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 [...]

Can financial markets continue to rise despite inflation and recession concerns? How does a globally diversified portfolio stack up against the Magnificent Seven of Microsoft (MSFT), Nvidia (NVDA), Amazon (AMZN), Google (GOOG), Tesla (TSLA), Apple (AAPL) and Meta (META)? Does global investing still make sense? What impact will the 2024 presidential election have on your investment portfolio? What impact will AI (artificial intelligence) have on your investing strategies?Brian Perry, Executive Vice President and Chief Investment Officer at Pure Financial Advisors, and Apollo Lupescu, PhD, Vice President at Dimensional Fund Advisors, discuss these topics and more.

Free download: 10 Steps to Improve Investing Success


  • 00:00 – Intro
  • 00:59 – Is now the time to be worried? Should investors be pulling out of the stock market? Can the market continue to rise?
  • 13:49 – The Magnificent Seven vs. a diversified portfolio
  • 24:58 – Does global investing still make sense?
  • 38:40 – Is factor-based investing a good strategy?
  • 48:10 – Should the 2024 presidential election change our investing strategies?
  • 59:25 – What impact will artificial intelligence (AI) have on investing?

Free Financial Assessment


Kathryn:  Thank you so much for joining us for this webinar, Navigating Turbulent Markets with Pure Financial Advisors’ Executive Vice President and Chief Investment Officer, Brian Perry and Apollo Lupescu, a Vice President at Dimensional Fund Advisors. So we are so happy to welcome Brian Perry and Apollo Lupescu. How are you both doing?

Brian: Great. Fantastic. Thanks.

Apollo: Thanks for the invitation to be here. Great to see you, Brian.

Brian: You too, Apollo. Thanks for joining us. And, yeah, as those of you out here will quickly realize, some of you may know Apollo, we’ve had him on in the past and if not, you’ll quickly realize he’s the brains of the operation here today. So I will be tossing him questions and letting him do a lot of the explaining. You know, I was smiling with that, that add on that Kathryn put up about the 10 steps to Investing Success. Cause I can tell you, honestly, step number one is when Apollo talks, you should listen. It’s like the old EF Hutton commercials, cause he’s an extremely smart guy and we’re really excited to have him. Apollo, let’s do this. So there’s a number of things I want to ask you about, but maybe we’ll just start at the top and kind of work our way down. And what I want to begin with is, markets have had a really good run. 2022, as most people know, was a tough year for stocks and bonds. And then. Last year was one of the best years for stocks, and I don’t know how long. I think the S&P was up 20% and most other markets were up. And, you know, you look at this year and things have continued. And despite the fact that there’s an old saying, markets climb a wall of worry, and people are worried about high inflation. They’re worried about a recession, politics, elections, etc. There’s all these things to worry about. Markets go up and up.

So against that backdrop, I guess, is now the time to be worried? Like should investors be pulling out of the stock market or concerned that markets can’t continue to rise the way that they have been?

Apollo: Yeah, and it’s a very good question because you said there’s always some concern about something. And this year up to the end of the quarter, the markets, in the US DSNP is up roughly about 10%. So when you look at the market, you know, having risen 10% on top of the 26% that it did last year, it might cause somebody to say, well, is this the right time? Because I don’t want to be in the market when it drops.

And frankly, nobody wants to be in the market when it drops. I don’t want to be in the market when it drops.  And how do you think about that? Because there’s a lot of concerns. Well, the first, the first thing that I think it’s, it’s really important to know is that, that the markets basically reflect the performance, the individual performance of companies, and the individual performance of companies. In other words, how much the company’s stock price changes depends on what do we expect those companies to make in profits. And the role of the stock market, which is so interesting, is to evaluate and look ahead and say, when you look at Apple, when you look at Google, when you look at Nvidia, all these companies, McDonald’s, Coca Cola, for that matter, Shake Shack, when you look at these companies, what do I expect them to make based on everything that is known today? So the very first really important fact to know as an investor is that everything that is known today, has been evaluated by market participants and is reflected in the, in the stock price. And because of that, all those things, elections, Fed interest rates, all of these things, everything that is known will not move the markets. That is just simply not the case. Everything that- that is of a concern today is- will not move the markets. Why? Because investors are not foolish. They haven’t been on a vacation in some remote island. They just showed up. It’s like, what? The Fed’s changing interest. They know all of this and it’s priced in- in advance of those things happening. So the markets are a really good job of doing that. But with that being said, is there a way to identify if this is the right or the wrong time to be invested in the market? And we’ve looked at this and I’ve looked at this with my own money, and what I found is that- that, it’s a very intuitively appealing idea. And for sure, it’s, it’s, it’s something that, that, that I considered doing when I was in the PhD program. I had good professors, good data and, and what I realized is that there are some things that make it really hard, if not impossible, to implement in the real world. And the first fact is that everything that is known today will not move the market. The only thing that will move the market are things that are not known today.

If you’re in December of 2019 and you’re looking ahead and you’re saying, well, let’s, let’s see what the forecast is for the market. How is the market going to do in 2020? Nobody would have had a clue that the main driver of the market was a pandemic. Nobody. And whatever forecast you thought you might’ve had, it was foolish. If you were in 2022, January, nobody had any clue that the Russians will be crazy enough to go invade another sovereign European country. I mean, you know, you, you have Hamas in October. All of these things are driver- drivers of the market that are unknown by definition. So the first thing is it’s not possible to know what the seal will bring because it could be good news. It could be bad news. The second thing to tell you is that when you decide to get out of the market, because somehow it doesn’t look good, realize there’s another very important decision that you have to make at exactly the same time, which is when do you get back in the market? I’ve seen enough people in 2020 talk about the pandemic. The market lost about 30% of its value in about 6 weeks. And so many people were scared and they said, I can’t take this. I need to get out. I need to sell. And they sold. The trouble is they did not know when to get back in. And by then they already took the loss and they were just sitting in cash. We’ve seen the market rebound and the stress of being invested was very quickly replaced by the stress of being out of the market. So it’s really, I don’t know anybody who can consistently make these two correct decisions, you know, when to get in and when to get out.

