Best of Caller Questions

This is a Best of Invest Talk episode from KPP Financial. Listener questions will be answered and commentary provided by Justin Klein and Luke Guerrero. Your Richard and Santa Clarita wants to talk about Treasury bills. Yes, thanks Justin for once again taking my call. I've been a listener of this show for a long time like over 10 years and I try to catch every episode. But one of the things I have a question going back to what Steve Peasley used to say. And maybe emphasize it because we're the conditions back then. But he always said that whenever the 10 year Treasury is lower than the two year when you have the inverted rate there. He said historically always it follows with a recession. And he said that that recession it may not be next month or in five months or maybe even 18 months. But we did have a period of time a while back where the an inversion that took was a long time lasting. And then finally it's you know switched back to more you know the normal. So does that mean in given what you've said about there are so many factors now from the the war. To AI and a lot of things confident. Well that how does that hold I mean taking that into consideration. I don't think we've had a recession since the last inversion. Yeah that's that's definitely true that we didn't have an official recession because it did invert back in 20 what was that 20 yeah. So that was back in 2023 early yeah into early 2024 where it was inverted. I think that we're in a new era you know that was post world war two when things were a bit different. Now what we have is what I call what we call in the industry now fiscal dominance where yes there can. And there's a lot of manipulation of the yield curve by treasury the Fed they can do it based on issuance of the issuing of the long end the short end all of that. And then the powers that be they don't they don't want a recession they don't want it presided recession so they'll put through some sort of spending packages whether that's an emergency through some sort of a war things like that whatever it is they're they're they're manufacturing that's why I say that the the risk to most for most people the risk the markets excuse me is really a crash up that's kind of what you're seeing now everyone's worrying about 08 type of deflationary bust crash and that certainly could happen for short stints but you've seen those short stints are hit with some sort of stimulus and in the background now you have such a large deficit and at large deficit means huge interest payments we know it's now over a trillion dollars a year higher than the military spending at least for now and what that is is that is basically government spending right that's government spending because they're spending on interest and that's going into people's pockets that's dollars being created and so that is kind of underlying everything and and really pun intended no pun intended trumps everything now to a degree not entirely but definitely has this veneer of just stimulus underneath the surface that's coming from government spending and government government largest government effectively stimulus that's happening every single year with our deficits so large right we're at what 5 6% deficit the GP ratio which those are levels that you see during a recession and so it's very hard to have a true recession when the government's spending that much the real worry is that eventually if the either number one the bond market takes away the printing press basically saying we're no longer willing to finance you I think that's more farther off than people understand mainly because the treasury issue and schedule are they issuing the long on the short end right now and even under Trump under Biden administration they were all kind of pushing on the low end or the short end which is issuing short dated treasury bonds which I think is what you kind of asked about originally and that is stimulative to the overall economy there's a lot of banks that want to own that type of paper and so they're easy to find financing in the short term what that ultimate release valve will be is the dollar and that's the by the dollar has been structurally weak for a couple of years now and even even when the the expectation of fed rate hikes increases you're not seeing a big rally in the dollar I see structural downside in the dollar and that is the release valve of all this money printing all this fiscal dominance all this fiscal largest so I know I know I talked a lot there but kind of want an attention but hopefully that gave you some perspective on what's going on with that with the underlying economy and why we're not seeing recession even though we had that in verdeals curve all right well thank you very much no problem thanks for the call Richard it's going to john from north carolina how can we help you hey thanks for taking my call hey I've listened to your show for for many years and I'm also a client and I have you know gotten halfway decent at picking winners from time to time and so now I have the problem of knowing when to when to trim a stock that's had a good run so I'd love to hear practical guidelines or practical advice for using tools like you know trailing stops or average true range maybe technical tools that we could use that would help us take some of the emotion and timing out of it if you have any like rules of thought that you could share to help us know when to trim let's say a third of your position if it had a really gangbusters streak that's a great question you know I think that any holistic portfolio construction needs to first take into consideration what you want to have your weight