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Speaker 3If we break down out of this consolidation, that's going to be very important, right? Because if we can, if these, these Bollinger Bands have become very narrow. So if we start to break down out of this, this trading range we've been in, those Bollinger Bands are going to start to expand like we saw over here. And we're going to get a retest of the 200-day moving average. That's around 7,300-ish right now.
Speaker 4Welcome back. Thank you. I'm with Thoughtful Money. I'm Thoughtful Money founder and your host, Adam Taggart, welcoming you here for another weekly market recap at the end of the week. This time I'm on the road, as you can tell, obviously, by the hotel room behind me. And I'm joined, as always, by the portfolio managing paladin, Lance Roberts. Lance, how are you doing?
Speaker 3Hanging in there.
Speaker 4It's been quite a week. Yep. And that's why I chose paladin. You are a protector of the faith here, trying to keep people calm in a week that's probably giving a number of people indigestion here. We were just joking. I actually haven't looked at the liquidity numbers, but maybe we can when we look at the TA. But I was making a liquidity joke because I'm here at this hotel, which is pretty old, and getting ready for this interview. I was in the shower, and the water, Lance, in the shower just totally ran out. So I just went to the faucet to see if I could kind of finish dunking my head into the faucet. No water there, too. So there's a liquidity analogy. There's a liquidity analogy somewhere in there, I'm sure. But just to bring folks up, in case you've been asleep this week, technology stocks have led. I don't want to use the word "route" yet in the market, but definitely they've expressed a fair amount of weakness that is now getting, you know, somewhat substantial. I was just pulling some numbers. $4 trillion in market cap has been wiped out from the Magnificent Seven. Four of those seven stocks are in bear market territory right now. And I think in the overall market, there's a lot going on. And in the overall S&P index, over 60% of stocks in the index are down at least 20% since their highs of the year. So I think people are starting to look at the markets and starting to say, whoa, wait a minute, what's going on here? So as the protector of the faith, Lance, pull everybody back from the ledge.
Speaker 3Well, no, I mean, everything you just said is right. There's certainly been weakness in the technology stocks in particular, in the growth sector in particular. And, you know, this is, you know, go back four weeks. October the 5th, we talked about that we had sold our growth, reduced our growth allocation and added to our value allocation, which has been grossly outperforming. So, for instance, if you looked at the market yesterday, as a good example, markets were down sharply. But companies like Eli Lilly and Walmart and Costco were doing very, very well. And same case today, we're seeing a lot of damage being done in Intel, which is down nearly 30% at the time that we're speaking. Following there. Earnings, you know, is certainly hitting a lot of the semiconductor stocks today. But if you take a look at the value side of the index, Berkshire Hathaway is up, values up in general across the board. Let me just share this with you. We're going to we're launching the new SimpleVisor on Monday. So on November the 1st. But, you know, if you take a look, this is the last five days, values up in the last five days. If you had invested in value stocks. They're up one and a half percent for the week and the growth stocks are down 95, down 1% for the week, right? So, you know, you can just see that dispersion that's occurring within the markets. And then if you look at the advanced decline line, we're certainly seeing that impact there as well. Only 32% are advancing. But once you switch over to the 20 day moving average, the number of stocks above their 20 day and the number of stocks above their 50 day, that's actually holding out pretty well because the majority of the rest of the market, the equal weighted index is up. So, you know, we're going to see a lot of things that are going to go down, but we're also going to see a lot of things that are going to go down. So, you know, we're going to see a lot of things that are going to go down. There's not been a tremendous amount of damage in the equal weighted index. It's primarily just isolated at this point in the Googles, the Microsoft, but I'm really Microsoft. Microsoft's not well this week. But, you know, Google and Amazon and Meta and other Intel today in particular, those stocks have certainly been under a lot of pressure this week. And, you know, it's just there's a couple of things I think that are attributing to that. First of all, a lot of these moves are a bit unwarranted. And what I mean is when you take a look at Google's earnings as an example, their earnings were very good. Came in a little bit light on earnings, but nothing to warrant a 12 percent decline in the stock. So there's just this overreaction that's happening to these stocks. And a lot of that has to do with this kind of excessive use of margins and leverage that have come into the markets over the last couple of years in particular that's exacerbating these moves. But also understand that these sharp sell offs. Are also opportunities and good companies. So don't necessarily go, oh, my gosh, the market's falling apart. I'm selling everything I own. Google is more than four standard deviations oversold right now. Typically, historically, when Google has been I'm just using Google as an example because it was kind of a headline stock this week. When a stock like that gets this oversold, it typically tends to be a more of a contrarian indicator. In other words, a buying opportunity rather than a selling opportunity. So, you know, if you're down in your position, be careful. Be careful about selling here because this is where investors typically get trapped. And then the stock rally, they sell it. And then the stock rallies, then they're beating themselves up because the stock bounced off this oversold condition. So then they buy it back and they buy it back just in time for the next decline to retest the previous low, which is all very normal in the way markets work because you have the trap longs that didn't exit the stock. So just be careful here making knee jerk reactions to either headlines or to price action. Just manage your. Risk as we've all as we talk about often here.
Speaker 4OK, so, I mean, too early to say with conviction, you know, what's most likely to happen from here, but obviously you're delivering, I think, probably a needed and prudent don't panic message here.
Speaker 3Well, you know, again, so October the 5th, we talked about this, you know, our model flipped and we went from growth to value value. Yeah, we're very, very close and it could be as early as next week. We're very. Very close to flipping that model back to go from value to growth because value is extremely overbought. Now, growth is extremely oversold. Now, I'm not saying it's going to occur next week. The model has its own dynamics that it works under. It has a lot of different parameters of deviations and a variety of different things. But the model is getting fairly close to flipping back in the other direction, which may surprise a lot of people. Given the headlines this week, it's like, well, why would people start buying growth here? And again, a lot. A lot of the market dynamics, these rotations in the markets, they happen very rapidly. They happen very quickly. And we get through this election next week and we wind up with the known results, right? It doesn't matter what the results are. Once we know what the results are, all of a sudden the market may start repricing a lot of its thinking going into the year because earnings expectations are not coming down. Earnings expectations are still ratcheting higher for 2027, despite the earnings that we saw this week.
Speaker 4Okay. All right. So you asked the question I was going to build up to, or you started to answer the question I was going to build up to, which is, you know, how is value doing through this sell-off? And the answer seems to be pretty well. So it's more of a rotation, if you will, right? Capital leaving what has been a red-hot tech sector, at least here in the short term, and seeking, I guess, the relative safety and stability of value stocks. You said your model might flip, you know, soon as these growth stocks are getting really beaten up here. Let me just ask one or two quick questions around this. So with AI, you know, there's a lot of people, and I would put myself halfway in this group, that has been skeptical of valuations, right? In other words, you know, earnings have been growing like crazy. That's been used to justify the valuations. But, you know, there's just a lot of questions, either A, about the sustainability of the earnings, or just, you know, some of the other multiples, price to sales, whatever, where these things have seemed rich. And the worry that people have had is, hey, at some point, nothing's good enough for the market, right? No amount of earnings is good enough, given where the street's expectation were. And that's sort of how these, you can call it a bubble, you can call it a, you know, hyperbole. Hyperbole rally or whatever. That's how these things kind of end, right? They usually don't end on bad news. They usually end on. It's news that's pretty darn good. It's just not good enough for these hyper evaluations. So, A, could that be part of just what's going on? And B, this is Google specific, but I wonder if it applies to some of the other stocks, too. I have been asking the question, I think of you, I think we've bounced it back and forth a couple of times. I got to scratch my head and said, I just don't understand how AI, at least in the near to moderate term, isn't going to eat into Google's search engine revenues because it's giving you the answer in the search as opposed to giving you a bunch of blue links that you have to click on and Google's racking up all these cost per clicks. And it seemed to be revealed in this latest earnings call that that is that cannibalization. This is starting to happen a bit. So in some ways, is there also just, I don't want to say unexpected, but just disruption of business models, even for the existing hyperscalers themselves that could be going on here a little bit?