But the last one, Brian, I think it’s so important to know when you, when you try to understand what’s going to happen this year, it’s pretty much like everything else in life. It’s not about certainty or guarantees. It’s about odds, understanding your statistics, understanding your probabilities. Brian, I try to work out. I went swimming this morning at 6am and I eat a little healthier. I work out a little more. Does that guarantee me a longer lasting, healthier life? Not at all. Plenty of buses around. But what it does, it improves my odds. And I think it’s this idea of understanding your odds in the market that is absolutely fundamental to any successful investor.  So what do I mean by that? If you look at the US stock market and I had this conversation Brian, a few months ago in NorCal and it was a group of retirees. They’re part of a retirement community and they had an investment club and they wanted an investment manager to talk to them. So I happened to be in the area. So I talked to them and it, for me to understand what they did is like, well, we watched the market because we want to know what’s going to happen in the market every day. And then we go play tennis.  So I was trying to illustrate to them that the more watching the market every day and trying to forecast and predict what the market’s going to do,  it’s, it’s really, not something that I, I would think it’s productive. And, the way that I kind of framed with them is that if you look at the US stock market on a daily basis, in terms of the statistics that I mentioned, what’s so interesting is that over the past few years or the last 50 years, for that matter, the on an- on a daily basis, what you see is that the, the US stock market, the S&P 500 has gone up roughly about 53% of the trading days, which means that 47% of the time it lost money. So if you look at the daily returns in the stock market, what you see, it’s, it’s remarkable. It’s almost like an equal split between a flip of a coin between making money or losing money on a daily basis. So if you’re going to watch the market daily, be aware, they’re roughly half the days you’re going to lose money. That’s just the nature of the market.

And, then that’s why they had a spring in their step half the days. And they’re really down the other half.  But it is not obvious that he make or lose money. If you just get out of the market for a day. The thing is now if you look at the market instead of daily and you just wait for the quarterly statements, over the past 50 years, what you see is that, on average about 71% of the quarters have been positive. You made money, and only about 29% of the quarters were down when he lost money.  So what’s really interesting is that if you simply shift your time horizon a little bit and instead of asking what’s the market going to do tomorrow? You kind of look on a quarterly basis. What do I expect? Well, it’s a lot more likely for you to miss to have a positive quarter than a negative quarter. So if you decide to get out of the market, you know, what’s going to happen next quarter is pretty random, but I can tell you the odds are that you will be a good quarter. You make money versus a bad quarter. It’s possible that you have a bad quarter, and you feel like great, but the reality is that the odds are against you. If you sell, you are playing a game. You’re sitting at a table where 71% of the time you stand to lose. That’s exactly what happens when you get out of the market. You’re a lot more likely to miss a positive quarter than a negative quarter. And then if you wait an entire year for the annual statements, what you see is that over the past 50 years on an annual basis, about 78% of the years have been positive and only 22% negative. So the longer you stay out of the market, the more likely it is that you’ll see just a bad outcome for you. The, the, the longer- the more time you give markets, the, the more likely you’ll see a good outcome. And, I’ll finish up because what do you expect this year? I expect this year that roughly half the days, the market’s going to drop. Nobody can tell you which half, but I expect that if you give the market time, you’re a lot more likely to see positive quarters than negative.

And I try to tie this into the other passion they had, Brian, which is tennis. And I’m not sure if you recognize this gentleman.  I don’t know, Kathryn, maybe you or Brian recognize him. His name is Roger Federer. He’s arguably the all-time best male player of all times. And, arguably it’s, I’m not going to debate if it’s him or somebody else, but it’s one of the best of all times. And I wanted to know, how do you get to become a champion? How do you get to the peak of your profession? And what was remarkable is that when you look at his lifetime statistics, for Roger Federer, not an average player, but one of the all-time best, what’s remarkable is that you see that Roger Federer won 54% of the points that he played in his career, which is incredible because the all-time greatest male player lost roughly half the points that he played. And I thought this percentage would be closer to 80%, 90%, because this is the best of all time, but what it takes is to win roughly half, more than half, just a little bit over the half. But what’s important is that- that Roger stayed in there, he played all the points, and he won the big ones. And what’s fascinating is that if you give Roger a little bit more time and instead of looking at points, you look at, at sets, what’s remarkable is that, that he won roughly about 75% of the sets that he played. So if you give Roger some time, you’re a lot more likely to see him winning a set than a point. And then if you give him even more time and he asks what percentage of the games did he win in his career, he won roughly about 81% of the matches that he played. So what’s so interesting is how similar the stock market and becoming a champion in tennis can be. Because in the stock market, your odds are that 53% of any given day, you’re going to lose, you make money and 47% not, it’s incredibly close to Roger. So if the market drops any one day, don’t be any more panicked than, than Roger lost a point. We know he loses roughly half the points, but the more you give Roger time, the more you give the market time, the better your odds become, the more likely it is that you will see a positive outcome. So to me, the way to become a successful investor, the way to become a great champion is by really just sticking in there, playing all the points, winning the big ones, which is kind of similar to the stock market.

Brian: Oh, I love that Apollo because you hear sometimes where people say that they compare investing to gambling. And, you know, I often don’t agree with that, but the reality is, is if you move out of the market, you’re gambling.

Apollo: Exactly.

Brian: If you stay in the market, you’re still gambling, except now you’re the house. Right?

Apollo: Exactly.

Brian: Casinos don’t win every, every game, but if it’s roulette, blackjack, whatever, the reason the casino’s in business is because the more you come, the better their odds of winning. And it’s, it’s very similar to investing, right? Is that the more time you’re in the market, the higher the odds of winning.

Apollo: Absolutely. You got it. It’s exactly that. You become the casino house rather than casino player. And by the way, the casino house doesn’t have the odds stacked in their favor of like 70%, 80%. No, it’s a little bit more than half. So you’re right. You want to be the casino house and the only way to do it is to play enough hands and give it enough time. And that’s when you really start stacking the odds in your favor.

