the markets? In this webinar, Pure Financial Advisors’ Executive Vice President and Chief Investment Officer, Brian Perry, CFP®, CFA, provides a master class on the state of the financial markets, the economy, and the world.

Free download: 10 Steps to Improve Investing Success


  • 00:00 – Intro
  • 00:49 – Economics: Inflation Trends Toward Historical Norms
    • Federal Funds Effective Rate and Expectations
    • 10-Year Treasury Since 1962
    • 30-Year Mortgage Since 1971
  • 05:38 – French: Tres Magnifique
    • 2023 Was Great If You Stayed the Course
    • Nvidia Revenues Skyrocket, as Does Its Value, But Revenue Not as Much as Stock
    • Magnificent 7 Has Been Driving Gains – Good News is Priced In
    • Most People Love a Sale
    • History: Fortune 500, 1955 Do the Big Keep Getting Bigger?
    • Environment Drives Success: World’s 10 Larges Companies by Market Capitalization, ex Berkshire and Aramco
    • The Dutch Tulip Craze (1636-1637)
    • The Dot Com Boom (1994-2001)
    • The South Sea Bubble
  • 34:19 – Statistics & Probability: GRANOLAs, GSK, Roche
    • Magnificent 7 vs. GRANOLAs
    • Time Mutes Volatility: Range of stock, bond and blended total returns, 1950-2023
  • 41:34 – Political Science: Gas Crisis, Russia-Ukraine War, Oil Crisis, Middle East, Israel-Gaza War, Impact on Shipping Routes
    • The BRICs – current and future members
    • Consumer Confidence and Political Affiliation: Percentage of Republicans and Democrats Who Rate National Economic Conditions as Excellent or Good
    • Economy and Stocks Under Different Regimes
    • Election Year and the Hypothetical Growth of $1 Invested in the S&P 500 Index vs Party Control of Congress, 1926-2022

Free Financial Assessment


Brian: Good to be here, everybody and welcome, and I’m gonna dive in because there’s I feel like I say this every time, but there’s a lot going on. And if you don’t like what’s going on, just wait a minute. I’m coming to you here from Colorado. This past weekend, I was wearing shorts. Yesterday, it snowed. So if you don’t like the weather, wait a couple minutes, kind of the same thing with whether it’s the economy, politics, the vibe of the market. It seems like it shifts every couple days. Right now we seem like we’re in a reasonably good spot again. So let’s dive in and for those of you that like school, you’re in a good place, because I made this like a classroom lecture kind of thing. And for those of you that hated school, well, you might be in the wrong place, because I’m calling this Financial Markets Masterclass. And I’ve titled each segment for one of your favorite subjects in school.


And I’m going to start with economics. So, let’s talk some economics. And let’s start with inflation. And inflation has really been the story for the last two and a half years, 3 years since Covid. You know, that ramp up, we saw an inflation back in 2021, 2022 peaking close to 9%. You all noticed it, I’m sure as you went to the food store or wherever you are, that things were getting more expensive. That’s beginning to moderate and we’re getting closer to historical norms. But inflation is proving to be a little bit stickier than maybe some people had expected. And while we all wait for the Federal Reserve to ease monetary policy and reduce interest rates, they want inflation to come down and, you know, it’s been said that rather than thinking about what you want the Fed to do or what you think the Fed should do or whatever, listen to what they say. And the Fed’s telling you that they’re going to be very patient about lowering interest rates and that they want to see tangible signs of inflation moderating. And we’ve seen that, right, as you come over here onto this chart you can see over here on the right-hand side inflation’s come down quite a bit again, almost in the normal range. But at the upper end of that and so we need to see inflation continue to come down and some of that progress has stalled here a little bit in the last couple months. So what does that mean? Well, what it means is that Federal funds remain in place at the same levels they have been, which is 5.25% to 5.5%. So although the Fed appears to be done raising interest rates, it doesn’t look like they’re going to lower interest rates just yet. There was some talk that maybe in March they would. Those odds have decreased quite a bit and you see here, again, on the right hand side of this chart, the spike recently in Federal funds rates after a long period of close to zero interest rates. But look back a little bit longer term and you can see that the level we’re at is not that unusual. You can see that certainly in the early 1980s, we’re at high levels, but even back from most of the 1960s, ‘70s, ‘80s, and into the early 2000s, Federal funds rates or short term overnight lending rates in that 3%, 4%, 5%, 6% range, really not unusual.  What about future? So when we look at the Fed funds rate projections, you can see that whether you’re looking at what the Federal open market committee is saying, or what market expectations are pretty much everything, everybody thinks they’re going to go lower. Ultimately, of course the Federal open market committee, they’re the only ones whose opinion matters. We’re all welcome to have an opinion, but I don’t know that the Fed cares what I think about what they should be doing with monetary policy. I will say for those of you that have been on these webinars in the past that if you look back 12, 18, 24 months, I was extremely critical of the Federal Reserve. And historically, I think that they’ve done a really good job. At least my career started in the mid-90s. And in that time, I think they’re tasked with a difficult endeavor. And I think that they’ve largely done a good job with monetary policy. I think they did a horrible job in letting inflation get out of control the way it did, saying it was transitory when it clearly was a little bit not transitory.  That being said, let’s flash forward to the last 12 months. And I think the Fed has done a magnificent job of managing to raise interest rates without cratering the economy or without tilting us into a recession, at least not yet.  Let’s get some more historical perspective on the economics. This is the 10-year Treasury since 1962, and you can see the long decline from the early ‘80s, right? And that’s the great moderation in interest rates that really provided a tailwind for so many risk assets or investments, whether that’s your home, whether that’s commercial real estate, whether that’s bonds, whether that’s the stock market, commodities, all really benefited from that long decline in interest rates. And then, of course, in the last 3 years or so, we’ve seen interest rates rise. But we’re still at historically normal levels, where if you look a little bit longer, having a 10-year treasury at 4%, 4.25% is not high compared to historical norms.  And the same thing goes for those of you looking to buy a house, right? Here’s mortgage rates since 1971. Mortgage rates at 6%, 7%, maybe 8%, depending on where you’re at. Obviously a lot more expensive to buy a home. There’s I’m sure a number of you on this call that have a refied mortgage at 3% or whatever and congratulations, you probably don’t want to move anytime soon. Because if you do you’re going to give that up. So this is one of the reasons here that housing has been relatively slow and it’s simply that if you have a 3% mortgage and you’re thinking of moving, you’ve got to bake into the calculus the fact that your mortgage rate’s going to double or more, regardless of the price of the new home that you buy. And so that’s caused a lot less inventory on the marketplace. That’s caused less activity. That’s caused a slowdown in a number of the housing related sectors. But all else being equal again, mortgage rates where they are is not that high compared to historical averages, although much higher than most of the last 10 or 15 years.