Speaker 3Well, some of that. So I've put this together this morning because obviously I'm getting a lot of the same questions right now. And so I put this comparison. So this is Apple, Microsoft and Amazon, all that reported this week. Now, just just for reference, when I when I put this table together, the stock was. It was trading down 7 percent pre-market. It only opened down like 1 percent. So that kind of knee jerk reaction has already been resolved to a large degree. But, you know, you look at these companies and yes, there was a there was a disappointment in the earnings, particularly on the ad revenue side, only from the standpoint that it didn't meet very lofty expectations. But they still grew revenue at 25 percent on a year over year basis. That's you know, so they're they are growing revenue. So now you talk about valuations, right? This is a stock that trades at 18 times earnings on a forward basis, so it's not super rich, and it's not rich at all. And if we take a look at, for instance, if we take a look at price to sells the forward peg ratio is trading price to earnings growth is trading at one. So this is a stock that trades really pretty cheaply based in terms of valuation. So we kind of we kind of, you know, we kind of combine valuations. So, you know, if you look at a stock that's trading at 19 times earnings, you can see that it's trading at a very high valuation. So that means every stock is rich and, you know, at these levels, and there's certainly some that don't get me wrong, there's certainly some stocks that are very lofty in terms of valuations, companies like Costco, Walmart, these trade at very high valuations, not
Speaker 4Google value stocks. So that's the irony, right?
Speaker 3Yeah, it is the irony, right? Not Google. Micron is extremely cheap. You know, Micron is an example. That's the largest holding. And the value index. So, you know, we have to be. So my point about this is be a little careful with the valuation argument, because valuations are very specific to each individual company. And there are certainly companies that are overvalued and those that aren't. But what what your statement is very correct about is that the expectations have gotten now. So it's normally, you know, going into an earning cycle or an earning season, we're cutting expectations. And so these companies come in and they beat expectations on a regular basis. We were ratcheting up these expectations higher and higher and higher, going into earnings. And I've showed you these charts before. It's just, you know, expectations are out to the moon. And these companies are still printing really strong earnings growth, but it's just not as good as the street was wanting. And again, when you have so many options and so much kind of leveraged investment going on in the markets, again, margin debts at, you know, a record 1.2 trillion. Right now, don't quote me on the number exactly. It's up there somewhere. I haven't checked it lately. But you have all this options trading, particularly zero data expiration option trading. So you've got all this kind of off offsides hedging that's going on, which is creating a lot of this more exacerbated move in the markets. But again, this is partly why, you know, we talk about taking profits, rebalancing risk, doing these type of things in portfolios. We, you know, we trim back our exposure in Google, Microsoft, Amazon. We own all three. We trim back our exposure to these, you know, back on October the 5th. And now I'm looking for the opportunity to add back to these companies, you know, here probably sooner than later.
Speaker 4Hiring now? All right. Well, it's going to be interesting to see what happens from here. And obviously, folks will be tracking it from you on a week-to-week basis here. It sounds like, Lance, your sort of default position at this time, and obviously you can change it as more data becomes apparent, is that, you know, this is temporary turbulence. And, you know, you think there's emerging opportunity here that you plan to play with a rotation from value back into growth. So, obviously, that means I think you'll deploy capital at some point here if things get where you want them to be back into growth. Will that be pulling from value? So, will you be, like, readjusting the percent portfolio allocation to capital to take up that growth?
Speaker 3Yeah, absolutely. So, you got a couple of things coming up here. First of all, we got to get through the election next week. So, let's get that behind us. But then, following the election, buybacks are coming back into the market across the board. Then, we've also got a lot of liquidity in the markets going into year-end, just historically speaking. And, you know, we'll have earnings season behind us. Overall, despite, you know, Google and Amazon and Microsoft, which took center stage this week, earnings have actually been very good. And earnings overall have been guided higher, for the most part, by a record number of companies. And I'll have the, as of Monday, 72%. And companies were guiding higher. That was an all-time record.
Speaker 4So, you're not talking about the tech sector. You're talking about the entire market.
Speaker 3The entire market, right? So, and look at economic growth this week. Economic growth was 3.2%-ish on economic growth. A lot of that, you know, if you take a look at the breakdown of GDP, the 70%, so these are rough numbers, but roughly 70% of GDP is personal consumption expenditures. That was the same amount of makeup in the market and GDP as it was last. Last quarter. It was basically exactly the same. So, consumers didn't spend more or less. They spent exactly the same. But the growth came from a big surge in imports, because we're importing all this stuff for AI, semiconductors, et cetera. And then also the business investment, all this CapEx that's getting spent. That's where most of the growth in GDP occurred in this first estimate of quarter three. Now, mind you, the first estimate of GDP in any quarter is a. A compilation of estimates of Wall Street economists. So, all we do is they take the estimates of all Wall Street economists and say, that's the number we're going with. So, that was 3.2. Now, over the next two months, as we get economic data in for quarter three, then we'll start to revise that number. And typically, it gets revised lower. We always typically tend to be a little bit optimistic. But still, even at 3% or 2.8% economic growth, that's not bad. So, that's feeding into earnings as well. So, going into year end, we've kind of got this. In fact, this tailwind. Market's getting decently oversold here. A lot of these tech stocks are getting really kind of beaten up. And that's a big sector of the overall market. Buybacks are coming back. You've got plenty of liquidity going into year end. Then you've also got portfolio balancing going into year end because everybody's going to want to make sure they own all the right companies by the end of this year to have that on their books. That's typically why you get the Santa Claus rally at the end of the year. So, the tailwind over the next two months suggests higher prices. So, if we start to see this. So, if we start to see this value to growth rotation occur, then to your point, yes, we'll reduce our value. We'll take profits in our value stocks. That doesn't mean we sell them all, right? We're just going to reduce them back to target weight. And then we're going to add back in to our technology exposure and then probably increase the overall exposure to equities in the portfolio from 60% to probably 65% or 67% going into year end. Providing all the technicals line up accordingly, right? Nothing is guaranteed. We play this first, but that's kind of the general game plan going into year end.
Speaker 4Okay. Well, you know, I feel the need to remind people of a couple of things. One is that, you know, we've really hammered on what a huge percent of the overall indices that the AI complex and adjacent complex takes up, you know, getting to like half basically of the S&P. And so, you know, we've really hammered on that. And so, we've warned that, hey, if that sector stumbles, you know, the indices themselves are going to come down kind of no matter what the rest of the other stocks do. And that is what we're seeing here, right? So, to your point, you look at the S&P, you look at the NASDAQ, and you think, oh, my God, it's a car. carnage right now. But as you said, look, there's a lot of stocks that are actually up this week. And so just be aware the indices, as we've been saying for a long time, don't really tell the true tale of the whole market. And it's probably delivered an overly rosy story for much of the year. And this week, it's probably delivering an overly negative story. So again, just know what's going on so you don't panic. And then secondly, on the AI thing, look, we can entertain a whole number of reasons why this is it. We've seen the top of AI and it's all going to be downhill from here. And I won't bring all those up. And I'll recommend folks to go watch Fred Hickey's session from the recent Thoughtful Money Conference if they really want the kind of bear case on AI. But I do just want to remind folks of data that people like Jan Van Eck have shown recently or Craig Fuller, very much sort of opposite lenses they're looking through. But Jan was showing us just demand for compute. And if you look at demand for compute, it is just showing no signs of slowing down. Demand just way outstrips supply. It's just insatiable, essentially, is the adjective right now. And Craig is seeing the same thing in the actual physical economy of all the shipments that are coming in. And so I think it's really important to look at that. And I think it's really important to look at that. And I think of all the just equipments and inputs that are needed to build out all these data centers, no signs of it slowing down. And you want to look at kind of key indicators like that, which in general will likely be earlier indicators of true signs of things starting to slow down. And right now, they're just not showing us those signs. So to Lance's guarded optimism here that, hey, this is probably just a little sick. You know, correction or air letting out or whatever, before prices start resuming higher for the reasons that Lance just mentioned. One of the reasons I think that gives you that kind of confidence, Lance, is you're not seeing, like, you know, foundational warning signs yet, at least.