The Magnificent Seven vs. a diversified portfolio

Brian: Well, you know, one thing that’s been different in this market increase though, and not that this has never happened, but it seems more pronounced, is that for a lot of it, a small subset of stocks has driven it. And it’s interesting because it’s, they call them the Magnificent Seven. And there’s some big tech stocks that at one point last year, were driving a tremendous amount of the market gains. And you know, it’s easy to pull off statistics though. Cause then I hear about the Granolas, which is 11 European stocks that have outperformed the Magnificent Seven. And I guess stepping back and just using that as an example, but when you get in an environment where a small number of well-known companies are driving a disproportionate share of gains, it’s really, you know, comforting to just dive on in and own a lot of them. And not that you don’t want to own some, but talk about some of the pros and cons of putting all your money in, you know, Meta and Facebook or Meta and Amazon and Apple versus diversifying a little bit more and, and why that diversification might make sense. Even if you sacrifice, potentially last year, you wouldn’t have done quite as well as being in just the Magnificent Seven.

Apollo: And you’re so right about that. Because, we talked about 2023 when the stock market was up about 26%. So you see that number 26% to your point, Brian, this is a very good number. The long-term average is about 10%. So last year we had more than twice the historical average. But here’s the interesting thing about this, that it’s, it’s the number. That’s 26%. That’s what the market did. Well, that number reflects the individual performance of 500 different stocks.  So then the question is, how do you account for them? How do you put up? Do you average, a simple average of all the stocks? Well, it turns out that the way that the S&P does it and legitimately, in my opinion, is that it looks at the size of the company and the larger the company, the more meaningful its performance is reflected in this 26%. So not every company carries the same weight, the same proportion in the way we measure the market as a whole, the larger the company, the greater the impact. And in fact, the largest 7 stocks are the ones that, that, the brand reflected as, as the Magnificent Seven. They’re the usual suspects, Apple, Microsoft, Google, Amazon, Nvidia, which makes chips that, that power the computers that are doing AI, Facebook and Tesla. That’s at the end of last year.

And the reason that they got so much attention and they got their own nickname, by the way, which is kind of cool, you got your own nickname, the Magnificent Seven, is because when he set up these 7companies and he take them aside, on average, on average, a simple average between the 7 of them, they actually went up by a whopping 105%. An incredible return on average that these Magnificent Seven had. And to the point that you made, if you look at the hole they left that they, the remaining stocks, which are, let’s say the S&P 493, the 500 minus the 7, they still will not, but a much more modest 15%, much more in line with a long term average, than 105%. So the market somehow went from 15% to over 26% driven by 7 stocks.  So you’re absolutely right. The market was pulled up by the 7 stocks. And the reason for that is because when you look at these 7 stocks as a proportionate of the way we measure the performance, these 7 stocks combined amounted to about 28% of the value of the S&P. So 28% of the value of the S&P, 28% of the performance of the S&P comes from only 7 stocks. And Brian, these are giants among giants.  The S&P stocks are not some rinky dinky companies. They’re like really big companies and yet these 7 stocks are 28%. And if you think that this is a lot in terms of, a percentage of these 7 companies, the same exact 7 stocks are not only in the constituency of the S&P but also of NASDAQ. But in the NASDAQ they amount to 49%. Roughly half the value of NASDAQ comes from 7 stocks, which is incredibly concentrated. And you can go the other way and say, well, they’re also part of a broader US stock market that includes the S&P 500 plus the other smaller companies. And when you diversify further, the same 7 stocks have a lower proportion of 24%. And what’s interesting is that these US companies are part of a global opportunity set. So when you look at a global allocation, a global portfolio, which would be like an index like MSCI, the same exact 7 stocks are also part of that particular global portfolio, but in a smaller percentage at 15%. So why does this matter?

Well, if you are looking at an index like NASDAQ.  which is roughly half in these 7 companies, boy, that NASDAQ index is going to look phenomenal for the year.  You know, what’s it over the, S&P was up 26%. When you look at NASDAQ last year, what you see is that it was up 44% because he was more concentrated into the 7 stocks. Roughly half of NASDAQ was in the 7 stocks. So at that point, somebody was going to look and compare the NASDAQ with the S&P. Well, NASDAQ is going to look better, but this is the reason why, it has exactly the same stocks, much more concentrated. But then if you compare that with the MSCI, which is only 15% in the 7 stocks, MSCI, this global allocation will not look as good because it’s not as concentrated. And in years when these 7 companies flew high, boy, it made NASDAQ look amazing. Trouble is that all you have to do is go back one single year, go back to 2022. And the same exact 7 stocks did not do well. And at that, in that year, Nasdaq was down about 32%, almost lost a third of its value in one single year. So the big lesson for investor Brian, is that when you concentrate, like you do half the money is in the Magnificent Seven, in the Nasdaq, you can either make a lot of money or you stand to lose a lot of money. That’s the idea of concentration.

Now, what if you had exactly the same stocks in a more diversified global allocation? So it’s only 15%. Well, the first thing that you see is that you are avoiding extreme outcomes. You’re taking away these extreme outcomes, both on the left and the right. And you’re going to be disappointed because look, NASDAQ was at 44%. I’m, I’m up roughly half that of that, in this globally diversified portfolio. But all you have to do is just go back a single year and look and say boy, how happy was I that I was diversified in 2022. So I think any plan any financial plan and I know you build a lot of financial plans, what he tried to do is avoid these extreme outcomes. Avoid swinging for the fences because that’s when he can really  get hurt. But does it mean that you are leaving money on the table? Well, I’ll take more fluctuation if it’s going to make me more money. Well, over the course of these two years, what’s interesting is that NASDAQ is still down about 2%.  And if you look at this globally diversified portfolio, not only that it avoided these extreme outcomes, but remarkably, it is also ahead of NASDAQ. You would have done better being globally diversified.  The trouble is that if you see a year like 2023 that you see, well, I’m disappointed because look how well the NASDAQ did and you simply focused on that one year, you’re missing the big picture. There’s a clear benefit of being diversified, not only because you avoid extreme outcomes, but also performance wise, all you have to do is just go back one year and you see the benefits. Now, why is that the case? Well, you know, you look at the- these, you look at these, these 7 companies, and, and, and the Magnificent Seven. And, and, as I said, last year, they were up about 105%, and the year before, they were down about 45%. So even a bigger range of outcomes. So when people are saying, well, again, I’ll take the 45% down if I go up 105%. The reason that financial plans want to avoid these extreme outcomes, it’s quite simple.