in sectors be and then when you construct what you want your weight in sectors to be then you can dive into those names that you want to hold but that in and of itself creates targets for where you want to be in both sectors and in those names and so the best way to not round trip not round trip trades but ride the roller coaster all the way up and all the way back down is to be disciplined in not necessarily how you're setting your you know stop losses to to to lock in gains but in how strict you are with your tolerance levels at those two inputs that we just talked about your sector weights and your individual target weights for your securities for us we are pretty strict right we have strict construction around how much we're willing to go overweight or underweight the segment benchmark when we construct the portfolios in the first place and so if we go below or above we are very strict in cutting names trimming down on names maybe some of the position maybe all the position now there's some things we know right we know that stocks that exhibit positive momentum can tend to continue to do so in the short to medium term so within the next 10 to 12 months we know that names that are exhibiting poor momentum tend to continue to do so over the next 10 to 12 months as well and so it's difficult to have a hard and fast rule there are times when you know we are people we see names they have very strong momentum you're gonna want to ride that momentum but I think it is you know the enemy of good is perfect right and so in order to have the probability of having the best investment experience sticking to those constraints you put on your target weights for your securities and sectors is really your best friend you may want to ride that momentum with this name that you want to hold 4% of but there's a reason why when you enter that position you should already have that exit plan right say if I get above 6% I'm trimming back down to 4 if this gets to this target value I'm exiting it completely if it gets to this valuation I'm exiting it completely and to an extent maybe it's okay to have a little bit of tolerance beyond that 6% if it's a really positive momentum name but understand there are certainly risks right you created this plan at the outset to stay disciplined to avoid some of the pitfalls that investors tend to make and so having those strict constraints on yourself I think is the best way to remain disciplined and when you decide to sell your position thanks for the call tonight you are listening to an invest talk best of caller questions compilation program your comments and questions are always welcome call anytime 888 99 chart that's 888 999 CHAR T this is a special invest talk best of caller questions compilation program remember the invest talk phone lines never close please call with questions 888 99 chart hey look Justin great show I'm calling you from Southern California with a question about my role over Ira I'm retired and I'm 60 plus and I would like to start pulling money out slowly over the next few years instead of all at once to avoid a big tax bill my taxes will definitely be hired down the line and my candidate for a doctor or Ross being helpful and this would be great thank you now a backdoor Roth is specifically for high income earners who cannot contribute directly to a Roth IRA it involves making a non deductible traditional IRA contribution and then converting it that's not really what you need What you're asking is, is there a Roth conversion strategy, i.e. systematically converting portions of your traditional roll over IRA to a Roth IRA over multiple years? These are called Roth conversion ladders. Now, here's why you might be a good candidate, right? You are 60 plus and retired, which means you're not taking Social Security, you're not taking RMDs which started 73. And so there's this gap between when you stop working and when you're forced to recognize more income. And so if your current tax bracket is lower now, then it will be later, which you said it was, or rather it will be, then it makes sense to pay the tax on the conversion at today's lower rate than on your all future growth and withdrawals down the road. What you probably don't want to do is convert your entire IRA in one year. That would push you into the highest tax bracket possible, because it defeats the whole purpose of this. So you would have convert strategically each year, filling up to the 22, 12, 22 or 24 bracket, but not going higher. This minimizes your total lifetime tax bill. It's called bracket filling or bracket topping. It's probably one of the most powerful tax planning strategies that really exists there. And this is a powerful tool, not just for you, but for anybody. This is something we help our clients with all the time. We have various tools that can say, okay, this is how much room you have. This is how much benefit you can get out of it. But the key is, you need to work with CPA or tax advisor. You need to map out this projected income year by year through age 73 when you have to start taking those RMDs and you'll obviously be on social security. Because you don't want to mess this up. You don't want to push yourself into a higher tax bracket and pay more taxes than you need to. A common misconception is you actually don't need earned income to do Roth conversions. There's no income limit on conversions. Anyone can convert regardless of how much they make. There's a five year rule on converted amounts. You can't withdraw the converted principle penalty free until five years after each conversion, but you're over 59 and a half. So it's largely a non-issue bottom line. In your situation, a