Speaker 3Right now, and look, and look, how many times over the last three years that have you and I been talking about AI and technology, and whether it was, you know, chat GPT, when chat GPT first came out, I was like, oh, this is the end of, you know, or sorry, not chat GPT. You're thinking of DeepSeek. DeepSeek. Yeah, when DeepSeek came out, I was like, oh, this is the end of AI, and the market sold off, AI sold off. And then all of a sudden, out of the blue, it comes roaring back. And then, you know, two summers ago, we have this whole issue about valuations in the markets and concerns over AI spending, and the market sells off by 10%, technology stocks get hit. And then they come roaring back again. So, you know, the thing is, is that narratives are always fine and dandy. And in the heat of the moment, just remember that we're always trying to assign, it's human nature, right? It's just human nature that we have to assign a reason for something happening, right? Something bad happens to you. The first thing that happens is like, well, okay, well, you know, you know, God, why is this happening to me? And you start looking for all the reasons why this happened to you. But sometimes it's just an accident, right? You just literally got in an accident. Those things happen. Same thing in the markets is that when the market begins to correct, simply because of valuation issues, overbought conditions, liquidity issues, whatever it is, just market sentiment, we have to assign a reason to it. So we start coming up with all these kind of macro narratives, it's because of this, or it's because of that. And then we kind of get lost into that. And we forget about the underlying fundamentals of these companies. And, you know, you brought up a good point about Google and the ad revenue, right? It's a great point. You know, is AI eating into their ad revenue? Well, the latest report certainly suggests that's the case. But one thing I know about Google and the ad revenue is that it's a great point. And I think it's a great point. The other thing I know about Google is they are brilliant marketers when it comes to ad revenue. So they may see this impact into their ad revenue from AI. And then the next thing you're going to see is that every time you pull up AI through Gemini, there's an ad attached to it. But I'm not, I don't know how they're going to solve their issue. But one thing to know is, is that Google is very good at making money. They are the best by far.
Speaker 4Can I push back on that for one second? And this is just an intellectual debate. Who knows how this is going to go. But I think it's a great point. And I think this is going to work out.
Speaker 3Yeah, I don't know. I don't know how this comes out either. This is purely, you know, guessing.
Speaker 4But I get your point. You're like, you know, pre-AI and still kind of during, you know, they've had the most profitable business model in history, basically. Right. And I don't disagree with that. So you're like, don't undercount those guys. And I totally agree with that. But, you know, recall, I'm from Silicon Valley, but worked at a competitor, Yahoo, that basically got its lunch eaten by Google. Right. And Google, you know, phenomenal company, phenomenal talent, phenomenal people there. But but the foundation of that company is the search engine business. Right. And they built they built the best search engine. And then they gained dominant market share. Right. And we've argued that it's freaking a monopoly. Right. I mean, for many years, they've had the 98 percent of I mean, it's a monopoly. But but but, you know, they had basically the best technology. Right. And everything kind of hung on that all the gusher of profits that came off of that allowed them to do everything else that Google has done. Right. And I don't I mean, to say this, not really fully meaning it, but it kind of a one trick pony. Right. It's just an absolutely amazing trick. Right. And so if that core key pony starts to get starved because of something else, obviously, they're going to feel it. But my I guess my point here is, is nobody else had a search engine that that came even close market share wise to do what they did. That's not the case in AI. Right. There's a lot of other competing AI platforms here. So instead of being like the only game in town with a massive moat and just monopolistic share across all platforms, they're now one of many big players in this AI market. So even if they can innovate, like their competitors can be a fast copy. Right. So I, I, I just want to point that they don't have that kind of ridiculously unfair advantage in the AI world that they enjoyed in the search engine world. Yeah. Fair point.
Speaker 3I mean, Google search was in their latest report was roughly about 243 billion. But, you know, you had 77 billion from the cloud. You had Google subscriptions at 51 billion. YouTube ads were 42 billion. Google network was another 30 billion. So when you start adding all that up, it's about, you know, their Google search revenue is about half the revenue. It's still big. I'm not arguing the point with you at all, but they're not really so much of a one trick pony anymore either. I mean, YouTube is a very, very big component.
Speaker 4Yeah. Yeah. And I don't, right now, I don't mean revenue anymore, but, but everything sits on that incredible, that bedrock of an asset that nobody else has and nobody can come close to.
Speaker 3Right. I mean, nobody's going to replace YouTube anytime soon. I mean, you know, we've had competitors try, you know, Twitch has tried, but, you know, you're, you know, it's still, talk about Google, they are a monopoly in search and they're a monopoly in video streaming.
Speaker 4And I think you're kind of making my point here for me though, which is, you know, they've built at least a large part of their business of being the guy, the player in the space. And in AI, they are not, they are one of several. So they don't have that, that.
Speaker 3Oh yeah, yeah, yeah. No, no. I agree with that. You know, the question is going to be, you know, you know, Jim and I is, uh, so you think they'll look at kind of the different AI platforms. It's a great AI.
Speaker 4Don't get me wrong.
Speaker 3Yeah. And you know, so you got Jim and I, you've got Anthropic, you know, Claude, you've got chat GPT. Um, you know, Jim and I is up there. I mean, it's, it's, it's up there, but
Speaker 4you just mentioned a bunch of others that are its size or better.
Speaker 3Yeah. I'm agreeing with you that they definitely have competition in the AI space. I think the thing to focus on is not Jim and I as a chat bot, right. But how do they wind up using Jim and I across their platform to generate more revenue? Right. Yeah. Yeah. And that's what, and again, that's kind of my point about Google and Microsoft and Amazon and why, you know, I'm, you know, I'm okay owning these stocks because one thing I know about them historically is these guys are very good at allocating capital and turning allocated capital into revenue and kind of betting against them and saying, Oh, it's all like, you know, AI is all junk and it's all going to zero. You know, this company is still making 242 billion a year just from Google ads. Right. Right. Right. So I mean, you know,
Speaker 4well, unless the AI continues to do that, but look, I'm not making a Google comment here. Um, and I will say there's pretty much the smartest people I knew and granted my knowledge of Silicon Valley directly is getting old now, but the smartest people I knew and many of us still know work for Google. I mean, it is, it is a phenomenal attractor of human talent. Um, my point is that, um, they, you know, they basically built their career where they knew they were stepping into the ring with a much bigger, you know, right hook than anybody had. Right. And now they're in a ring where everybody has sort of an equally sized punch. And, um, you know, to, to, to make that bad analogy, but to make that right hook even bigger, it's starting to steal from the left hook. Right. So it's, it's
Speaker 3a very fair point. And again, who comes out on top of this all victorious and who's the best? The ultimate, you know, is, is this, you know, is AI a version of the Highlander, right? Can there only be one? Right. Right. That's the, that's the question for a lot of to exist.
Speaker 4I kind of think it largely will be. I could totally be wrong here. And at least sort of in the West. I don't know if this is going to be the case where the Western models will always be paid for and the Chinese ones will always be, you know, open source and free. But, you know, we seem to be moving to this world where it's like there's certain things you're going to pay for, everything else you're going to use the free version for. And that's going to be really interesting. But in the world where you pay for something, to me, it is just like a network effect. It's like, you know, if you had a decision to make, would you go ask the smartest person you knew or someone who you knew was semi-smart, but their answer might, you know, like they'll give you the answer faster or cheaper, but it might not be the right answer. And you're going to be like, if it's important, I just want the smartest one. Right. And everyone's going to use that one and it'll get better. Exactly. Look, and it's
Speaker 3just like everybody that watches this show on Friday, they're getting. The semi-intelligent answer.