Because the arithmetic of investing, it’s not complicated, but it’s not as straightforward as adding the two and dividing and saying that’s the average. Let’s say you started 2022 with $100 in your account and just to simplify, instead of 45%, let’s say that you drop by 50% just to make the math easy by the end of the year. If you lose 50% of your money, you only have $50 in your account at the end of 2022.  If you now start ‘23 with $50 and you simply want to go back to where you were at $100, no more than just going back to where you were at the break-even point, well it turns out that going up 50% is no longer sufficient. You have to go from $50 to $100, means that you have to double, which means that you have to go up by 100%.  So when you see these big numbers, look how much these stocks have grown. They were just basically catching up. And in some ways, not even getting there. Tesla is a great example. Tesla in 2023 was up over 100%, but after the loss they had in 2022, over these two years, you’d still be down about 30% on your money. And it’s kind of the same with 3 out of the 7- Magnificent Seven, which, after accounting for 2022, they’re still on the water and just the more diversified S&P 500 would have outperformed 3 out of the 7 top stocks. So, so ultimately, to me, Brian, this is a really important question. You can look at some of these stocks and say I wish I was so concentrated in some of them. The trouble is that I invariably over and over and over we see the more you concentrate the more you reach extreme outcomes. And we all hope for the positive outcome. Just be aware. That’s also a very real possibility of a negative outcome. And once you dig yourself into that hole, it takes a long way to crawl your way back to, to the surface. And, and that’s one of the main reasons that we certainly believe in being diversified. Own these stocks. You did not miss them as part of a global portfolio. Also be careful not to overly concentrate in them because again, it’s not just that, that you have a wide range of outcomes, but all you have to do is go back a single year and you see the benefits of being diversified.

Does global investing still make sense?

Brian: Well, yeah, no, that, that’s great. Right. And when you diversify, you lower the ceiling on your returns and raise the floor and you get that middle. And that’s what most financial plans need, but it’s great. Everybody wants to raise the floor when markets are down, but it’s hard to keep in perspective. You know, sacrifice a little bit of upside by not being in the hot dot to that degree. You know, you mentioned in there a global stock index. And so let’s talk about global investing for a minute. Because right over the last several years, at least until recently, international markets haven’t done quite as well as US markets. And some of that is because of those Magnificent Seven being in the US and whatnot. But maybe talk about the idea of whether or not global investing still makes sense, because we get the question sometimes it’s like you look around the world, and it’s not too hard to kind of check off issues different countries have, you know, whether it’s Japan and demographics or China, and it’s a closed economy and this and that. And then I look and I saw a statistic that NVIDIA so far this year has added more in market valuation than the entire value of all the companies in Germany. So I could buy all the companies in Germany, or I could own NVIDIA, and I’m not sure which one I want, right? So, why does international diversification make sense, or global diversification? Because it’s something that we believe firmly in, but honestly, you know, I can see why somebody might lose faith if the US keeps going up, and international markets go up, but not quite as much, and then you look and you see issues. Why not run home?

Apollo: Absolutely. And that’s, and because US companies, including NVIDIA, they might sell abroad. So isn’t that diversification, abroad? If, if, if I use us companies that sell abroad, well, I think it’s a really important question and I would start to, I would start answering that by, by looking back at the fundamental issue here. We’re not really investing in China or in Japan or in the UK or Switzerland or Australia, we’re not investing in countries, we are investing in companies. And companies can be based anywhere in the US.  Interestingly, the companies can also choose to be based anywhere in the world. So it is this idea of companies and what companies are available to an investor, to buy and sell around the world. And in fact, if you redraw a world map, and instead of plotting the landmass in each country, you were to plot the value of all companies that can be bought and sold in any one country, this is what that map would look like. So you have the US stock market, and there are about 3600 different companies in which we can buy ownership, and that’s Apple and NVIDIA and Google and Shake Shack and Buffalo Wild Wings, and their combined value is about 59% of the value of all companies around the world.

Now, it turns out that if you look at the remaining stock markets, there are about 40 plus different stock markets. And then combined, they have about 10,000 plus companies in which you can buy ownership.  So the question is here, and this is the way I thought about it in my head, you know, if you’re, if you’re going to invest in the US, does it mean that that $28,000,000,000,000 in assets, which is the value of all these companies abroad have lost their relevance to investors? That’s the question. Have $28,000,000,000,000 in assets lost their relevance to investors? And to answer that, I would start with more of an intuitive aspect is that, that when you’re talking about buying companies, you certainly have great US stocks. And not too long ago, walking down on Westwood Blvd next to UCLA, I was just struck by the variety of cars, that that we have available for us to buy. And you certainly go and you see some Ford, some GM, some Teslas.  So investing only in the US is saying that I want to own a piece of Ford, GM, Tesla, which is great because these are great American companies. But it’s also interesting is that if you look on the street, you don’t only see Ford, GM’s and Tesla’s, you also see some Beamer, some Mercedes, some Porsches, and VW’s, and those brands are owned by German companies, that trade in Germany. Great American brands like Jeep and Chrysler, they’re owned by an Italian company, Stellantis, that trades in Milan. We all know the Japanese companies, the Hondas, the Toyotas, even brands like Land Rover and Jaguar, they’re owned by an Indian company that you have to buy in India. My daughter drives a Volvo and, and that is, owned, that brand is owned by a Chinese company. And then you have the Korean shops that are certainly selling more and more cars. So the idea here is this, at an intuitive level, if it’s worth saying I want to own Ford and GM, which means investing in the US, why not consider BMW, Toyota, and Jeep for that matter, because that is international investing.

You know, doesn’t mean that these brands are irrelevant, that we can just buy Ford and GM and saying, great, we have global exposure to cars, it’s hard. It’s hard art. It’s, it’s not intuitive to me.  And so it’s not just about what we sell to foreigners, but what’s being sold to us as well. So at an intuitive level, I think that Brian, I still see value because these are companies that we know, we use their products. So why not consider buying some ownership in them? What’s wrong with that idea? Particularly at a time when the valuations for some of these companies might be a lot better. But as you said, the data tells a different story because I mean, this year, as well as over the past 10 years, the reason that, investors are looking to put more money in the US is that over the past decade, let’s say 2010 to 2020, what you’ve seen is that the US stock market relative to all the other stock markets in the world, and this is, there are 40 plus different stock markets, has done incredibly well. And I realized this is a small print, but we did put the US in yellow. So the US market over the entire decade, not a year or two, 10 years, it was the second best performing stock market.  Now the title for the best performer goes to New Zealand, but again, the US was second best.  And it is incredible because that’s what a lot of people are saying well, it doesn’t seem like these countries have done very well. Why should I put money into all of these? Because again, the US has done so well. And as an investor, we are driven by data. So the first thing we want to see is that how consistent is that out performance?