French: Tres Magnifique

Let’s shift gears and, shift to French, très magnifique.  That’s my butchering the French language. I’m sure that there’s somebody else out there that could do it better. but this is my webinar, not yours, so I’m going to go with it.  Très magnifique. So this refers, of course, to the market recently in the Magnificent Seven, except I was looking for something in French to keep with the theme. And when we look at the market recently, this year is off to a good start, and let’s look at last year. I think this slide, although it has a ton going on, is really instructive.  When you look at last year in the stock market,  46% of the days in 2023 were down, almost half. Right. So if there’s, I don’t know, 225, 250 trading days means 120 trading days or something like that were down. 120 days. So 4 full months’ worth of days last year, you lost money in the stock market. A little bit more than half 54% of the time you were up.  And you can see that in one week here in one couple of month period in the Fall, at late Summer, in the Fall, you lost about 10%.  Then back in March, you might remember that mini financial crisis we had with a couple banks going under. Despite it all, at the end of the year, this is the S&P 500. The first 10 months you were up about 8% and then you rallied into the close up 6% and you wound up 25% gains for the year, 26%. So a great year in the stock market despite a lot of volatility. This gets back, and I’m going to talk more about it later, but probabilities. When you’re investing, you’re simply playing probabilities. It’s like being in a casino, and I say that in a way I’m not comparing investing to gambling. What I’m comparing investing to is being the casino, not the gambler. Think about the casino. They know that when somebody steps up to the roulette table or the blackjack table, there are times that that person is going to win and the casino is going to lose a lot of money, but they also know that the odds are in their favor and the more people play, the more likely the casino is to make money. Markets are, in a lot of cases, the same thing, where if the market goes higher, over time, you want to be invested in. It doesn’t mean it goes higher every day, it just means that over time, if half the days, or 52% or 54% of the days, the market is up, the odds are in your favor. And if you can ride out that volatility, you’re going to wind up in a good place. Riding out that volatility gets down to something, and this isn’t really the topic for today. But it gets down to your asset allocation is, do you have a mix of different assets that allow you to stay the course where you’re not up at night, losing sleep? That gets down to what’s your required rate of return? What return do you need to meet your financial goals? Which in turn gets down to your financial plan, which is what sort of return do you need in order to accomplish your goals? What are those goals? What are your future cash flow needs, your tax situation, etc.? Those are all the things you need to flesh out in order to then stay invested in the market in an appropriate way and ride the long-term upward trend.

Kathryn: How soon after, this is regarding Fed now and whatnot, but how soon after the Fed starts cutting rates, do you think that will affect my interest that I’m earning on a, my cash money market account, which is currently earning about 5. 2%?

Brian: Yeah, it depends. And so the shorter the term of an investment, the more influence the Fed has. So, they have an impact on the stock market. They have a larger impact on long term bonds, but the most direct linkage is short term investments.  In general, it really depends. Some banks will lower interest rates immediately. Others might wait 60 days, 90 days. But I would guess that if the Fed begins lowering interest rates within about 3 or 4 months, you would start to see the rate on your money market decline. Simply because those are generally invested in anywhere from, you know, one week to 11 month investments, which will start to mature off and then get reinvested at potentially lower rates.

Kathryn: Right, and now you may be getting to this later, but should investors avoid, because this has been big in the news, the Nvidia, so should investors avoid Nvidia,  and other of those magnificent, stocks out there?

Brian: Yeah, that’s actually, so for whoever asked it, that’s actually a pretty good segue, because my next slide is actually on Nvidia. So let’s talk a little bit about it, just because it’s been in the news so much, and a bunch of numbers on this slide, but this really looks at Nvidia’s quarterly revenue, and I want you to focus on the top column, or the top row, I guess it is, where you’ve got data center. And,  historically, Nvidia, I’m not a gamer, but historically, Nvidia has been known for making gaming chips, and that’s right here, but this top data center, and you can see the revenue exploding where it was in the $3,000,000,000 range jumped to $4,000,000,000. And then here in the last 6 or 9 months, it’s jumped to $14,000,000,000.  So that- that revenue growth, that explosion there has really driven the stock price higher. And so if you look, now, all of a sudden, Nvidia is one of the 4 most valuable companies in the world. And so you can see Microsoft, Apple, and again, this is as of about a week and a half ago, so these values have changed slightly, but Microsoft, Apple, Nvidia, the only other company up in this stratosphere is Saudi Aramco, which is the, the Saudi oil national company, which is partially listed on the stock exchange as well. So, Nvidia for a while was worth two, excuse me, $2,000,000,000,000. One of only 4 companies in the world to do it.  And you can see that they do it with not many employees, right? It’s a pretty lean operation if you look down the right-hand side with only 26,000 people compared to 1,500,000 at Amazon and 200,000 at Microsoft and Apple and Alphabet. So really just tremendous growth from Nvidia. And why?  Why is Nvidia growing this way? Well, holy cow, AI, right?  Some of you may have heard of that, artificial intelligence. It seems to be a thing right now.  I don’t know. I mean, I’m a child of the ‘80s. I remember the Terminator and I was like, oh, no, AI. It seems like a bad idea, right? We’re going to wind up working for the robots or getting killed by Arnold Schwarzenegger or something like that with, you know, no pun intended there. I know a lot of us are Californians or former Californians. So no, no pun intended there about Arnold as governor. But just in the movies, right, he’s killing people and it’s artificial intelligence. And now it’s here. And just in the last 12 months, AI starting with chatGPT and now across a lot of other systems has really exploded to the forefront of the public consciousness. And this chart looks at time to 100,000,000 users in months. And you can see WhatsApp is 50 months and Facebook and SnapChat are 40 months and Instagram, you know, 25 or 30. And then we could chatGPT almost instantly, boom, it comes out and people are using it and just that explosion of AI has caused a mad scramble among investors for companies that can benefit from AI. And this right here, this data center line, this is Nvidia benefiting from that surge in AI spending.  And the left-hand side here is another look at, okay, Nvidia’s revenue on the left-hand side. You can see again, it going more or less parabolic. The right-hand side is Nvidia stock also going parabolic. The one thing I would caution you to look at, though, is just look at the scale. So if Nvidia’s revenues in the last 3 or 4 years have gone from, call it $12,000,000,000 to $44,000,000,000, that’s what three and a half x. That’s really good. That’s really really good. But then you look at their stock price and it’s gone from I don’t know $50 to $720 which is 14x, 15x. So, you know if your revenue goes up 4x and your stock price goes up 15x. Well, that means one of two things. Either a) well, it means one thing is that there’s a lot of good news priced into your company. There’s a lot of expectations that revenue, and with it, profits are going to continue to grow very quickly. So either a) the company is overvalued, or b) the company is going to continue to grow at a phenomenal pace. I’m not here to stake a, you know, something in the ground saying which of those it’s going to be, but I will say that there’s a lot of good news priced into Nvidia and a lot of these stocks. Then again, we saw Nvidia come out with earnings last year, last week, where there was a lot of pressure on them. The stock was- had done really well, and if the Nvidia’s earnings weren’t great, the stock was going to get crushed and Nvidia absolutely blew away earnings and the stock soared. And so it just because something has a lot of good news priced in doesn’t mean that it can’t meet or even exceed those expectations, but it does mean that the bar is going higher. And as some of us know, you know, it is easier sometimes to jump over a lower bar.