Speaker 4Right. I don't know. Semi, that's doing a lot of heavy lifting.
Speaker 3Right. It's probably less than semi.
Speaker 4But so it's interesting. I was thinking of maybe making this the rant today. I won't because folks should have said this at the outset. This one's going to be a short, shorter again for us because I've got to go off and present them a little bit. But so, you know, I have used AI. Like I think most people have as sort of like a souped up, you know, search engine, you know, answer this question for me, help me track down this content, you know, whatever. Right. It's been more of a I mean, I don't use it to generate content. I still create content the old fashioned, you know, human way. But but I used it to bring me back information. Right. I have now in the past week and I've been tweeting a lot about this on X. I started using. It again, technically, which I know you guys at RIA have been using it for a good while. You've been really transparent about that. So I'm sort of learning in real time right now what you guys at RIA have already learned, which is total, total game changer. So, you know, I have I'm going to be a little nonspecific about it, what exactly I use it for, just because. There's I know there are people in this space who watch what I do and are fast copiers. Yeah. But when I say agentically, folks, it means I. Use it to do things. So instead of saying, get me this information or a lot of people will say, create me this information, write me this article or, you know, whatever. And again, I still write my own stuff, folks. I am saying, hey, here are tasks that I do in my business day. How many of these tasks can you take over for me? And it can take over a surprisingly lot of them. And for me to get rid of the more mundane tasks that have to be done, but are kind of stealing me away from what I call meta time, right, where I'm thinking about, OK, what's the next best topic to cover? How do I want to you know, who can I go after for the next great interview? How do I want to prepare to talk to them like that stuff that drives this platform? In the direction that I want to grow and evolve, but if I'm stuck here just having to do a bunch of, you know, logistical tasks, tasks to just kind of keep the lights on and keep things moving, it limits me. Right. That's the problem of being a solopreneur is scalability. Right. Well, Grok basically said Grok bought. Grace basically said, oh, yeah, I can do that stuff for you. And this is just a discussion with it, with it, with it. Like, I'm not a programmer. I know no programming languages. I'm literally just saying like in English, OK, well, look, this is what I do. Can you do it? Yep, I can do that. Here's what I need from you to get it done. And as I'm talking to it, it's starting to actually demonstrate to me what it can do. So, you know, at one point, every day I need this certain thing assembled. And as Grok was kind of getting it, it was like, OK, you know, I think I got it. Hold on one second. Let me go look at let me go look at the last one you did. And I'm going to use the same inputs and try to see if I can create what you did. And it comes back and it's exact. And then I'm like, wow. So, OK, you can really do this thing. Well, I need it done at this point in time. Great. Every day I will I will do these five tasks to get this thing built. I'll then give you a tap on the shoulder out and say it's ready for you to review. And then unless you tell me not to let it out, I'm going to send it out. Or I mean, I'm going to, you know, I'm going to finalize it and go on to the next task task at this time. So now I have, you know, all these basically time determined steps that Grok is doing for me. And it's now doing them all for me. And if it encounters a problem, it comes back to me and says, hey, I couldn't get it done because of this issue. And it'll say, like, can you help me troubleshoot it? I need to do X, Y or Z so I can finish the task. And so now I can focus on the meta stuff and just know that Grok is getting stuff done. And I can check it if I want to along the way or if I if it's proven to me repeatedly that I can get it done, I just don't think about it anymore. And if there's an issue, it'll tap me on the shoulder and say, hey, boss, I need your attention for a second. It is it is. And so it's been amazing. I highly recommend people start to do this because there are two things that it really underscored for me. It was like, OK. The person who gets left behind is the person who just doesn't understand AI like you don't. I don't think we have to use AI to do everything, but you need to know what it can do and use it intelligently and selectively and those that are just ignoring it like I just don't understand it. I don't want anything to do with AI. That is a little bit like the buggy whip guy saying, I'm just going to keep making buggy whips. I don't care about these new horseless carriages. Right. The second thing, and this hit me like a ton of bricks and I've been saying this for a long time, but it really hit me where I was just like, oh, my God, if I were a company, why would I ever hire somebody out of college again who doesn't know anything? Why would I hire somebody who says, you know what I'm thinking of making a career transition? Can I come work for you and kind of learn the ropes? You're just like, look, I all this, you know, base level work and increasingly it's doing higher than base level work, but all this base level work that you would expect of a manager level, you know, at least in tech manager level is it's not necessarily entry, but it's close to entry. This thing is doing all that work and it's doing it faster, more accurately than a human would do. And it doesn't take vacation. It doesn't come in late. It doesn't sleep. It doesn't like. And it's free. I mean, I'm using the free version. I think maybe I pay X 30 bucks a month for super grok. And I don't know if this comes with it or not, but basically it's essentially free. So it is going to be a massive hiring destroyer, at least if not a jobs destroyer.
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Speaker 3Hiring now? Well, two things on that. There was a really good article I was reading this morning about MIT. MIT did a study because AI is getting used by college students and professors at MIT. So they started studying the effects of. What's happening and what they're seeing is, is that the impact of AI on students is negative because they're not learning the material. They just simply go and play. You know, here's your assignment for homework. Go home and do this task. They put it into AI. They bring back the test.
Speaker 4They didn't. I've seen recently the headlines, teachers and professors being like, I just don't create homework anymore because what's the point? It's all AI generated.
Speaker 3Well, that's so that's one of the other concerns is, is like, well, do we just stop giving grades out altogether? But there's also a point.
Speaker 4Your point is no. They're not learning anymore. They're just all they are is that maybe they're learning how to tell AI to do something. But the brains aren't growing.
Speaker 3But I thought one of the most one of the things that you just said, and I think one of the most fascinating things from that study was. You know, for instance, in MIT, research assistants are a really big deal, and that's where you go to work for somebody, you know, a professor or whatever on some project, and you're the research assistant. So you're learning all about how to do research. And all this and the research guys are going, I don't really need an assistant because AI will do it for me. So it's not going. So my point is, it's not going to be just job loss. It's going to be the loss of skilled talent that people learn through internships and all those because internships start to go away.
Speaker 4Yeah, I talked about eroding the lower rungs of the ladder, right? So like if your goal is to get up to the top of the ladder, but you can't start on the lower rungs, how are you going to get there?
Speaker 3Yeah. And look, I agree. I agree with you. You know, when I write all my own articles from scratch, so I write the article. And as I'm going through writing the article, you know, where I need research resources and all that, I'll use AI and say, hey, I need a I need a research study that goes with this point. Or can you validate this point with me with a research study? So and then I have it build out my sources and tables, you know, at the bottom of the of the article so that, you know, everything has been sourced and where it came from. But that used to take me hours to do that. And now I can just write the article. It takes me an hour or two to flesh out the body of an article, verify it, make sure I've got all the sources and data to back. it up. And, you know, I find out as I'm writing articles, it's like, you know, I'll get into this debate with AI saying, you know, this is my experience with this. And they'll go, yeah, that's your experience, but this is also what's happening. And you didn't think about this point. I'm like, oh yeah, you're right. I didn't think about that. So it makes, I learn more through that process than just doing kind of the standard research. Because the problem when I'm doing research to write an article is that you can get confirmation bias, right? I just start seeking out the data that supports whatever point I want. And so having that debate with AI helps really kind of form out much better research pieces. And it's really helped a lot with our portfolio management. And just in the last year in particular, we've done a lot of things with the portfolio management that's changed because of that research and those debates that we have. And again, I don't use, you know, I don't rely on AI to do the work. I just use AI to help me improve my work, which I think is important.