Roth conversion may make sense, but given the tax complexity, it is critical. You work with a tax professional. Thanks for the call. Let's drop in another listener question now. - Well, I heard Justin talking recently about there's a possibility of us going into recession within the next 18 months. And as I understand, recessions don't just happen all of a sudden, it's kind of like a gradual slide into them. I was calling regarding retirement allocation. So I have a Thirst Savings Plan. And I was calling just to see what recommendation I could get regarding how to allocate money within that Thirst Savings Plan between the international fund, the small cap fund, the S&P fund, the bond fund, and the cash fund. I appreciate any insight. Thanks, I love the show. - So it's a very complicated question. The reason why it's a complicated question is I don't know enough about you to give a general, rather to have a general sense of the important things to know before making these decisions. How much assets do you have relative to what you're going to need? And I don't mean dollar value. I mean, taking into consideration the traditional growth of those asset classes. How far away are you from retirement? How old are you? All of these things change the math. If you're in your 30s, you have a long time horizon. With 30 plus years until retirement, you can afford to write out a recession even if one hits in the next 18 months. History shows markets recover well before what your retirement date would be. So maybe you want to have 40 to 50% of the S&P 20 to 25% in small caps, 20 to 20% in international, very low bond exposure for that cash treasury's fund and that bond fund. If you're in your 60s though, the calculus changes significantly. The recession within 18 months could hit right as you're starting to draw down, which is what we call sequence of returns risk. Therefore, you would want a more defensive posture, maybe 30 to 40% cash, 15 to 20% bonds, 20 to 25% S&Ps, way less risky exposure, which would be your small caps. And so that's to say the core of your question about a recession the next 18 months and generally they do happen more orderly. You always remember the ones that are disorderly that happen all at once, but recessions are inevitable. They're the inevitable part of the business cycle, but how much time you have left before you need your retirement is a key component that one must know before you make those investment allocation decisions. Thanks for the call. - You are listening to an Invest Talk best of caller questions compilation program. Your comments and questions are always welcome. Call anytime, 888-99 chart. That's 888-99CHART. (upbeat music) You are listening to an Invest Talk best of caller questions compilation program. Call anytime, 888-99CHART. That's 888-99CHART. (upbeat music) - Hello, Invest Talk. I was calling in regarding a question on whether or not to reinvest dividends. I know some shows that you suggest that to reinvest dividends, whether other times you suggest not to reinvest the dividends, but wait, and then you can control it better when you want the stock or ETF price that you want to buy into at. So just wanted to see, for instance, I was retirement age, but still investing in the VOO, the S&P 500. So is that something where I think is it just best to just get the dividends and then once it's accumulated by most shares, I'll just make a purchase then at that point rather than just reinvesting it automatically. So just wondered what your opinion is on that and I'll be listening to your podcast. Thank you so much. - Well, this is a great question. It's something that's, I think, evolved over the years, especially as commissions have changed. It used to be, you get a dividend, it's a small amount, are you not gonna take that money and commit more to that position and pay another dividend. And so dividend reinvestment was a way kind of around that would automatically be reinvested in that stock that's paying it. And then you can go and sell it whenever you need that income. But we're now in an age where stock trades are nothing. There's no cost there. So now it's a tougher decision. And I think it's depends on the person. If you're set it and forget investor, it's not that you're buying Vio and Vio. If you're a Vio, oh guy, or gal, then it doesn't really, there's no real. You're not actively taking, watching when that's gonna dip and buy back in. If you're a more active investor and you maybe wanna use that money to diversify and be more targeted with that new fresh cash that's in your account, if that's who you are, then I would not reinvest the dividends. But like I said, if you're a passive investor, just reinvest it. 'Cause otherwise it's gonna sit in your account and who knows when you're gonna actually get that put in, you're probably gonna do it at a time where you go randomly check your account or you see people talking about the market and how good it's doing. You go check your account, oh I have some cash in there and you throw it in, it's usually at a bad time. Probably you wanna have the discipline to go and buy when CNBC says market sell-off or market panic or whatever, those are usually the times that you do want to buy into the market. So it just depends on who you are. But it's certainly changed over the years. Like I said, because of the shift away from having to pay commissions at all. But I like that you're buying dividend paying stocks. That's great, so thanks for the call. Let's take a live call in San Francisco. We're gonna talk to Lynn listening on KDOW. Do you have a question for me? - Oh yes, and I love your show. You're the only person that actually