Kathryn: Okay, real quick in that because I’m not sure where you’re going to go next. Oh, you’re going to talk about the Magnificent Seven. Because that other people have asked like what kind of stocks then do you expect to be the best in 2024? I know that we don’t actually do that exactly. But that was a question that was asked.

Brian: Yeah, it’s a really good question. I mean, this is, you know, The Magnificent Seven have been the dominant performers here over the last 12, 13 months.  You know, and some of them have tailed off, right? So these aren’t homogeneous companies. If you look at- it’s a little bit hard to see here, but the red line is Tesla. You can see it was a strong performer through last Summer and really hasn’t done that well more recently. On the other hand, Meta has done really well and continues to do well. And then obviously I just talked about Nvidia. It’s an impressive chart where when you get Apple and Microsoft and stuff up 40% to 70% here in the last year their performance is relatively muted on this chart. The reality though is if you could go back and look at this chart, a little bit longer, these stocks were also some of the worst performers in the marketplace in 2022. So the market give it and the market take it. If you look at the S&P without the Magnificent Seven and then measure it compared to just the Magnificent Seven, both have done roughly comparable in the last couple of years. It’s just that one of one subset was a little bit more consistent. That’s the S&P, it fell. And then went up. And then you’ve got the tech stocks, which fell more and then went up more and wound up, you know, roughly in the same place. As far as what’s gonna do better, I’ll get to some ideas here in a bit, but the bottom line is, I don’t necessarily know what’s going to do better in the last year- in the next year. I do know that I want to own some of these stocks because they’re again, they’re really successful companies. They’re growing rapidly. They’re very profitable in a lot of cases. So here at Pure, we do own certainly a healthy slug of them in portfolios. That’s on the one hand. On the other hand I also know that I don’t want my whole portfolio in these because of a lot of reasons I’m going to go into. I don’t think it makes sense- even if you take your hand and you kind of cover up the names on the right-hand side, whatever stocks they are, you don’t want to be overexposed to any subset of stocks. It means that you’re exposing yourself to more risk and you’re also potentially forsaking some other opportunities. So- and the irony is and I put this in just because I always think this is fun- I mean the first book I wrote was probably 15 years ago now and I talked a little bit,  back then malls were still a thing, and going to the store was still a thing, so it’s a little bit dated now, because nobody goes to the store. But the irony that’s always struck me since I started in this business is that, you know, the old thing, if you went to the mall on the Wednesday before Thanksgiving, it’s empty. You go to the mall on the Friday after Thanksgiving, and people are lined up at 3:00 in the morning, and basically, it’s an MMA fight to get to the deals to buy stuff while it’s cheap. And then you look at the stock market or investments in general, is the only area of life I know of that’s the exact opposite. Where here in the stock market or in investments, the more something has gone up, the higher the price, almost the more people like it. I think that they just feel better in general. A lot of people about buying something, if it’s already gone up, they think it’s going to continue. And sometimes it does. And the reverse is also true where, when we see stock market sell offs, usually it’s because nobody wants it. And so just, I always like once in a while throwing in this chart that here’s every other aspect of life where people love a sale and in the stock market, people tend to actually like it. It’s the equivalent of if I ran a Walmart or whatever store this is and I said, hey, you know what, TV prices are going to be up 50% tomorrow and, you know, refrigerators are up 30% and I’m doubling all my food prices and then all of a sudden everybody was beating down the door to come in and shop. History lesson.  This kind of gets to, again, some more context for some of the things that have happened in the past.  This isn’t necessarily to say, hey, some of these big tech stocks are going to fall in value. I’m not predicting that.  What I am saying is that you want to continue to look at things with fresh eyes, not say, hey, just because something worked last month or last year, it’s going to continue to work. And also not to assume either a) that this time is different or b) that the past is perfect prologue to the future because the world changes and what does well changes also.  So, for starters here, I put up a slide of the Fortune 500 back in 1955, and I’ll give you all a second to look at the list of companies here. And what you’ll notice is that first of all, none of those big tech companies, of course, were even on here at that point.  Second of all, some of these companies are still successful, but a number of them have either a) had financial difficulty over time, or b) don’t really exist anymore.  at least not in their current form. So, if you look GM, obviously, bailed out by the government.  Exxon’s done okay. US Steel, the steel industry hasn’t done well. GE was actually the biggest company in the world at one point and was really the stock market’s, it was the Nvidia or the Microsoft or the Apple of its day back in the ‘90s and early 2000s, but really didn’t have a great last 15 or 20 years. S Mark I’m not as familiar with. Chrysler got bailed out. Armour, I’m not familiar with. Goldfoyle’s had financial difficulties. Mobil merged with Exxon.  DuPont, meh. Amoco doesn’t exist. Steele doesn’t do good. CBS doesn’t exist, again, in its current form. Texaco’s merged. AT& T doesn’t exist. Right, so you get the point that most of these companies that were the biggest ones in the world in 1955 have gone through either major changes or major restructurings over time. And if that’s the case for these companies, why, why would that be any different for today’s companies?  And here’s just another way of looking at it.  This chart, the most recent is 2017, just because it’s 50-year increments. But these are the 100 biggest companies in America in 50-year increments of 1917, 1967, and 2017. If you look down the left hand side, you’ll see some names, maybe some you’re familiar with, some you’re not, and then the names are substantially all different in 1967, and then again in 2017. And again, the point here is not to single out any one company or another. It’s just to point out that, you know, over time things change, and I’ll give you one example that I’m familiar with is Sears Roebuck, right? So, Sears at one point sold so much stuff that they’re, they accounted for roughly 2% of gross domestic product in the United States. Some of you, if you’re old enough, might remember the Sears catalog that would come around, etc. Obviously eventually ran into financial difficulty, got restructured, got bought out by a hedge fund. It got bought, not because their stores are so great, but because of actually the value of the real estate under the stores was worth more than the stores themselves. And today is, is more or less, no offense to anybody, but, more or less of an afterthought when it comes to the retail landscape. This chart, came out a little bit blurry, but, what I like here is I think a lot of times the most successful companies are two things. One is obviously they’re great companies, but two is that they’re a product of their environment. And so if we start here on the left hand side, and this is just, you know, one way thematically to say what was going on at these different times of, 1980, ‘90, 2010, and ‘20.  You know, 1980 was coming out of the ‘70s with fears about inflation, peak oil, resource scarcity, and you see a lot of the biggest companies that were doing the best were energy companies, right? You’ve got Exxon, you’ve got Standard Oil, Schlumberger, Shell, Mobil, Atlantic, Ridgefield.  So you’ve got, what, 6 oil companies among the 10 biggest companies in the world at a time when energy prices were all the rage.  Then in 1990, the dominant story was Japan will take over the world. By the way, time out here. Kudos. Let’s pause and congratulate Japan.  Markets always go higher. Japan made a stock market high in 1989 and just here in the last month actually exceeded that. So, after, 35 years, Japan is finally making all-time highs, proving that over time markets do go higher. But also that if something is expensive enough, it might take a darn long time for it to exceed those highs at some point. But you do see here in 1990, Japan will take over the world, and when you look, 8 of the 10 largest companies in the world were Japanese.  Then the tech bubble in 2000, and you see again a lot of tech companies here.  2010, China was really in its ascendancy. That was maybe the peak or close to the peak of the talk about China and its companies, really partnering with the West, but also dominating. You see PetroChina is one of the biggest companies in the world. ICBC, China Construction Bank, none of which are quite that large anymore. You also see Petrobras, which was a huge Brazilian company. This was the peak of emerging markets. That’s not, they’ve run into a lot of time, a lot of difficulty, energy company. You also had high commodity prices back then, and you see BHP Billiton as one of the biggest companies. Then here in 2020 with U. S. tech, you know, being the place to hide or the place to invest, and you see that the big, the big successful companies are tech. So, again, I think a lot of times the most successful companies are a product of their environment. Let me pause for a second and see if any other questions have come in before we move on.