Speaker 4Lance, before we continue, I just have to give a quick note here from the good people at Scribe, today's sponsor. Are you trying to figure out how to use AI to bring your business to the next level? If you're like most business leaders, you've got a clear picture of what work you want accomplished, but almost no visibility into how it's actually happening day to day. Without that visibility, you're making decisions based on assumptions and gut feel, not data. Using traditional approaches, you can make decisions based on assumptions and gut feel, not data. Using traditional approaches, SME interviews, consultants, manual process mapping takes months and the recommendations can be outdated before they're finished. So how can you best figure out where AI automation can help you most and how best to implement it? That's exactly the problem that today's sponsor, Scribe, was built to solve. Scribe is a specialized intelligence platform trusted by 94% of the Fortune 500. Scribe Optimize captures how your team works as work happens across admin-approved business applications, and it uses AI to automatically surface workflows, inefficiencies, and improvement opportunities. No extra effort from anyone on the team, no interviews, and no manual discovery. Scribe maps how your company runs and then shows you where and how you can use AI to make it run better. I'm increasingly using AI to help me run Thoughtful Money, and I think solutions like Scribe are incredibly helpful, especially for entrepreneurs like me. Here's how Optimize helps you decide where to start with AI. It's in three steps. First, visibility. There's usually a gap between how you think your team works and how it actually works. Optimize helps close that gap. It captures workflows as they happen across admin-approved business apps, then shows you where workflows are happening, what tools they live in, where time goes, and where the biggest opportunities are. Next, its recommendations. Optimize tells you where your biggest inefficiencies are and then gives you AI-powered recommendations on what to fix or automate with estimated time savings, and ROI projections built from your own workflow data. You're not just spotting problems, you're getting clear direction on how to fix them. And last, privacy. Your admin approves the apps that Optimize runs on, and anything outside of them is never captured. Sensitive data can also be automatically redacted. To see Optimize in action, head to scribe.how/adam and mention Thoughtful Money for a 30-day risk-free trial. That's S-C-R-I-O-M-I-Z-E dot C-R-I-B-E dot H-O-W slash A-D-A-M. Let me ask you on this. So, I'm here in New Orleans at the New Orleans Investment Conference, and it's a great conference. I go to it every year, and it's really fun. It's fun for anybody coming because it's in-person experience, of which there are less these days, but you also really get access to, you know, the speakers. So, if you're a regular person, yes, you're sitting in the audience, and you're listening to the cohort of folks on the stage, but you can catch them in the hallway. You know, sometimes you can go to a dinner with them. I went to a dinner last night where, you know, a number of speakers that folks here know were, and I was walking back to the hotel, and Peter Schiff was at the dinner, and he was like, "Hey, let's walk back together." So, yeah, spent about 15 minutes last night with Peter walking back from the hotel. And we talked about a whole bunch of things, but near the end, we were talking about AI, about how I'm using it agentically now. And he basically said, "Yeah, I know, I mean, for a lot of people, this is going to, you know, basically do their jobs for them." And he said, you know, "I can see a future where people are basically, you know, where I'm out of business, where there's AI that's just doing portfolio management, and people will have their AI, you know, advisor making the trade and not only advising, but making the trades for them, right?" And I said, "I totally get that, and I can see that happening at some point here in the timeline, but what happens to the markets when everybody uses AI, right? Who's got an advantage if you all have the same advantage, right?" And so, I actually think, you know, this is probably a life cycle we'll go through for a lot of different jobs and industries, where in the near term, where AI isn't fully distributed, people that are really heavily leaning on AI may have an advantage if the AI is actually smarter and helping you make better decisions. But once it's fully distributed, then the human element is going to be the differentiator again.
Speaker 3I absolutely agree with that. And, you know, because there's been a couple of articles out, in fact, I'm writing an article right now. There's several articles out lately that younger investors, you know, millennials and Gen Zs, they're turning, you know, they're like, "I don't need a financial advisor. I'm just going to go do it all online with AI." And the results aren't great. And the reason is, is that, to your point, let's just assume that we're 20 years into the future, and AI is running the trading across everything. Well, AI is going to start just basically replicating the trading that everybody else is doing, because this is simply looking at trailing data and it's picking up those same trades. So the advantage is going to be that, you know, the guys that are going to be really successful are the guys that are going to be able to come in and analyze what's going on and then find those spots where it's, you know, the weakness develops because everything starts to trade in one direction. And so we've got market volatility is going to probably become a lot higher because as, you know, asset prices are rising, AI will start to just basically chase momentum. And when it's falling, they're going to chase momentum on the downside as well. So your volatility swings get a lot bigger. And that's where the advantage, the hedging structures and the advantages that, you know, appear from a dispersion in returns, that's where investors can really make up a lot of ground and really take advantage of opportunities. So I think in the future, that's the more that the market is going to go to AI, which they will, I think there's gonna be better, better opportunities for really good stock pickers to kind of win the race.
Speaker 4Yeah, I think about the scene in the Pixar movie, The Incredibles. You saw that one? Yeah, I did. Yeah. So the villain basically was a sidekick to Mr. Incredible back in the old days, right? And, you know, felt ignored and underappreciated because he didn't have superpowers. So he basically goes out and develops all the technology to compete with folks that are super powered. And he basically wants to bring that to the world because his like driving mantra is, because when everybody's super, nobody will be. And that's kind of what I sort of think of in markets are a good example of that, like when everybody is using the same intelligence to trade, there's going to be no advantage to using that intelligence anymore. And so the question is going to be, what is going to be the differentiator? What will be the intelligence? And so I think the pendulum is we're talking about, well, we'll swing back to the average person. Again, I think it'll happen in a lot of industries. I just don't know if that's a two year arc or a 20 year arc. And I know right now that AI is, it is bringing undeniable value to me right now, simply because it is producing more of the most valuable asset for me, which is time, right? Time that I can focus on the other more important high level stuff.