tells us what to invest and what not to invest in. Anyway, Justin, I'm a low income advanced in age senior and I'm just wondering if you have just a couple of thousand to invest in the stock market when you're willing to take maybe a higher risk than the average person. And then if you could invest like 400, 500 a month ongoing, if there's anything that you would suggest to invest in. - Well, the first question I have is your older. You said you're relatively low income and this money is this for money to live on? Is you have a goal for this money? What is this money going to be used for and in what timeframe? - No, this money would be separate from the money I live on. So it would be something that could take maybe a little more risk on. - Got it, okay. And so you're looking for maybe some funds or some asset allocation that would make sense over the maybe medium to long-term? - Yes. - Okay. - Probably not too long-term 'cause I'm getting up there. - Okay, yeah, medium term. - Medium term, okay. So you're willing to take some risk, which means that you can probably get a little bit equities in there, but in today's world, would probably want some sort of harder assets. So I would probably have a mix between like a global ETF because you're probably not going to do individual stocks. It doesn't sound like you probably have the time or the wherewithal to do deeper research on individual names, correct? So you want to stick with funds. Probably want to low-cost a global ETF. I think that would be the start. There's some, there are a lot of good ones out there that are low-cost but I would focus on global, not just domestic. Then I would probably sprinkle in a good amount of harder assets. So number one, like a REIT fund that would produce some income for you, a diversify you, beyond just equities. And I also have some sort of precious metals. Probably a mix between gold and silver. Precious metals probably in the 10 to 15% of that portfolio. And so that's those are the three main asset classes. You probably want to mix in a little bit of fixed income, probably shorter duration bonds as well, maybe in the 20 to 25% of the portfolio. So those are the three main areas that I would focus on. I guess that would be four main areas I would focus on. You want to lean probably 50% of that being in the global ETF, equity ETF, and then the other 50% spread between those other three. Thank you so much. I appreciate it. No problem. I wish you good luck. And call back if you have any more questions. Thank you Justin. You take care. You too as well. This is an Invest Talk best of caller questions compilation program. Call anytime 88899 chart. That's 88899 CHART. At KPP Financial, accountability means more than advice. It means we invest alongside you. Through our parallel investing approach, when we recommend an investment for clients, one or more KPP principles invest their own capital at the same time. Same day, same price, same percentage. If your portfolio moves, ours does too. That is alignment. That is transparency. That is the KPP difference. Visit investtalk.com to get your free portfolio review. This is a compilation program, but the Invest Talk Voice Bank never closes. Call anytime with your questions. 88899 CHART. Hey, guys. Love the show. Mark from San Diego. Just looking for your long-term and short-term outlooks on oil with all the gyrations in the Middle East by still hearing as funds as well as individual stocks like Exxon and Chevron and that kind of stuff. Oil stocks. I'm wondering if I could trip now. I could fit on it. I'm in no rush to sell them. But they've been up quite a bit in the last couple of years by far. This is our long-term trip. Visit on it or ran to it. There's a lot of lessons to me that have come out of this war, not just politically. That's one lesson. I think everyone's probably learning in some way, shape or form. But it's also about the oil and energy industries and dynamics in the oil patch. And to me, the big takeaway is the closing of the straight of Hormuz was something everybody warned about for a long period of time. And frankly, you haven't been doing this long time, 25 years. I heard about it. Never thought it really was a big risk. But it was a big boogie man that everyone threw out there. That if that happens, the oil markets will go crazy. They will go insane. And that would be the end of the world. Well, guess what? We're over three months into this. And there are issues. I'm not saying there aren't. And obviously if it's closed another probably month or two, there'll be even more issues. So it's a problem. But clearly, it's not nearly a big of a problem as everyone made out to be before it ever happened. Why? Because oil is a global market. And the Middle East has the most oil, but it's not the only place to get oil. And so the lesson here is that if this isn't going to moonshot oil prices to levels that allow the big oil companies to extract oil at huge valuations or huge margins, so we say, then what is? Then what is? So what I did is I said, if you're going to gain exposure and I'm talking right now, you know, it's okay to have some exposure right now for a potential super psych like because that's a, I think a pretty good political bet that this will come do ahead to a point where prices do accelerate to the upside and it puts pressure probably on the current US administration to do something to resolve it. Right now, oil isn't, you know, $90 a barrel in that range kind of hanging between $90 and $100 higher, not great, but not a catastrophe for the world. But what it's telling me is that if you want to invest in this space, I don't really feel great about the big