Kathryn: Okay. You have a lot of questions, so we may not be able to get to all of them, but here I’ll try to. First of all, there was a comment that was interesting. I saw on the news that the best performing stock in the last 30 years was not a tech stock, but Monster drinks. So that’s what someone commented that they must have news.

Brian: So whoever did that is banned from our webinars forever, Kathryn. Just 86 them. And here’s why. Monster Energy Drink. I’m going to share with you all from the heart is the source of the most painful investment of my life.

Kathryn: Oh, how funny.

Brian: I made an investment in Monster Energy drink in 2003, made 4x my money in about a year and a half and sold and felt pretty good about it. But as our very cruel questioner or commenter points out, it’s been the best performing stock. And, let’s just say I might be doing this webinar from a yacht if I hadn’t sold my holding at the time because I had a lot of it. And for those of you that, that know how we think about taxes, it was in a Roth account, which makes it even worse. Because it would have been worth many millions of tax-free dollars at this point if I hadn’t sold, which,  I think the reason I bring it up is a) to flagellate myself. But also to talk to, you know, sometimes it’s really hard when you find a winner to ride it. And I think a lot of times it’s like, hey. Yeah, I’m gonna buy this. I’m gonna hold it forever. And some people do. But when do you get out? Right? Because for every story like mine, where I got out too soon, there’s somebody else that held on until, you know, the party ended and, it didn’t work out so good. So really, really hard to pick good stocks, but even harder perhaps to know when to get out of them.

Kathryn: Absolutely.  Okay. So talking about the number of days you, this goes back to what you were discussing before, talking about the number of days the market is up or down in a year. Do you then ride in a, a particular investment, say an ETF, up and down, or what sort of timing, profit taking is one to use to keep it all growing? I guess basically what they’re asking is, how do you want to, to deal with your ETFs? You know, like you were just saying, you know, we ride it out too long or you might sell it too soon.