Speaker 3Oh, me too. You know, the amount of time that I save every week, which allows me to do more stuff I need to work on in terms of portfolios and all that. You know, it's just like, I used to spend hours, you know, trying to build and run back tests for, you know, models and structures. And like, I have a new client that I'm working with right now. It's a big family office and they want a very special type of structure for their portfolio. So for the last two weeks, I've been building a new portfolio model for them. And normally that process would take me two or three weeks to build a new portfolio model for them. And then it would take me two or three months to build it, then run back tests, create the back test through all that type of stuff. But because of AI, I can now, you know, I built the model in about a week and I've been running back tests now for about a week and I'm almost close to being done with getting this new model up and running. So it just, it just, it just saves so much time with just the manual data input that it just speeds the whole process
Speaker 4up. Okay. All right, folks, we're going to move on a few more big market developments to talk about, but my key counsel to folks watching here is if this sounds a little less esoteric about what we're talking about, you know, agentic AI, if it kind of makes your head hurt, I would recommend that you still go out, learn a bit about it, you know, just read a couple of entry articles or whatnot, or even better, just go to a service like Rockbot, which is the one that I've been using and just try it out. And by trying it out, have a conversation, like literally just ask it, Hey, "What can you do for me?" And it'll say, "I don't know. "Tell me a little bit about yourself." You'll tell a little bit about yourself and then it'll start suggesting things that it could maybe do to make your life better um again treat it treat it like a person that's what i do i don't treat it like a program or a robot i talk to it lance like literally i talk to you and it talks about i mean it to me it's kind of already passing the turing test it just feels like a co-worker uh but folks don't don't close your eyes to this one is what i'm saying okay um so lance yesterday finance got hacked i but i thought i
Speaker 3thought crypto was supposed to be hack
Speaker 4proof yeah well look to be fair it wasn't it wasn't a it wasn't bitcoin or ethereum that was hacked right this this is basically an exchange in the storage solution yeah and i think i'm just i'm just i i know you are and i'm stepping in because i know i'm going to get the comments about it um angry comments about it um but yeah it looks like north korea hacked them um well walked away with billions um and you know it is it is pointing out weaknesses in the ecosystem so i'm being very careful it's not saying that bitcoin is hackable or ethereum is hackable or whatnot um but is pointing out weaknesses in the system where a bad actor can come and and not only abscond with um ill-gotten funds but but interestingly in this case the decentralization of the crypto world which is intentional actually makes it really hard to trace where these things go right so it actually makes the policing harder um so obviously bitcoin uh and other crypto down a notable amount today i'm actually kind of surprised they're not down more to be honest but i'm not an expert in the space um but uh you know question here for you is sort of how much of a blow to confidence in the crypto ecosystem if at all is this and then secondly it's coming at a time where you know investors are kind of getting it from a lot of directions right now so you know if you've been a tech investor bad week if you just invest in the indices and just think i'm just a stock market guy i don't even pick stocks i just own the indices bad right um if you own gold and silver bad week really bad week to be honest um i think even more than than crypto this week it's down more than bitcoin um and obviously bitcoin folks so it's sort of like beyond bonds and some value stocks a lot of the stocks are going to be going to be going to be going to be going to be going to a lot of the spectrum is is you know not having a lot of fun right now and so i can understand how you know a diversified investor might be saying jeez i don't feel very good because i'm seeing red over a lot of parts of my portfolio but anyways let's start back with the binance how significant to crypto or just overall market of confidence is this
Speaker 3if any well no it's it you know first of all does it change the confidence no if you when you talk to people that are in the kind of the crypto community this doesn't faze them they are still 100 convinced that crypto is going to be the new dollar and it's replayed you know fiat currency is dead it's all going to be crypto in the future and they may very well be right i'm not saying if they're right or wrong i'm just saying this you know these types of things don't really alter that perception to any great degree it does create some concerns but you know to your point you know just in the last five years there have literally been thousands of individual crypto hacks uh protocol exploits personal wallet compromises and you know and you know annual uh there was a security firm trm labs they reported roughly 150 major hacks and exploits just in 2025 so you know the security is as a real
Speaker 4issue right and i'm guessing ai makes the hackers smarter yeah you know and
Speaker 3that's why i think you know one of your holdings has to be cyber security you know and and some company involved with cyber security because again this is you know ai is just going to make you know these hacks even more problematic in the future but but again i mean i don't think it changes anything crypto is an asset and for us the we don't we don't buy into the narratives one way or the other don't care about the narratives you know simply you know we have a crypto model that we run is it going up is it going down and and you know we just basically manage that appropriately it's one of the worst performing thematics that we have right now because it's in the crypto space and it's not in the crypto space and crypto has been really underperforming since last year but this is this is also kind of indicative of the overall market to your point which is that just because you run a diversified portfolio and say oh i'm fine i'm diversified that really hasn't worked for you well because again a lot of the normal diversifiers aren't diversifying because of either inflationary push driven by an oil price shot rather than a growth shock that's impacting yields you and you've got real rates which are impacting gold and silver you've got you know you've got all these other variables that are playing in that are disrupting those trades from last year and this is the one thing we've talked about on the show a lot is be careful when there's a hot sector of the markets typically what happens there's a really hot sector of the market and so in 2025 gold was the hot sector of the market everybody was chasing it everybody was piling in and we warned in december it's like be careful with this because when you get these big vertical spikes and prices that's typically when you get the correction and so this year it's been correcting that that vertical price spike but this is what happens to most investors they chase what was hot rather than looking at where the market's going to rotate in the future which is why we focus so much on sector and market rotations you know every week in our bull bear report we go through a whole analysis on market factor rotations because that's what tells you where money's flowing to and where to start looking so you know the one of the mistakes we make is we get too attached to a particular position and particularly we get attached to it when it's down so i like i lost money in crypto so i'm not going to sell it because i hope it comes back at some point i'm going to come up with all the reasons why it's going to come back rather than just realizing there's other areas of the markets to make money in today versus that position and i can always come back to that position later when it starts to perform better right and and so these are just the mistakes we make as investors by getting too convicted to a narrative rather than just focusing what the asset is doing itself so i'm not going to sell it because i hope it comes back at some point
Speaker 1this episode is brought to you by google chrome you think you know a browser but gemini and chrome that's new it can help you with practically anything on the web like restoring a vintage motorcycle from a 50 page restoration block or finally break down that long article you've had open for weeks gemini and chrome is here for it ready to make anything online make sense there's no place like chrome check responses set up required compatibility and availability varies 18 plus this episode
Speaker 2is brought to you by indeed you're ready to level up your business but the pressure to find the right person to make that happen is intense indeed sponsored jobs can help carry the load it boosts your job post to help it reach quality talent fast cut through the chaos with indeed sponsored jobs get a 75 sponsored job credit at indeed.com slash podcast terms and conditions apply hiring now then this is a job for indeed sponsored jobs yeah and there's a
Speaker 4chart you don't have to pull it up but there's a chart periodically and it's an annual chart um and they're bar charts that are segmented by like each sector um of the market yeah um and you know basically the the hottest sector for that year is on top that we could you know the least performing is on the bottom and you can see from year to year that it's it's quite common for last year's highest performing sector to be the next year's lowest performing sector for exactly the reason why it's so important to be able to do that you mentioned right yeah you know herd chases into it it's on fire and then all of a sudden things rotate and you know it gets washed out and it you know the people that jump into it late sadly ride the reversion of the mean yeah well yeah and again it's
Speaker 3just this is just what normally happens and and again it's which is one reason
Speaker 4though i i can understand people are a little skeptical of ai because they're like you know tech tech has done quite well you know for for multiple years in a row right yeah this is this is the table you're talking about that's the one i was talking about yeah
Speaker 3it's the count this is the calum the calum produces this um and they produce this every single year and they do it by a variety of things you know this is by market so this is key indices so you see like emerging markets was hot in 2007 2009 but like 2007 emerging markets was hot 2008 it was the worst performing sector then it was hot again then it was the worst performing the next year you know that's exactly to your point of what happens and but and they they i suggest if you're interested in investing in the market you should go to calum's website they they have a lot of different tables on um you know what markets and and precious metals and they have they have stuff for everything so they do a really good job of that um you know through that type of work but it's just it's just good to understand that market sentiment gets offside things get too overvalued or too overbought and then things are going to correct so it's always you know one of the best things you can kind of do is always kind of be the this is why we're contrarian investors so we look at things where everybody's really really excited about something and then we start looking for the where's that trade go to next because it's eventually going to rotate somewhere else right
Speaker 4right and you know getting back to your earlier point capital's been rotating out of some of these big tech names um but you're you're thinking hey it's we're maybe not that far from the point where it starts rotating back in right um okay so uh i know i said we're gonna go short and i do have to leave soon but i gotta go um okay other things in here um so so we'll do we'll do uh we'll do the the quick answers the quick answers well that's quick but say what you gotta say so um back to TIGA, right? That there is a good alternative here. So bonds have kind of ridden the past couple of weeks pretty well, right? They perform their role, right? Which is, hey, when equities are struggling or the general amount of equities are struggling, we're providing ballast. I don't think rates have gone too much in any one direction this week, but they just haven't, you know, the bonds haven't absorbed the same pain that stocks have over the past two weeks or so. And so, you know, we've talked for many of your recent appearances here on the many reasons why bonds are stepping in to, they're normalizing, they're returning to their role as a good diversifier. And I guess I just want to hear any thoughts you have on that. But I mean, this seems to be like, hey, markets are working in a way that we've kind of, heaven's end, in a while.