oil, oil names, just EMPs in general. First off, you have to understand that their price takers means that they just get what the market says they're going to get. So not much strategy behind that, the others hedging and things like that, but overall their price takers. So I said, what about the rest of the energy world? What about transport stocks, meaning the pipeline companies? And then I want to look at Chevron, Exxon, and then the Williams company. I look at the last 10 years, even the last 15 years, last 10 years, look at Williams company, total return 14 and a quarter percent, total of the largest oil pipeline companies out there. Then you look at Chevron, 9 percent total return of last 10 years, Exxon, 7 and a half plus 15 years Exxon, 6.2, Chevron, 6.6 Williams company, 8.5. So clearly, it makes more sense to own the pipeline companies. Then what about the refiners? The largest one is Valero. What's that return to last 10 years? 18 and a half percent annualized. That's an incredible return 15 years, 18 percent annualized, just consistent. And they're not building a lot of new refinaries and it's difficult to get new pipelines built. So it's all about scarcity there and they can, they're the only game in town for the most part, they can extract higher returns. So my lesson here is I want to own those names than the oil patch, names that have exposure to finding that have midstream capabilities, meaning moving oil and gas from the well head to where it's actually actually used. That's why I'm starting to look at the oil industry. Invest talk is ready 24/7 for your finance and investment questions. I'm hoping you'll give me your take on or matte technologies ORA. Is it a good idea to sell your losses in a Roth IRA and just use whatever you have left to reinvest into better stock? Don't forget to call Invest Talk 888-99 chart. Hi, this is Jen in Portland, Oregon and I have a question about private credit versus private equity. There's a lot of news lately about private credit and investors wanting redemption, firms not always allowing all of those. And I was just wondering if you can speak to whether private credit also includes private equity firms or if not, very curious like how those interact. And also if they are something separate, I'm also curious like what private equity firms look like right now in terms of performance. I know that they often have investments in the forms of like limited partnerships reporting that might be somewhat opaque or limited in frequency. I would love to hear the answer on your show. Thanks so much. This is a great question. And there are some similarities and differences. The first similarity, the main similarity, is that they're both private. They're both called private, private equity, private credit. Meaning you don't know what the true value is. It is private. It is not public. It's not in public markets. It's not traded every day. That's the best thing about public markets. It is liquid. It is transparent. You know what the value is. Don't let anyone ever tell you that private is better than public. If you're talking about the same asset class, let's say that. Now there are private startup investments, things like that that may be great opportunities. I'm not going to poo poo those. I've made those and I've done great with those. But if you're talking about asset classes in general, I much rather own public credit or public equity versus private credit or private equity. So those are the similarities. Now what are the differences? One's credit. One's equity. Credit is basically bonds. That's this capital structure. You own when you own private credit, you own the debt of these various companies. It's a portfolio of debt, portfolio of companies that you own the debt on. Private equity, you own the equity. So it is. You own effectively ownership in the business, the upside of the business. That's more risk because you're lower on the capital structure. Credit. debt is at or near the top of the capital structure. So that means in bankruptcy, they're the first ones to be paid back. Versus equity, you're at the bottom, and usually in bankruptcy, you get next to nothing. A private credit has to pay you out money. They regularly and sometimes monthly, quarterly, etc. And they need their companies to perform in order to get that cash flow. Whereas private equity, the hope is that eventually they'll sell off the businesses, maybe to another private equity firm, maybe they'll go public. That's the ultimate dream is to actually take some of these companies they bought and take them public and cash out. But that could be in five years, could be seven years, could be ten years. They continue to kick the can down the road and push winding down a lot of these private equity funds until later and later because they can't get liquidity for these businesses. A lot of them are struggling and the same with private credit. But once again, you know that easier because they're actually are they paying you or not? They should be paying you. Not in picks, what's called payment in kind, but actually cash. And some of them had stopped doing that. And so that's the difference here. Certainly private credit is safer than private equity. But it does have its own potential issues. And think of it as a very high very junky high yield bond fund. It's effectively what it is without you knowing what the value is and hoping you continue to get paid. It's kind of what private equity or private credit is. Hopefully that gave you a good sense of the difference. My five year old son and I listen to your podcast every night. So thank you very much for putting it on. Justin Klein is here and ready to