Brian: Yeah. And so when, when you think of that, like, and that statistic that call it 50 low 50s up and high 40s down is pretty consistent year by year.  The problem is you don’t know which days are going to be up and down. So it’s, there are probably a very select number of people out there that have figured out when to buy and sell and get in and out. But, they’re very, very, very few and, they’re the LeBron James or the Babe Ruth of their sport, and, you know, they’re not out giving advice on CNBC because it’s not worth it for them. You know, with an ETF or something that’s diversified, it’s a little bit different, right? Because there, you’re really, again, finding an allocation that fits and sticking with it. I think the key is to have a rebalancing program in place. So let’s say just hypothetically, your mix was 50% in stocks and 50% in bonds. Well, if the market has a bunch of those up days in a row,  and now those stocks are just proportionally high compared to your long term target, you know, it’s selling and trimming that back a little bit, letting it run some, but then trimming it back to rebalance so that when you hit that string of down days in a row, you’re not overexposed and then lose more than you set out to. So I think having that initial strategic allocation in place, but then keeping your hand on the rudder and rebalancing, both as money comes in, as money goes out, as you have distributions, etc., is really the key there.

Kathryn: And kind of on that same wave, given the upside in the last 12 to 14 months and the new highs on the S&P and Dow Jones, are we expecting a correction in 2024?

Brian: That’s a great question. I mean, for one thing, you know, there are some people that get excited by new highs and others that get a little more cautious.  The reality is, is that when you look at the statistics, there’s not a linkage between markets making new highs and future returns. Markets often make new highs, right? The long-term path is higher. So, when you look at it, there are statistically often either near or at an all-time high.  You know, as far as valuations, I think you need to look more closely under the hood because there are some stocks that are expensive and there are also some stocks that are fairly valued. And I think you just, again, want to avoid concentrating too much in the stocks that have done the best. But broadly speaking under the hood, I think markets are fairly valued. If you look more closely, you know, big companies are probably arguably marginally, marginally expensive, but not too expensive. Smaller companies are arguably a little bit cheap. Some international markets are a little bit cheap. So I think, I think it’s really a little bit more nuanced than that.  As far as are we expecting a correction? Yeah, absolutely.  But the reason I say that is because you get a correction basically every year. I don’t have the chart in this one, but when you look, almost every single year, at some point, you get a sell off.  On average, that sell off is about 14% from high to low. That’s just over the last 40 years. So, you would expect that at some point in every single calendar year, the market is going to have a bumpy ride. But you’d also expect that about 70% of the time, the market’s going to end up on the year.

Kathryn: Exactly. And then, okay, I’ll try to get to a couple more. So, do you expect the next decade to be inflationary?  And they also comment that we’ve broken a 40-year trend of lower interest rates.

Brian: Yeah, so, I actually do. So I’ve been saying I’m- this isn’t a victory. I’ve been saying for 15 years, 10, 10, 15 years that I thought the decade of the 2020s would have a little bit higher inflation that we’d grown accustomed to. And, you know, call it from the great financial crisis through 2020.  And the reason being is just, I think that the Fed is under a little bit more political pressure. And so all is being equal, they’re likely to, to keep monetary policy a little bit looser. And also just that globalization was very disinflationary where you’re outsourcing production and stuff, and I think at least for the time being, we’ve hit peak globalization. And if anything, it’s reversing and we’re near shoring supply chains and stuff, which I think is modestly or moderately, inflationary. The counterbalance to that is just, you know, I don’t have it- the counterbalance to that is this, when you have all the information in the world at your fingertips and when you’re in the store, you before buying can Google on your phone and see how much would I pay if I went to the store next door. I think that that does put some sort of a lid on pricing power. So I do think you’ll see slightly higher inflation over the next decade than you saw in the decade prior, but I’m not talking 1970 style or even what we saw 2 years ago. I’m talking more like, you know, 3% average instead of the 1% maybe that we grew accustomed to in the 20teens.  And you can account for that, right? I mean, when we run financial plans and we’ve done this for years, we run our financial plans at the 50-year average for inflation, which is 3.7%. And then we look at returns in portfolios on a real basis. As opposed to just an absolute basis. So what are you earning net of inflation and then you know hey, if somebody’s concerned we can shock your financial plan about hey what if inflation runs higher and stuff in order to see if you still make it. Because ultimately yeah, the world’s going to change and you want to make sure you’re okay under a variety of scenarios.

Kathryn:  Absolutely. And then just to, we’ll, we have more questions, but just to kind of talk about tech stocks, a couple of questions combined. Are tech stocks in a bubble? And do tech stocks have to fall for other sectors to outperform or can those sectors just catch up? It’s kind of like all about the tech stocks and should we be worried?

Brian: Yeah, so let’s take that. Let’s talk a little bit about bubbles, right?  And so let’s look at a couple bubbles first.  This is the Dutch tulip craze for anybody that’s familiar with this. Back in the 1600s, the price of tulips, and by tulips, it’s literally like the flower, but they were popular, I guess, back in the Dutch world. So you can see, you know, going from, essentially, one or two to 150 or whatever, and people were trading houses for a single rare, tulip bulb. And then the price cratered and a lot of people were wiped out. And this is really credited with being the first really well documented bubble in history, but then the pattern repeated over time. This is more recently the dot com boom with the S&P in green and then the NASDAQ in yellow. And what’s interesting here, is when you look from 1994 to whatever this end is here, 2002, you would have done the same investing in the NASDAQ or in the S&P. So the NASDAQ being more concentrated in tech and the dot com, the S&P being more broad, right? The issue becomes you’re tracking, tracking, tracking, and then there’s this, right? And how many people are going to their portfolio or to their trusted professional and saying, you know, if they’re invested in the S&P during this phase, how many people are saying, you know, hey, get me out, get me in the tech. What, what are you doing? I’m missing out. Right? And then it reverses and collapses.  And for what it’s worth, it took, like, 15 years for the NASDAQ to recover. It fell 5,000 to 1,000, so a pretty sharp decline.  And I think that this is pretty typical of a bubble. The reason that this started was that you had a period of time where the Internet came out and tech was very popular. Processing chips were getting more quick, every bubble or every mania starts with some sort of, for the most part, rational thought, and then logic drives prices higher. And then all of a sudden emotion takes over. And so you see, logic for the first part of this with, yeah, these, these companies are doing great. And this is new technology. Then emotion takes over and then eventually the bubble pops.  And then this is, I like this bubble. This is the South Sea bubble back in the 17th century.  And we’re going to give extra credit here for anybody that can guess. Because Warren Buffett’s the most famous modern investor and maybe the second most famous investor ever. But I would throw out that there’s one investor that’s actually more famous than Warren Buffett, so extra credit to anybody that can, can type in and guess who got caught in the South Sea bubble? What famous investor?  And this famous investor bought in here and sold here and actually made a fair chunk of change. But all his buddies were invested, and he watched them ride up, up, up and make more money. So this famous person then said, hey, I don’t want to be left out when my friends are making money. He bought in here and then sold out here and was actually financially wiped out.  I’m going to give everybody a second to guess who that famous investor was. I’ll give you a hint. He wasn’t famous for investing, but he’s a pretty famous dude. Should be somebody that’s good with numbers.  And that person is Isaac Newton, wiped out in the South Sea bubble.  Afterwards he wrote the Principia Mathematica, maybe the most famous scientist of all time, and then said, I can calculate the motions of the heavenly bodies, but not the madness of the people. So, even somebody as brilliant as Sir Isaac Newton struggles here to contain emotions and successfully navigate market manias.