Speaker 3Yeah, you know, this is also kind of the point, right? We just assume that, oh, interest rates have gone up, bonds have gone down, so they're never going to go up again. But, you know, last week, last Friday, we were talking about, I said that, you know, we had done a tax loss sell on some of our longer duration bonds and had bought a little bit shorter duration, but still long duration bond to replace it. And I was going to take profits in that because interest rates had come down sharply and interest rates were now pretty overbought. You know, in terms of just the technical, so that bonds had gotten overbought. And I did do that on Monday. We reduced that position from 5% to 4% in the portfolio. I just took profits out of it. And, you know, bonds are still pretty overpriced here. Yields today are about 4.95 on the 10-year treasury. And we're kind of getting up into that resistance zone. So I would be careful chasing bonds here and just, you know, having this conversation like, oh, you know, bonds are doing a good job of diversifying. We've got some reports coming up on that. Over the next couple of weeks in particular, we've got an inflation report coming up and some others that could certainly cause rates to tick up temporarily. And so if you're looking to add bonds to your portfolio, I'd be a little bit cautious here just simply because bonds are pretty overbought at the moment. And so I kind of wait for an opportunity to add some duration. If you're trying to capture some of the higher yields on these bonds, you know, 5% of the 10-year treasury, et cetera. If you're trying to get that, just be patient for a couple of weeks because I float up a little bit and bond prices will come down and get a better entry point.
Speaker 4Okay. I just want to underscore. So we don't know what the future is going to bring. But if you're having a bit of heartburn, you know, watching some of the equity prices fall recently, it's so funny when the sun is shining and the markets are rising, right? Everybody's stretching for 20, 20 plus percent, right? You know, where can I get a market like it's been delivering for the past several years, right? Bonds, why are you guys even talking about this, right? Best I can do is like, you know, 5% a year, right? I mean, that's so, that's so underwhelming, Lance, right? Folks, 5% a year guaranteed income when the markets are down, even single digits, but especially double digits, you know, it looks amazing, right? The problem is it's just been so long since you really had to worry like that. I mean, it's, it's been so long since you really had to worry like that. It's just been so long since you really had to worry like that. Investors don't learn that lesson until they're, they're, they're bleeding on the equity side of things. So anyways, you know, I just want to show again that, that, you know, bonds played their role of stability over these past couple of weeks, the way that they're traditionally supposed to. And, and I think Lance from our many conversations, you think they are more likely to in years ahead, much more so than they have in the past several years, right?
Speaker 3Oh, yeah, for sure. I mean, you know, market, you know, bonds go, go through cycles. And when these, when bonds go through these certain cycles, they get, you know, kind of eschewed by the markets. It's like, ah, bonds are terrible, but we forget about why we own bonds and portfolios. And I just published an ebook on the kind of, you know, the one thing we don't do in the markets well is educate people about bonds. And so I just published this ebook. If you go to, to real enough, I would say, I
Speaker 4would say we don't educate them well about anything related to investing, but yes, particularly bonds.
Speaker 3Yeah. Because bonds
Speaker 4are mathy math.
Speaker 3It's math. It's all math. That's the thing.
Speaker 4It's hard. Yeah, I know.
Speaker 3But once you understand the math, it's actually very easy. Exactly. Yeah. But so, but anyway, I wrote this ebook. It's if you go to realinvestmentadvice.com and at the top, just go to the e-guides. And when you click on e-guides, it'll bring you right to this page and you can download this, this ebook. It's about 10, 15 pages long, but it goes through, what bonds are, different types of bonds, what type of risk are in bonds in terms of credit risk and duration risk and those types of things. But it's kind of a basic primer just on how bonds work. So if you're, if you're really kind of just wanting to know more about bonds in particular, this is kind of a good little educational piece to kind of get you moved in the right direction. Then once you read that, then I encourage you to go, we wrote a blog recently on, bonds at 5%. And we actually wrote a couple, we have bonds at 5%. It's a 10-year treasury, finally a buy and the role of bonds in a well-balanced portfolio. Both of those are, go through the math of why you own bonds in a portfolio and how it works. So, and again, there's another one called bonds in your portfolio. Why didn't you do them as a wrong move? This one in particular, this goes through and really kind of breaks down this argument that the 40% of bonds in your portfolio should be Bitcoin and gold. And why that's a terrible idea. So, you know, you hear a lot of this now, it's like, oh, ditch bonds, you've got a 60-40, get rid of bonds and own gold and Bitcoin. There's a, the reason you own bonds is because they lack volatility. You're adding, you know, when you start adding volatility to your safety money, that becomes very problematic in a downturn. Right? So, so that's kind of just, you know, again, if you want to know more about bonds and how it all works within your portfolio, etc. I read that, go to the e-guide, read the e-guide, and then just type bonds in the search bar. And there's several articles there on just how bonds fit in a portfolio, how they create standardized rates of return over time. I was talking about earlier, I'm building this model for this family office. And there, so they gave me a list of requirements. And one of the list of requirements was steady income flow, because they want the cash flow coming off the portfolio to use for other investments. So bonds play a very important role in that. In this particular case, we're using munis because they want tax-free income. But so, so there's, there's a lot of different reasons why you own bonds, but it really comes back to your investment policy statement that you should have first, before you ever start investing, you should build your own IPS statement, investment policy statement. Because if, if you don't have that, it's kind of like building a house without a blueprint, you'll get a house, but it's probably not going to look anything like you want. It's probably not going to be very sturdy. That's what happens to most people's portfolios. They just start willy-nilly buying stuff because they heard about it on TV or YouTube channel, or some guy said this in the media. So they go, Oh, that sounds good. I'll go buy that. And they wind up in this hodgepodge of assets. Then when something goes wrong in the market, they get absolutely destroyed. An IPS statement will fix that problem for you because upfront you're building the structure for your portfolio. Then you build a portfolio around that plan and you'll do a lot better over time. Yeah. Okay.
Speaker 4That makes, well, totally agree on that. I want to applaud, you and the team there at REA for creating these primers and these foundational educational pieces for folks. I had to chuckle a little bit when you said that it's about 10 to 15 pages and it's, you know, it goes to the math of bonds where I think for this audience where people are older, that's still a format that they know. Well, I can imagine maybe a younger audience being like, wait a minute, it's got math and I got to read. Can I, can I just tell AI to just summarize it for me? And, you know, it's true. But sometimes you actually have to do the work folks. But, all right. So I highly recommend everybody go to realinvestmentadvice.com and read those, all those content pieces you just highlighted. Okay. We kind of talked about it already, but we didn't show the TA Lance. So can we just pull it up and let us know where we are with the key.