tackle your questions. Is it a good idea to sell your losses in a Roth IRA and just use whatever you have left to reinvest into better stocks? I'm wondering what you thought about this read if it would be a good time to get in. I wanted to pick your rent about Apple. What do you think about their earnings calls? Is this a good time to pass to my position? Don't forget to call Invest Talk 888 99 chart. We're going to go take a live call and talk to you Chris and Pleasant Hill. It was like about Roth conversions. Yeah, hi. Thanks for taking my call. Yeah, I'm just struggling with understanding the benefit of paying the taxes now versus later. Because you have less money working for you over time. You know, each year you pay the taxes on the conversion and in my case, I'll probably have to pay like 24%. I don't know, I just struggle with that fact that I'm reducing my money by 24%. So the concept is very simple but executing it effectively is challenging without the right tools. So let me explain. So when you're doing Roth conversions, what's your goal here is effectively tax arbitrage. So you talked about your 24% tax rate. So if you took $100,000, she's around numbers and you pay 24% tax today and you're left with $76,000 and you go invest that $76,000 and you earn the same return on that $76,000 over the next called 20 years as you would if you didn't do the conversion and you invested $100,000 and you had the same return and then you take the money out in 20 years at the same tax rate of 24%. The amount you would get net taxes would be exactly the same. It would be exactly the same. The numbers are exactly the same. So the only reason to do it is if your tax rate today, when you do the conversion, is lower than what it will be in the future. What you're effectively doing is saying, I want to lock in this tax rate today because in the future, I will be in a higher tax bracket. So that's why usually if you make a lot of money, you're in a high tax bracket. You probably don't want to do Roth conversions. Usually the best time to do this is after retiring the year after when you're not making, you don't have income anymore and between that time and when you take social security and especially before you take RMDs and that's what you're also trying to avoid is RMDs and being forced into a higher tax bracket because that's what happens a lot is that you're forced into this higher tax bracket when you do the RMDs and then you have no control. So what you're doing with the Roth conversions is you're taking control today and locking in a potentially lower rate. Now this is what we do for clients and this is what I say with the right tools you can affect, you can understand is what is my tax rate today? What will my tax rate be next year and five years and 10 years and 20 years based on my social security income? Do I get pension income? What am I going to retire? How much of money I am making today? What am I likely to be making in five, 10, 20 years? Your entire financial picture. This is what we do for clients. Beyond just managing their accounts, we're also developing the strategies from a financial plan. This is what a financial plan does. Now we have tools. We're not doing the calculations ourselves. We use what's called a Ryan planning. It's what we are trying to log in and they can see their accounts and all the transactions and everything but also see all their entire financial picture. They can pull in their bank accounts and credit cards and mortgages and everything else and I'll put it all together and we can also say, hey, what are you going to get at retirements from social security at 67 or 70 and if you can plan out when you should take social security? Also based on Roth conversion because a lot of times it's not only should you wait to take your social security so that it grows but also you can do more Roth conversions between now and when you take actually get social security. All of these are moving. It's a complex, moving picture that you need to put together either yourself or have somebody that has the tools that can do it for you. So that's why you're confused. Number one, you don't understand the basic math which is it's all about tax arbitrage. That's it. That makes sense? Yeah, thank you very much. No problem. Thanks for the call. In today's world, a variety of factors are affecting the stock markets. Serious investors know building a secure financial future requires hard work and determination. That's why now more than ever, when it comes to the planning, execution, and maintenance of your portfolio, you need Invest Talk. Invest Talk is a free download. Your participation makes it unique. Don't forget to call Invest Talk 888-99-CHAR. Hi guys, my question is regarding when you calculate ratios for companies. Do you usually use the gap or non-gap? Because some of these numbers vary so much. What is your policy when you do calculations in general? Thank you. We always use gap. Now can non-gap be useful? Yes, it can. But far more often than not, especially when you're getting into growth, your names, tech names, etc. They're using non-gap numbers because they don't like what the gap numbers come out. Remember, gap is generally accepted accounting principles. So that, and it's there for people like us investors to look from company to company and know that if we're looking at earnings or cash flow or whatever, that it's calculated in the same manner as every other company that's out there. Now there are wrinkles once again that you have to adjust for that can make certain companies look a little bit different than others. And that's why a lot of them use non-gap. But the problem is once