Statistics & Probability

So let’s talk, keeping with the classroom theme, statistics and probability. This is really just weighing the odds and seeing what might happen if you broaden out your kind of playing field beyond just big tech. And again, the idea of this presentation today is not to bang on large technology companies or the Magnificent Seven. We own them. We like them. It’s just that that’s not, we believe that’s not all you should own.  So, does anybody want some granola? Anybody have granola for breakfast today? So, in the United States here we have the Magnificent Seven. In Europe there’s the Granolas. And you’ve all probably heard of Europe, maybe you’ve gone there on vacation, but if you’ve heard about it from an economic or financial perspective recently, it’s poor, terrible Europe, right? Their demographics are bad, they’re struggling with the war in Ukraine, weak economic growth. But you go and you look at 11 of the big companies there, GSK, Roche, Novartis, LVMH, Sonify, SAP, etc.  Let’s take a look at them and compare them to the Magnificent Seven.  So, here you got on the top the Magnificent Seven and on the bottom the Granolas.  If we look at the dividend yield, which the higher is the better, it means you’re getting more income. The Granolas are about 8x the Magnificent Seven. When you look at the forward P. E. ratio, which lower is better because it means you’re paying less, the Granola’s, forward P. E. is about two thirds that of the Magnificent Seven. Then when you look at the sectors that are represented, you get a little bit more diversification from the Granola’s as well. You know, but the Granola’s, yeah, okay, great, they’re cheaper, and they’re yielding more, but they’re in lousy Europe, and they probably haven’t done as good, so I don’t want them. So let’s look at performance. Here’s a chart. The light blue is the Magnificent Seven. The darker blue is the Granolas.  I don’t know. I mean, we could do a pop quiz here. Which one of those would you rather have, right? This is the last 3 years. Would you have rather had those 11 European companies or would you rather have had the Magnificent Seven?

Kathryn: I’m feeling like you’re asking a trick question.

Brian: I don’t even think it’s that tricky. I mean, if you look maybe in a perfect world, I probably would’ve sold out of the Granolas here in January of ‘23, bought the Magnificent Seven, right? But absent perfect market timing, I don’t know if you tell me I can start with a $100,000 and wind up with $165,000 either way. And then with one of them, it’s going to be a relatively muted ride and the other is going to have a pretty dang sharp drop here from ‘22 to ‘23 before a sharp rally. I think, I don’t know, I’ve yet to meet the person that got on a plane and signed up and said, hey, you know what? Let’s hope this is a bumpy ride today. Let’s hit some turbulence. Right? I think investors are the same way. Most people would rather have a smoother ride.  Point being here, I’m not telling you to go buy the Granola is to go by LVMH, maybe go to the mall and buy some of their stuff, but I’m not telling you to buy the stock or Novartis or whatever. I’m simply pointing out that here’s just one subset of companies that’s done equally as well as the Magnificent Seven, which circles back to really the main point of this, which is, a) if that if you concentrate in a small subset of stocks, a) you’re taking on undue risk if it turns out that either they’re in a bubble or market styles change. But b) is also that you might be foregoing opportunities in other parts of the market. One more probability thing is somebody earlier asked about a decline in the market this year and I said, yeah at some point it almost undoubtedly will. This gets to the magic of time and markets. And so the green is the stock market. The dark blue is the bond market. And then the gray is a 60/40 portfolio.  No magic here to 60/40. This is just it could have been any mix that picked. It’s just a blended portfolio.  But the point being is that you look at the range of outcomes. The number on the top is the highest and the number on the bottom is the lowest, over 1 year, 5 years, 10 years and 20 years. And what I would point out is just how much more narrow the range of outcomes become. And so really, as an investor in any given year, you’re- really a crapshoot on some of these markets.  Right, but you stretch your time horizon out to 5 years and now your downside’s a lot less, right? If your worst year since 1950 and the S&P was down 39%, but over a 5-year period, it’s down 3%. That’s a lot better, right? And then you look narrower still over 10 years, and then 20 years it looks pretty good. So, so the point being here is that the time is your friend as an investor, and when you get into, there’s trading and there’s investing. And if you’re trading and saying, hey, I think this or that is going to happen today or tomorrow or next month, that’s fine. But if you’re putting together a portfolio for your retirement or distribute income later in life, or for the long run, you need to have that long run mentality and you need to understand that time is your friend because again, it allows you to be the casino. And just like in any given night, a high roller could walk in and take Caesars to the bank. But over time, the casino wants that person to come back again and again because they know the odds are in their favor.

We’re going to wrap up with political science today, but before we do, any additional questions, Kathryn?

Kathryn: A couple of things. One, would you compare the tech bubble in the beginning that you were discussing to what is happening with AI stocks today?