And what if we go back a single decade, do we see the same out performance? And if we do, that might cause us to rethink and maybe say, well, it’s been, you know, not only one decade, but you have two different decades with the US doing incredibly well, maybe it’s worth putting more money there. And if you go back a single decade, what’s incredible between 2000 and 2010, the US was nowhere nears atop. In fact, the U S was right here close to very, very bottom.  And then I remember that nobody during the decade was telling me how disappointed they are that we are globally diversified. Everybody was like thrilled and I’m so grateful to have all these companies because over this entire period, the US actually had a negative annualized return. You lost money, a dollar invested in the beginning of the decade and the S&P would have turned into $.90,10 years later. And what’s interesting is that again, many people were very happy. And if you now look at, as long as you have data, we can combine all these into an index called MSCI that looks at the global international developed markets. And over that decade, the 2010 to 2020, as I said,  the US in green has done much better on an annualized basis than the international market. Again, let’s look at the decades. 1970s international markets, significantly outperformed the US. It was exactly the same in the ‘80s. Very very good performance, by international markets. So two decades where international outperformed the US. And then we had the technology boom of the ‘90s when the S&P outperformed international. And then it was followed by what we just talked about a second ago, the hangover, the last decade where over an entire 10 years, the S&P was down.  So Brian, when I look at the evidence here, I just don’t see a clear data to suggest that that the US consistently outperforms. The technology stocks of the ‘90s, the technology of stocks that have been powering the Magnificent Seven that have empowered the US stock market lately, certainly it’s great. It just doesn’t seem to be always the case that the US outperforms.

And with that being said, there’s one additional point that I want to make, and he kind of brought up this idea of relativity that Nvidia gained more in value than the German market. Well, if you look at this world map, to me, that is a starting point for an investor. Because we’re not suggesting put all the money in the US or put all the money abroad. But rather what Brian talked about is really important. You have to look and on a relative basis if Nvidia becomes greater than the entire German stock market. Well, we ought to have the German stock market, but not as much as Nvidia. So the proportions here are important. The US is the largest stock market because of Nvidia and Apple and so forth. So the lion’s share of the money will go in a diversified portfolio into the US market.  And the next largest market, is actually the Japanese stock market, which is only at 6%. So the next largest stock market in your portfolio would only be about 1/10 of the value of the U. S. Stock market. So it’s an interesting primary to consider that we’re not looking at putting equal amounts in all countries. No, the lion’s share goes to the US. And that’s what Brian and the team decide on your behalf. Like, how much do we allocate in each stock market? And perhaps I’ll wrap up this conversation with something that I found really relevant back in December when I was invited to meet with Japanese investors, speaking about the Japanese market. I had the privilege of going to Tokyo and meeting with families, and it was so interesting to learn something about their history that in a way is parallel to what we have today. It turns out that in the 1980s, the Japanese economy was the envy of the world. There are case studies published on how well the Japanese economy is functioning. They had some incredible technology stocks, technology of the day. And you know, maybe your folks are some of them might be too young to remember, there was something called a Sony, Sony Walkman that everybody wanted. I wanted to have one like a crazy. The Sony TVs, the big ones, the bulky, but there are like the color TVs, that everybody wanted to have. Those are the technology stocks of the day, Toshiba, Panasonic, and they dominated the world. So they had an economy that was phenomenal. They had some technology stocks. They’re, they just, they were seemingly unstoppable. And because of that, Brian, what’s really remarkable, is that the Japanese stock market had an incredible decade in the ‘80s.

Over 10 years,  if you had invested 1 yen at the beginning of the decade, by the end of the decade, it would have turned into 7 yen, 7 fold increase in 10 years. Over 20% per year average annualized, which is more than our stock market did during the tech boom of the ‘90s. So because of that, what’s incredible is that the value of the Japanese stock market, which is 6% today, back in 1990 was 41% of the global market capitalization, and it was bigger than the US, it was bigger than the US. So what I heard from those families that I met with, who are, some of them are elderly saying like in the late 80s and early 90s, they looked and they said, we have an incredible economy that’s doing so well. We have companies that are technology. They’re the envy of the world. And they just seem unstoppable. We have a stock market that had an incredibly solid performance over the past 10 years. And it’s also the largest stock market in the world. So what they did is they piled all their money into what seemed a logical thing to do. Let’s put all the money in the Japanese market. Why would we go anywhere else? Why globally diversify? And that’s what they did. And as of this month, it’s the first time that the Nikkei, that the Japanese index actually reached the same level as in December of 1989. It took them 30 plus years to get back to where they were at the end of the decade. And by no means, by no means do I suggest that this is the trajectory or the path of the US stock market. Not at all. What I’m suggesting is something that makes so much sense to those Japanese investors. In a way, it’s what we’re hearing from the US investors. We have a great economy. Phenomenal technology companies, great performance and the largest stock market in the world. Why go anywhere else? And I think that the Japanese investors who stay diversified, they certainly saw a lot of benefit over the years from, from that diversification.

Is factor-based investing a good strategy?

Brian: Yeah, 100%. And, it is interesting that markets, you know, kind of quote unquote, always go up, but when they get really overvalued, like Japan, you see how long it took to go higher. So I have just a couple more questions and we’ll save a couple minutes for Q&A from the audience. But, one question I want to ask is about different types of stocks, right? Because there are factor-based investing, right? Or academic research that shows that, hey, less expensive companies do better over time. And there’s a lot of logic to that and a lot of data behind it. And then smaller companies or companies that are more profitable do better than their peers. Again, a lot of data, a lot of logic behind that. But it doesn’t necessarily work all the time. And if you look more recently, some larger companies have outperformed smaller, not every year, but in the last year for sure. And then again, the growth companies have outperformed the value. So, can you comment a little bit on that factor-based investing and some of the maybe the history behind it and why we think it still makes sense to stay the course. Just again, based on the preponderance of evidence as well as the logic, but talk a little bit about that. And especially given the current environment with the Magnificent Seven and whatnot.