again, non-gap is just bastardizing the process of telling the public how the company is doing. So if you, and when you hear non-gap, one non-gap is not the same as another non-gap. They're not using the same non-gap process. They're making up their own non-gap process and saying, based on this non-gap process, this is what our earnings are. But this other company, when they go use non-gap, it's the different process. It's a different way of getting that number. So unless you dig into the details, you're probably going to get misleaded and so that's why we focus on the same mislead. This lead, that's a better way to say it. Then, yeah, you're going to be misled. So I would stick with cap. You are listening to an Invest Talk, best of caller questions compilation program. Call anytime, 888-99-chart. That's 888-99-CHAR-T. 888-99-CHAR-T. Today, I had a question on railroad stocks. I just wanted to get your overall opinion. I've heard people talk about them in a positive way, negative. just looking to see what you guys think about them. You could just talk about why railroad stocks are bad investment. Just something to kind of help direct me on how I should be looking at these, if at all. I'll be looking forward to hearing your answer on the podcast and thanks as always guys. - I'm not sure where you're getting the idea that railroad stocks tend to be bad investments. Actually, there's some of the best businesses in the world. They have natural monopolies on a very efficient way to move goods through different nodes in their network. Yes, they're alternatives of shipping via truck or plane, but those tend to be very inefficient, especially when you're moving large quantities of product to specific locations, especially locations where there's a large population. And if you go look at the profitability of some of these names, I'm just looking at Union Pacific, one of the largest out there. The return equity right now is 41%. And if I zoom out historically, it's basically, I'm going back to the chart up with the 1998s and through the early 2010s, the return equity is around 10, 11%, but it's been steadily rising in over the past decade or so. It's averaged 30%, 40%. Now we own a separate rail company than UNP, but it's still very profitable. These are consistent businesses. Yeah, they tend to be cyclical. But once again, they operate an efficient service. Yes, that's flexible, some of the other ones. Before the bulk of the move from, say, the ports to the middle of the country, there's nothing more efficient. And once again, most of them have very strong monopolies on different routes. So I don't know where you're getting the idea that railroad stocks are bad businesses? No, they're actually some of the most incredible businesses out there. They're boring. Sure. They are boring. I get that. Not exciting, it's railroads, it's old school. But the trailing returns are incredible. I mean, if you look at UNP, 15 year total return, 13%. Annualized? That's very good. Go look at, let's see the name that we own. It's also a domestic railroad company. The tenure, annualized return, 19%. So yes, everybody should have railroad stocks on their watch list. Now is the time to buy it. Another question. You know, a lot of them have good momentum now. Part of this is higher oil costs. It makes their service even more efficient or more cost effective, shall we say, because shipping via plane or truck, suddenly just got a lot more expensive. So it means that more and more goods are being shipped by rail. I love railroad stocks. Now let's go with a YouTube comment section question. Sammium says, "Hello, Investor. Would like to get your thoughts and opinion on the recent SEC ruling change that effectively scrapped a minimum $25,000 pattern day trading requirement. I see very little media attention on this and the argument is that it lowers the barrier for more investors. Does this not make it riskier for investors, the investor, especially if trading on margin? How does that rule change beneficial to the market?" So usually that pattern day trading requirement is for retirement accounts, IRAs, Roth IRAs. There's not really that issue with taxable brokerage accounts, which is what you would need to be to take on margin. So I'll address address it in regards to those retirement accounts. And I think the simple answer is it's important to have some sort of safeguard for the average investor. I don't think that it benefits markets in any way. When I hear benefits markets, to me, it's all about maybe creating more liquidity, more price discovery, et cetera. And frankly, I don't see this doing either. I see this as a much higher risk that investors will misuse it, especially in today's world with very get rich quick. There's a lot of gambling. There's a lot of day trading. And to do that in an IRA or Roth IRA just doesn't, I think, benefit the end investor who should be investing more for the long term. Because most traders, they flame out. They don't have the discipline, they don't have a plan. They just hear stories, or they're kind of flying by the seat of the pants. And that certainly is a recipe for disaster. So if you see this change, to me, this is more to do with lobbyists. They want more trading. They want to make a spread, especially high frequency traders and the citizens of the world. They want more volume, and they can make their extra little penny on or tense of a penny. And that's what this is all about. This is not better for the investor. It's not creating better price discovery to be frank. And so I don't like this change. Invest talk is a trademark of KPP financial. 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