Brian: Not yet.  And here’s why, is I think the AI stocks today and there’s probably exceptions. I’m not talking to any particular AI stock. I’m just talking about the drive for exposure to AI is similar to the drive for exposure to the Internet or advancing technologies in the 1990s, where there’s a solid reason behind it. You know, the Internet has transformed all of our lives in the last 30 years. I think AI, I, I don’t have any doubt that it will transform, probably for better and for worse, but will transform all of our lives over the next decade or so, right? Or, and longer.  So the desire to get exposure to it, I think, makes a ton of sense. Now, who the winners and losers is, is an open question, right? Anybody that’s driven recently probably noticed a lot of traffic on the roads. If I went back 120 years and said, hey, do you think autos will be a successful industry? I think inarguably the answer is it has been. But there have been 3000 auto companies in the United States and all but 3 or 4 of them have gone bankrupt over time, right? So, just because you identify a successful industry doesn’t mean you can identify the winners. Monster energy drink was another great example. There’s lots of energy drinks over out there. Some have done well. Some have gone out of business and one was the best performing and most painful stock for me for over the last 30 years. Right? So, I think that AI at this point is a rush for exposure. I’m sure that there’s some excesses in there. I don’t know that it’s hit bubble territory. But I also, I guess I would caveat, I don’t think somebody should have all their exposure in their portfolio to AI, right? I think that’s a portion of the portfolio. We have exposure in our portfolios to AI, but it’s not all that we buy.

Kathryn: Gotcha. By the way, good thing you weren’t Isaac Newton.

Brian: Fair point. I wish I had his brain.

Kathryn: And it looks like this next question, there’s a couple more, but this next question actually goes right into this slide that you have. Will politics derail the markets? So it looks like you’re about to start talking about that.

Political Science

Brian: Yeah, we’ll finish up with our little master class in the markets today with political science. And, you know, by way of preview, I’ll say the answer is no, but the reason I say that is historically politics don’t destroy markets, right?  Now, can it have a hiccup? Can it have a blip? Yes. Can something like World War II obviously have huge impacts on economies and markets? Yes. But when you look at most economic events, whether, excuse me, political events, whether it’s an election in the United States, or whether it’s a war abroad, or what a terrorism, whatever it is, their impact is usually pretty short lived and then markets move on and focus on something else. Which, you know, on the one hand, it is a good thing as investors. On the other hand, it’s probably a little bit sad from a human, sort of, humanity thought. But, you know, markets for the most part are concerned with what’s impacting them today. And even if you think of something like, what’s going on in Ukraine and Russia and stuff, and now that we’re going on for, what, 3 years or something like that, or in its 3rd year, there’s an impact on gas prices flowing to Western Europe.  But how focused are markets on the day to day, developments in this war? And the answer is pretty much not at all, right? Again, and I said this, and we did numerous podcasts and, and webinars on this when it happened. And, and I said at the time, you know, if, if it turns into Russia resorting to weapons of mass destruction, or if NATO gets called in, or pulled into this, I think that the story changes. I said it, you know, when it started, I would say it again today. But absent that, this is a pretty major event, the first land war in Europe since 1945. And yet markets have largely discounted and ignored it for the last 24 months.  Now we have an oil crisis, I, you know, and I’m making a pun here, but right, with Russia and Ukraine impacting oil, and then what’s going on in Israel, you know, in the Middle East anytime something happens there, it impacts oil prices. But what you see is that, there’s a lot of impact on shipping right now, right, where with some of the attacks in the Straits, and in the Middle East, and you see that there’s, shipping companies now that have to take a different route, slowing things down, probably adding some cost to oil shipments or liquefied natural, natural, natural gas shipments as well as some other goods. But ultimately markets adapt, right? And so even the horrible things that are going on in the Middle East right now, markets largely discount. Again, I’m not minimizing them from a humanity perspective, but just from a market perspective, usually these events have an impact in the short run.  And then unless they just get catastrophically worse, markets tend to move on to whatever is next. Right. Another international story recently has been the BRICS. So, this is really just a loose political conglomerate. It was actually started as a group of large emerging markets coined the moniker was a guy named Jim O’Neill over at Goldman Sachs. And I think it was like 2005, but, you know, now they’ve actually put together a group where the leaders of these countries will meet once in a while. And you can see the current members on the left-hand side, and then some of the members that are joining. I believe Argentina has actually since decided to pull out. But, you know, and so the thought is, hey, well, these big emerging markets to plant the United States or Europe or whatever, as the dominant countries out there and, you know, we’ll see, I don’t see anything on the horizon. We get questions all the time of, hey, what’s going to happen to the dollar and is China’s currency going to take over and this and that. And, you know, the dollar is as strong as a wall right now and making new highs and has been really strong over the course of a number of years and is really the only game in town. So you know, I think, relatively speaking, America as a share of the global economy and our dominance has been in decline for many decades, in some cases, since the 1950s and other cases, really, since the 1990s. But we’re still far and away the dominant country in a, in a number of different ways.

I’ll end here with, some of you may have heard that we have another election coming up. The silly season is just about upon us and there’s a lot of lines on here. But as you might expect, the red is Republican, the blue is Democrat and then everything kind of put together is in gray. And it just looks at consumer confidence by political affiliation. And essentially, when you look at it, it’s to me, the takeaway is that, if you’re a Republican or a Democrat, depending on which way you lean, you have a completely different view of the economy, right? Either, you know, you look back in the 2000s there when the Republicans were in power, Republican voters thought the economy was great. And then, you know, Democrats thought the economy is terrible.  And then you flash forward to the Obama administration and Democrats were way more positive than Republicans. And again, with Trump, it’s switched. And, you know, it’s really interesting because the key here is that regardless of who’s in office, the economy has generally done okay, and the S&P has generally done okay. And so you can see here, you know, again, red’s Republican, blue’s Democrat, and then gray is divided, which is the most common thing that we have. But you can see that generally the economy grows no matter who’s in power, and that generally stock markets go up no matter who’s in power. And when you flash back to this slide, it really hits home the point that it’s really, it’s great to have views on the economy- on politics, and who you like or don’t like, who you support, what the potential impact may be. But the reality is that when you look at markets, they’ve generally done okay, no matter who’s in power. They generally get moved more by the economy and corporate profits and politics can have an impact on that, but usually it’s outweighed by a lot of other things. And when you look over time, as long as you’re invested, you know, again, across a number of regimes, markets have moved higher and the S&P has continued to grow. And so I would caution all of you that as we approach the next election, have a view, get active, do whatever you want, but try to keep your opinions of who should win and what you think should happen or will happen away from your investment philosophy, right? That markets are going to do what they’re going to do. And it’s probably not going to be that impacted over the longer run, by who actually wins. With that let me pause for final questions.