Apollo: Yeah. No. So let’s start with the, the idea of the, of the logic behind it. So the logic behind it is actually going back to the ‘70s when we start collecting data in the academic community, to try to analyze it in a much more rigorous way.

And at the time the question was, well, it seems like the market, we kind of use the word the market, but are all the stocks in the market exactly the same? And at the time, the first, I think, distinction was tried, based on sectors, you have technology, financials, pharmaceuticals, and soon enough, the academics realized there’s no real economic intuition, there’s no real economic model to tell me that why would one sector do better than the other. And the data didn’t actually back up anything in that matter, there was nothing conclusive. But rather in the early ‘70s, going to the late ‘70s, the first distinction that was made on a rigorous basis was a distinction between,  so let’s say that this is the entire stock market, the distinction between, these large, mature, well established companies, which is what we see in the S&P 500 and, the smaller companies, that are also in the market, like, you know, you have McDonald’s as a large company, but you also have Shake Shack, which is another burger joint that is publicly traded, and they’re not, they’re not part of the S&P. Shake Shack is not part of the S&P.

So, the question is, well, you have these other 2000 plus companies in the US market, they trade well, but they’re not part of the S&P. It turns out that economically, the smaller companies have more room to grow, right? I can see Shake Shack doubling in size. I have a harder time believing that it’s easy from, it’s easy for McDonald’s to grow and double in size, but also there’s more uncertainty associated with the smaller companies. So therefore their investors require a little bit of a higher compensation for their risk. And, Brian, we have this book called the Matrix Book, and we can certainly send everybody a PDF copy of it. But what’s fascinating is that that book looks at the historical growth of a dollar in these two different way of investing money. So since the 1920s is over 100, about 100 years that we have good data, a single dollar invested in the S&P 500, if you look in the Matrix Book, would’ve grown to about $11,000. An incredible growth, over the 90 plus years in the in the S&P in the large companies.  Now, if you look at the smaller companies and if you had deployed the same dollar in the market, in the small,  part of the market, you know, if you look in the Matrix Book, the dimensional small cap index would show you that the same dollar over the same exact time period would have grown to over $41,000. So significantly growth, bigger growth in the small companies. And that was the first distinction that kind of gave investors an idea that you have a choice. You can put all the money in large, or you can put some in small. And, you know, small historically had given investors a greater growth.

And then in the ‘80s, the question was, what about all these large companies and what about the small? Are they the same? And, and exactly what you mentioned, one of the distinction was, the price that an investor pays relative to some accounting fundamental, like book value, dividends, earnings, and the low costs are called value. And over the long run, they outperformed the more expensive counterparts called growth. So if you now know that small beats large, value has outperformed growth. The one part of the market that ought to give investors the biggest bang for the buck is small and value and the same dollar same exact time frame, it has grown to over $128,000. So once again, significantly greater. So the reason I bring this up is that there is some level of economic intuition. There is some data to suggest that if you are willing to emphasize a little bit more small companies and value stocks, you give yourself a chance to earn a potentially higher return, higher expected return. So that’s the premise. Now, when people see these numbers that the first thought is like, well, great. I mean, I’m going to go and see that that that value is going to crush it. Small is going to beat. And that’s exactly true. Over the long run, that’s exactly what you see.

But coming back to the idea of odds, what’s fascinating is that from year to year, when you look at the numbers, what you see is that value has beaten growth about 60% of the time in any given year, 60% of the time, meaning that 4 in 10 years growth will beat value. So it’s not terribly unusual to see that growth outperforms value. You look at 5 years and what you see is that the odds improve to 70% of the time. But even after a 5-year period, you’re going to have about 30% of the time when you don’t see value beating growth. But coming back to the analogy that he made of the casino, if you see value beating growth 70% of the time, what part of the market would you like to emphasize? The one that outperforms 70% or the one that outperforms 30% of the time? But we are running right now through a cycle where value hasn’t done as well over the past few years and to me, there’s nothing unusual or unprecedented. I know that’s par for the course. But if you give the market time and you look at let’s say 10 years. Once again, you’ll see that the odds improving. But even after 10 years about one in 5 periods is not we’re not we’re not  I’ll show you that value beats growth. So that’s the historical perspective that he mentioned. And I’ll wrap up with something else that I think it’s important for people to know. If you look at this idea of buying value or growth, it’s not just that he owns something, but how expensive is it to buy it? That’s what’s called valuation. So for example, if you want to buy $1,000,000,000 in assets from a company after liabilities are paid, what’s called book value.

You look at value over the long run and this particular metric the valuation of the price to book as it’s called. And what’s remarkable to see visually is that over the long run, value stocks tend to be remarkably stable in terms of their valuations. In other words, it doesn’t fluctuate as much, in terms of how expensive it is to buy these value stocks. Now, if you were to now look at growth in the US, over the long run, what’s fascinating to see is that that there is a certain average for these growth stocks, but there is a period- there are periods like it was in the ‘90s when these growth stocks get terribly expensive, then what’s in the price goes up, and that’s when they start kind of outperforming. And once the price is getting astronomically high, then you have sort of the down to earth kind of situation. So to me, when I look at how expensive some of these companies are, the question is, what are you more afraid of as an investor?  A group of stocks like value that is very close to historical valuation, not fluctuating or something that appears to be way out of whack? And in fact, the ratios in growth are even higher. They’re more expensive than they were in the ‘90s. And how long will this last? I don’t know that anybody can tell you this, but the reality is that again, I come back to this, if anything, I’m a lot more concerned about growth right now than I am about value. So, so in that respect, again, I think that, that we have seen value doing better. My view on this is that there’s nothing wrong with value. Value is doing exactly what it’s supposed to be. The anomaly here, the anomaly is growth.  So value is doing exactly what I expect to do. I’m very happy with value. It’s growth that’s the anomaly.  And how long this party will last, I don’t, nobody can tell you this, but to me, if anything, this is a really good time to rebalance, to make sure that you’re not overdoing it on the growth side.

Should the 2024 presidential election change our investing strategies?

Brian: Great. Thank you. One, one more question and then we’ll, we’ll turn it over to Kathryn for anything from the audience. But speaking of parties, rumor has it that there’s an election coming up with some parties and there’s going to be some voting and, I’m sure that there’s not going to be any disagreements among the parties or among, different cable news networks and whatnot.  Talk- I know we could probably spend the next 4 hours talking about the election impact on different policies and stuff, but just stepping back. I know every election is kind of quote unquote the most important one of our lifetime, and certainly it has an impact on society and different policies. But talk a little bit about historically, maybe market impact, because undoubtedly there are some people out there that are wondering, is this the time to get out? You know, should they step aside until after the election or God forbid, what if their preferred candidate wins or loses or whatever? Talk a little bit about big picture, the impact of elections on investing.

Apollo: Right. And the reason I’m smiling is that, I was just on a little cruise with a bunch of families, friends. I mean, there was just a small cruise and they’re like 9 families and the person who organized it, like as we got on the boat, it was, you know, we all had like a little beverage in our hands and then he said, okay, I gotta tell you, on this boat, there are only two rules. One, there’s no whining about like, this is not as good, whatever. No, no whining. And the second rule, no politics. And it worked out really well.  And the reason I think that, that it was a good idea not to have politics in the conversation is because I’ve noticed that even with family and friends, politics, tends to trigger some very strong emotions. And it does so because I think politics touches on our deeply held beliefs, our core identity as individuals. And because of that, it triggers those emotions. And I think they’re perfectly fine because that’s what makes us human. So I’m not here to say that those emotions are not real or they’re, they’re inappropriate. Not at all. And in fact, I would encourage all of you to act on those emotions, go vote, go get involved in a campaign. If that’s what makes you feel right.  What I also found over the years is that really successful investors acknowledge the emotions and at the same time, they’re able to disentangle them from investment decisions. And make those decisions in a much more pragmatic way based on data and evidence rather than how they feel. So everything I’m going to talk about elections and politics is not really about just kind of how I feel about it, but what does the data suggest?

And there are different ways that we can cut it, but for just to kind of cut to the chase, we have a presidential election, and a lot of folks are, are kind of looking and saying, well, depending on who wins, maybe I’m going to sell, move to Canada and, you know, live happily ever after. What does the data suggest when it comes to elections and politics? And I went, rather than going to the, to the ‘20s, I went in my lifetime. And in my lifetime, there were 9 presidents, with full terms. And, I wanted to know how the market did on average during each president and to see if there are any lessons that would be useful for us today facing this election. So just to set the stage, the average over this, 54-year period that I’ve been alive. It’s about 10% per year annualized and let’s look at presidents now and how the market did. When I was born President Nixon was in office and on average during the 5 years or so that he was President, the market actually dropped by about 2.9% per year. And then he left office and for about 3 years and change President Jerry Ford came along and the market skyrocketed on average by about 20%, really amazing returns.  And then in 1977, President Carter comes along and the market goes up on average by about 11%.  And after 4 years, President Reagan comes along at about 15.8%,  followed by his Vice President for 4 years, President H. W. Bush.  And then we had President Clinton, 17.6%, President George W. Bush, negative 4.4% per year on average annualized during the 8 years that he was in office, followed by President Obama and President Trump.  So I think this is really interesting because let’s look at the data and ask some fundamental questions. The first one is, well, you know, is it obvious that having a Republican or a Democrat in the White House is better or worse for the markets? And frankly, there are 6 Republicans, 3 Democrats. I cannot see a distinguishable pattern that tells you that having one party or another in the White House is better or worse for the markets.

The second question is, should presidents to begin with receive credit or blame for how the market did during their time in office? And, and clearly one of the, the examples that comes to mind is George W. Bush, the president with the worst record. So, you can, somebody can say, well, he was not a good president for the markets. Well, it turns out, Brian, that he did cut taxes to dividends. He cut taxes to long term gain. So he’s actually very friendly towards the stock market. And yet the market on average dropped by over 4% per year. Well, he walked in just as the dot com was going bust, something he had nothing to do with. 9/11 happened 9 months into his term and then he walked off at the very bottom of the financial crisis. So should he get blamed for like look how terrible the market did? I don’t think it’s fair at all. On the other hand, you have President Clinton who walked in just the dot com was- just as the dot com was taken off with pest. com and Amazon and all these other companies- something that the White House didn’t have much to do with. And talk about market timing, he left just before they started to go down. So again, I don’t think it’s fair to give credit or blame to any one President. But what about you know policies? Well, you can point to President Reagan and said he was incredibly business friendly, tax cuts, all the right things and the market did go up by 15.8% per year during the 8 years he was in office. And you compare it with a President that’s focused, not perhaps on business, but social issues. And the one that clearly comes to mind is President Obama, because he’s known for Obamacare. That’s a signature accomplishment. And one might say, well, if you have a President that’s not really concerned with business, the stock market cannot really do well. That’s kind of the intuition out there.  But when you look at the data during the same exact 8 years, two terms for both of those, the market went up by 16%, which is pretty much identical. So you can’t really distinguish these two policies with, with the presidents and how the market did.

But the ultimate in a way, the ultimate way I’ll kind of wrap it up with this, Brian, is that we looked at, at the presidents, the reality is that the Congress also matters. It’s not just about the White House, but it’s also Congress. And, in 2021, in January, there was an election in Georgia, a special election in January, and the Democrats won the two Senate races. And at that point, the Democrats controlled the White House, the Senate, and the House. And at that point, I realized, well, that’s a more or less like a natural case study that we can run, looking not only at the White House, but what if you have a party in complete control of D.C. The White House, the Senate and the House at the same time.  And I thought back then, and I ran this analysis back then looking at how the market behaved. And it turns out that the Republicans, did have that, what’s called unified government control, during the 90 plus years of data that we have in the S&P. And on average per year during the 13 years when they did control the White House, the Senate and the House, the market went up by about 14.52%. So they had control for 13 years on average. A simple average, which is a little bit different mathematically than the annualized, it was about 14.52% per year.  The Democrats also had this unified government control, but instead of 13 years, they actually had it for a lot longer, 34 years. So, in a way, sort of the ultimate comparison of how the markets behave when you have Republicans or Democrats is by looking at periods of unified government control. One party controls everything. There is no place to hide.  And I realized also, Brian, that this could be a sensitive number that that somebody might look and say, well, you’re trying to promote that one party does better than the other. And, you got to be careful with this. So again, I’m not here to make anybody feel good or bad about the reviews.