Before I do, just want to put this up that one of the things we do here at Pure is, we have 50 CERTIFIED FINANCIAL PLANNERs here in our offices, and we offer free financial assessments. So you know, I’ve covered a lot of material today. And if this is something where like, wow, there’s a lot going on, maybe as the election comes up or whatever, maybe it makes sense to get a deeper look at my portfolio or with some of the run up in tech stocks, let me get a snapshot and make sure that I’m not too concentrated in technology companies, or let me make sure I’ve got exposure to all different kinds of the market. We can put together a portfolio snapshot for you to really look under the hood across all your portfolios to show you your exposures. Also, for those that aren’t aware, the tax law is scheduled to change. The way the law is currently written, taxes are scheduled to change in 2026. So you’ve only got two years under the current tax law as we know it. Plus, with an election at the end of the year, you’ve really got 10 more months, 9 more months where you know what tax law is going to be, right? They could easily change tax law with depending on who wins the election. So if there are tax moves that might make sense for you to set yourself up either for this year, or to minimize your taxes in the future. That’s another thing with a financial assessment. We’ll give you thoughts on we can have our CPAs take a look at your situation, dive in and give you some thoughts. Because you know, ultimately your goal is to figure out what return you need on your assets and then how to distribute them back to you in the most tax efficient way possible. So again, no obligation or anything like that. We usually charge several hundred dollars an hour to meet with people. But for people that come to this webinar, we waive the fee. If you’re interested, click on here come on in for a free financial assessment. We’ll take a close look at all of that and give you our thoughts, no cost, no obligation. With that, let me pause for questions.

Kathryn: Well, earlier someone did ask, and I was going to wait till the end for you to answer that since you so nicely put that into- that information out. But somebody asked, do you really need a financial planner to do all of this for you? Or is it easy for people to do this on their own?

Brian: That’s like asking a barber, right? Do you I mean, and one and do you need a haircut?  I mean, the reality is, is this is can you do it on your own? I don’t know. It probably depends on the person.  If you have both the background and the capacity, and then also the willingness and the time to dive into this and really look, maybe you could do it on your own. I can tell you, I understand more about taxes than 99% of the population, but I go to a CPA to prepare my taxes. Right. I outsource that to a professional. I think when you think about what goes into it, which is forecasting out future income and expenses. When you look at the impact of inflation, when you look at the impact of what is medical inflation relative to the inflation for everything else. What is an appropriate assumption for growth rates on portfolios?  And then how does that change over time? How do you manage a portfolio? How do you rebalance it on a regular basis? How do you distribute income to yourself? How do you cull the winners a little bit? Add to the, to the ones that haven’t done as well? How do you stay tax efficient? Can some people do that on their own? Yes. But I think the, the percentage is pretty small.  And to use one more analogy, you know, I always find it interesting that the greatest athletes in the world who are really good at their sport, even like the Tiger Woods or the, you know, Tom Brady’s, the LeBron James, etc., they all have coaches, right? Even though they’re really good at what they do, they have coaches that are professionals to help them.  Because sometimes, no matter how good you are at something, having a third party that’s a little bit more objective to hold your hand on that path is helpful. Again, obviously, I work for a financial planning and investment management firm. But I think most people, almost everybody can benefit from financial planning, and frankly, this is no cost, no obligation. It’s a free financial assessment. So-

Kathryn: Amen. All right. And then, I know we’re getting to the point, but, and this will be your last question. So with the interest rates this high, we need to borrow more to pay the debt. This doesn’t look sustainable. So can you just kind of talk about being in debt, interest rates being high and how basically it’s not good to borrow to get out of debt.

Brian: Yeah, and I’m going to assume, without more detail, I’m going to assume that that question is revolving around the Federal deficit and- or the Federal debt and how to pay it back. And that’s a popular question. I could tell you this much. Again, I’ve been- I started in this business in 1996, 1997 and I think I got asked that question that year and every year since and it hasn’t been an issue. So, this is something that always comes up and I can tell you that at some point, will it be a problem? Probably, but there’ll be a problem when the market decides it’s a problem. And again, in 25 years, the market hasn’t decided that. And I don’t see that changing anytime soon.  Interest expense is a percentage of revenue for the government has increased.  Is it sustainable forever? No. But you know, when you have the printing press you’ve got a lot of ability to either print more money to pay off the debt, to raise taxes, you could default. I don’t think they’re going to default. I think the most likely path is maybe slightly higher inflation and  then higher taxes and so then that circles back again to it’s not just about managing your portfolio. It’s managing your taxes and I think that’s where, you know, you want to dive in and whether it’s doing it on your own or talking to your financial professional or talking to us, I think over time, the path for taxes is probably higher and, you know, solving for that is really key to a successful future.

Kathryn: Right. Well, Brian, thank you so much. We are basically running out of time, but I appreciate everything you’ve, this has been amazing, including for me, and I listen to you all the time, so, but it’s always great to hear the information. So thank you all for being here. Thank you for joining us. And in addition, as you know, we cannot control any GeoPolitical events, market volatility, inflation, etc., but if you can get armed with the right information, you can control your plan and your investments and your retirement. We would love for you to join us to- if you have more questions, because I know I- we didn’t get to all the questions, some were very detailed. So if you have detailed questions, please take advantage of the complimentary free assessment that Brian just mentioned. So come in, there’s- I’ve put in several links on our on the webinar chat there, come to our website, you have the information up here on the screen, but we’ll take a deep dive into your entire financial picture and stress test your retirement portfolio. You’ll not only learn how to choose retirement distribution plan that’s right for you, but legally reduce your taxes now and in the future, minimize risk, maximize return, maximize social security, but you’ll also return how to protect yourself- learn how to protect yourself against market volatility, rising inflation and rising health care costs. So no cost, no obligation. So Pure Financial has more than 4 offices now in Southern California. We have new offices in Denver, Seattle, Chicago, Davis, California, but you can meet with one of our experienced professionals online from anywhere in the US via zoom. So click on the link, schedule your free financial assessment for the day and time that works best for you. And Brian with that, thank you. Thank you so much.

Brian: Take care. Thank you all.

Kathryn: We appreciate you.

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