This is what the data suggests.  And you can read whatever you want in this, but when you look at the numbers, when he crunched the numbers,  and we had the PhDs in the research group also looking at this,  what’s interesting is that on average, during the 34 years of the democratic unified government control, the market went up by 14.52%. It is identical to the second decimal.  So when people are telling you that who’s in office or who’s in control of DC matters for the markets, just think 14.52%. It is identical to the second decimal.  And, and because of that, I, I think that the story here is that, I, I am not by any means suggesting that anybody should make a move with their money because of the election and politics. Do elections matter? Absolutely. They matter.  And the way I think about it, they’re part of the, the set of variables, many, many, many variables that impact the stock market. It just doesn’t appear to be a primary one that having Republicans or Democrats can lead you to say, aha, I should make this move with my money. And, what this became apparent is when I was recently baking some cookies with my daughter, And you put in the sugar, and you put in the eggs, and the flour, and the butter, and you mix it all in, you bake the cookies, and when they’re done, and you, and you break apart the cookie, well, you can’t point and say, aha, it’s the egg yolk. I think politics is more like the egg yolk in a cookie. It’s indistinguishable from all the other ingredients. but what I can tell you is the politics is the egg yolk, not the garlic. In other words, it’s not something that stinks so badly. I can recognize it. No, it’s one of the many, many variables, it just doesn’t appear to be a primary one. And because of that, I do want to acknowledge the emotions, but tell people don’t make emotional decisions with your money. There’s nothing in the data to suggest any way you parse it, that politics should be the basis of making a move with your investments.

Brian: So you all heard it from Apollo. No matter who wins the election, you don’t need to move to Canada. That’s one of the takeaways here. It’s going to be okay. Let’s kick it over to Kathryn. Apollo, thank you so much as always. This has been awesome, a font of knowledge, and I think really the ability to take some of these complicated things and really take them down to a level where I understand and hopefully everybody understands, really simplifying them, making them clear. Let me kick it over to Kathryn to wrap up.

What impact will artificial intelligence (AI) have on investing?

Kathryn: We’ve had a lot of questions. So I know that y’all have had a lot of questions and you would like a free financial assessment, please give us a call, go online. I’ve given you a couple of links. If you already are part of the Pure family and you have a financial advisor, please contact them directly and make sure that you get your questions answered. But one of the biggest questions that has been flying around today has been about AI. We didn’t really touch a lot about AI. So, basically, what is your opinion about AI and investing strategies?

Apollo: I think, I think AI is certainly something that’s here to stay. And I think that investors should have AI is part of their portfolio. The way I look at it, AI should be commensurate with the economic value that it produces. It should be commensurate to the way it impacts the profits of companies.  And, to the degree that that’s the case, it is part of your portfolio. If you own a globally diversified portfolio, Nvidia, which is pretty much tied to AI. You know, it’s a, it’s as much as a part of a portfolio as the German stock market. So I absolutely tell- have AI, and have it proportional to the value of the profits that it generates in an economy. What I would not do is overly focused on AI because AI is a technology that’s incredibly fascinating. It’s very new. And at this point, it’s not clear outside of Nvidia, who makes the chips that it has been a great revenue producer for anybody. And that’s Microsoft. That’s Google that- you name it. Nobody has figured out a model yet to monetize AI. And what I would tell somebody is AI is part of your portfolio, not only because of the producers of AI. But I think the users. If you go to the grocery store and you scan something, well, the biggest beneficiary of that technology is not necessarily the scanning company that produced that scanner, but the users, the supermarket. So to me, AI is not necessarily only who produces it because we haven’t figured out a well-monetized type of system, but rather the users of that technology. So to me, the interesting part is going to be having AI, as a producer of AI. But also I think as a beneficiary by the companies that he owned who use AI. So I think absolutely should be part of the portfolio, but it should be commensurate to the economic value rather than just overloading on it.

Brian: Yeah, thank you, everybody for attending today. Hopefully you enjoyed this. Hopefully you learned a lot. Again Apollo, thank you so much for taking the time today and any questions, please reach out either to your advisor or through Kathryn’s questionnaire, and we look forward to connecting with you again in the future. And thank you very much. Have a great day.

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CFP® – The CERTIFIED FINANCIAL PLANNER™ certification is by the Certified Financial Planner Board of Standards, Inc. To attain the right to use the CFP® designation, an individual must satisfactorily fulfill education, experience and ethics requirements as well as pass a comprehensive exam. Thirty hours of continuing education is required every two years to maintain the designation.

CFA® charter – Chartered Financial Analyst® Chartered Financial Analyst® designation was first introduced in 1963. The CFA Program contains three levels of curriculum, each with its own 6-hour exam. Candidates must meet enrollment requirements, self-attest to professional conduct, complete the approx. 900 hours of self-study, and successfully pass all three levels to use the designation.The program curriculum increases in complexity as you move through the three levels:
Level I: Focuses on a basic knowledge of the ten topic areas and simple analysis using investment tools
Level II: Emphasizes the application of investment tools and concepts with a focus on the valuation of all types of assets
Level III: Focuses on synthesizing all of the concepts and analytical methods in a variety of applications for effective portfolio management and wealth planning
CFA Institute does not endorse, promote, or warrant the accuracy or quality of Pure Financial Advisors. CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.

AIF® – Accredited Investment Fiduciary designation is administered by the Center for Fiduciary Studies fi360. To receive the AIF Designation, an individual must meet prerequisite criteria, complete a training program, and pass a comprehensive examination. Six hours of continuing education is required annually to maintain the designation.

PHD – DOCTOR OF PHILOSOPHY – A PhD is the highest academic degree awarded for original and significant research in a specific field. It involves coursework, comprehensive exams, and the completion of a thesis or dissertation in their chosen field. Most programs encompass coursework, comprehensive exams, research, and dissertation writing. Admission requirements usually include a relevant master’s degree, letters of recommendation, and a compelling research proposal.