Speaker 3One moment, please. Sure. So, so kind of, kind of to your point, this is, this is kind of an interesting, thing, right? So, so this is the S&P with two Bollinger bands on it. So it's a two standard deviations from the 50 day moving average and three standard deviations from the 50 day moving average. Now just real quick, deviations are very important. Two standard deviations incorporate about 96% ish of all potential movement. Three standard deviations is getting you to 99% of all potential movement. So when markets are two or three standard deviations from their mean, those typically tend to be either tops or bottoms in the markets for, for, you know, not immediately just because they touch it. But you saw back here earlier this year, when we had this kind of Iran crisis sell-off, we got three standard deviations oversold, extremely oversold on a relative strength basis. Momentum was extremely oversold. This is when everybody's all over now. Markets are going to be down 20, 30%. And then the market bounced and just ran off to the moon. over the course of the next couple of months. So you had this kind of alignment of technicals that all said that buyers were too far offside. Sentiment was very negative. Since then, and this is the height of the market back after that run, and this is where we are today. We've gone literally nowhere since June. This market has been flat now for, what, six months? Five, six months together. So we've gone nowhere despite all this turmoil about AI and the world's coming to an end and whatever else it is. The market's gone nowhere, at least on the market cap weighted surface, right? And the damage to the market cap weighted index is happening today. We're trading right on this 100-day moving average at the moment with today's market action. If we break down out of this consolidation range, that's going to be very important, right? Because if these Bollinger Bands have become very narrow, so if we start to break down out of this trading range we've been in, those Bollinger Bands are going to start to expand like we saw over here, and we're going to get a retest of the 200-day moving average. So there's certainly some downside risk that's worth paying attention to. But where markets are, we're not really oversold yet, but we are starting to work off a lot of that kind of previous overbought condition. We've been doing that for the last couple of months. Momentum has gotten decently oversold, got more to go. But we've worked off a lot of that kind of overbought, overvalued condition. So you were talking about valuations earlier. Markets can correct problems in two manners. Either you get a sell-off in the markets like we had earlier this year, or you get this sideways consolidation that does exactly the same work. It's just slower. It just takes more time, but you get the exact same kind of work. So what's going to be important to pay attention to here next week is that we're going to have a sell-off in the markets. We're going to have a sell-off in the markets. Can the markets defend the support line at the 100-day moving average or not? And if we don't, we're likely going to get a deeper correction back towards the 200-day moving average, again, around 7,300. If we do defend that level and then can eventually break out to the upside, which is right now right around 7,630-ish, we can break out to the upside, then that sets us up for the rally in the year end, which should get us around 8,800 by the end of December. So that would technically be, kind of your Santa Claus rally. So we're just kind of in a position at the moment. Technically, the market's okay, but there's certainly some damage being done internally to the markets. And to your point earlier, as an example, if we take a look at MGK, this is the mega cap ETF index. You can certainly see the destruction that's happened here over the last couple of weeks, but even this index has been trading flat now since June. It's been a very big range, right? And back over. You and I were talking about, I think back over here was where you interviewed Fred Hickey, somewhere in here, we're talking about NVIDIA. But we had this big concern about that. And then these stocks took off again, made new highs, and now we've reversed a lot of that. So even with the overall, like the overall market, MGK has been trading decently sideways here. We take a look at the Equal Weight Index, it's a little bit of a different story. The Equal Weight Index has been performing much better. It got two standard. The Equal Weight Index has been doing a lot better. It got two standard deviations oversold. Didn't quite get to the 200-day moving average. Triggered a buy signal and a relative strength signal from fairly low levels. And this has been that rotation. So if I overlay MGK with RSP, you're gonna see almost an inverse correlation between these two sectors, 'cause that's that rotation that we've been talking about. And again, where this rotation started right at the beginning of October. And that was where we, we talked about that rotation, from value to growth. This is that trigger for that rotation from growth and into value that we did back in October. And again, so like I said, this is starting to get decently overbought. We're not there yet. MGK is an example. And again, we'll go back to that chart. You know, the mega caps are getting decently oversold here on both a momentum basis, a relative strength basis. It's getting two standard deviations below its moving average. So there's a reasonable expectation that we may see a move back into these values, these growth stocks, potentially from value because of that dispersion of returns that's currently going on. -
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Speaker 4Okay. And this really makes it interesting. It hammers home visually something that we've talked a lot about over recent years, which is if the era of passive sort of set it and forget it by the dip, you know, by every dip playbook is ending, you know, it will be harder to make money. It will be harder to make money with that classic, you know, passive strategy. And to your point, if you're following that, you probably haven't made much money since June, right? But if you're playing the active playbook successfully, and I got to really underscore successfully, there's an opportunity to actually make a pretty good return even in a flat market like, in an overall flat market like that. If you're able to capitalize on the swings and rotation, and that's something that you have been talking about an awful lot over the years. - Yeah. - And it's been there this past year, right? So again, sometimes it's hard for people to understand, you know, the difference between the two and why one is better than the other. This, I think really visualizes if we're in an era where there's maybe likely to be a lot more, I don't wanna say necessarily sideways action, but where price over long periods of time, if you check at the beginning and the end, hasn't really gone anywhere. Passive doesn't make much. In fact, it loses money on a real basis where active again, if done successfully, you can still be making a good amount of money as an investor. -
Speaker 3Well, I think this brings home, I think a much more important point, which is when we do this show on Fridays, right? We kind of talk about the market, what would the market do? And, you know, we talk about valuations. Valuations are rich. And this is normally what happens with the market when these, when forward valuations are rich and what happens with forward returns. So we talk about all these different things, but what gets lost? What gets lost in that conversation, which I think is more detrimental to investors is understanding that even though there's a risk in one sector of the market, that doesn't mean every sector of the market has risk. And if one sector of the market is selling off, money has to go somewhere. Money just doesn't evaporate and leave the markets. It's always transitioning to somewhere else. It's like energy. You know, the kind of Newton's law says, you know, you can't create or destroy energy. It just changes form. And that's law thermodynamics, sorry. But, you know, that's the same way with the market. Money isn't destroyed. It just changes form within the market. So it's important to understand that when you're listening to kind of broad macro commentary about the markets, whether it's bullish or bearish or whatever, understand that, and again, you know, the bullish commentary passes most people by. What they worry about is the bearish. Like, oh no, you know, some guy said, we're going to lose 50% of the market value. So I better be in cash. Well, even if the major market declines by 50%, there's money being made somewhere else in the markets. And so it's always important to just understand that markets change and markets fluctuate, and there's always opportunities to make money. Just kind of step back and look at where the money's flowing to, you know, follow the money is a really good measure of managing portfolios in the market. -
Speaker 4Yeah, well, it's funny, you know, hearing you talk. Like when I interview housing analysts, you know, they're always, I understand their frustration. But they're like, yeah, you're asking me about the housing market, but real estate's really local, right? So it's totally different right now in, say, New York City, which is like on fire, basically. I mean, it's a very strong market now versus, you know, some places in Florida, you know, which are still just getting destroyed. So, you know, the financial market is very similar. Which is the point you're saying. Which is, hey, you're asking me to comment on the general, what is the market doing? Well, it depends, right? You're talking about muni bonds, or you're talking about, you know, bleeding edge AI companies, right? Very different. - That's right. - I guess the difference is it's very easy to own the market index in the financial markets. Nobody really owns the housing market index, right? You just think about your specific house and your specific neighborhood. - Right, right. - Yeah. But no, your point's very well made. All right, so in wrapping up here, trades, what trades have any of you made this week?
Speaker 3trade we made this week so far was again trimming back that long bond exposure um i would i don't know if it'll be next week or the week after if we do get that rotation from value back to to growth then we'll have a pretty substantial amount of trades we're in we're in really a pretty good position right now uh even though the market hasn't gone anywhere like our 60 40 portfolio model has made all-time highs uh for it for for that portfolio so it's it's you know everything's kind of working the way it's supposed to at the moment um so we've got a great example of what i
Speaker 4was just talking about right yeah yeah so your actively managed portfolio you said is near all-time
Speaker 3highs yeah it was actually just set an all-time high this week so congratulations um but the point is is that you you know we've already done kind of our tax loss selling for this year for the most part um so that's kind of behind us and we're really kind of just looking over the course of next few months we don't try to predict a year from now or two years from now because it's really very dull about the only thing that our analysis will tell us to any great degree with accuracy is two to four weeks somewhere in there so you know when we get this rotation from value back to growth whenever it occurs then we'll have a lot of trades because we'll fully rebalance the factor growth rotation model we'll rebalance the etf model we'll rebalance the 60 40 kind of uh allocation model as well so those will all get impacted by that rotation from from value-backed growth um so there'll be a lot of trades that week in particular but right now i think we're pretty set up here for the next you know kind of week or so depending on what the
Speaker 4market does next got it and i assume right now you're just in sit tight let's not touch anything until after the election so we know what's going
Speaker 3on yeah and that's that's that exactly that's another big thing is is trying to trade this election you know the polls say one thing right now but historically you and i both know how accurate polls have been and i think that's in previous elections? Not. So, you know, I'm not betting on one outcome versus the other. So I just rather kind of wait, get through that, see how the market reacts. And then, you know, if we get a real negative reaction to that, we'll adjust. We're holding about 15% cash across the portfolios right now, 10 to 15%. So we've got some cushion to work with for opportunity if they show up.
Speaker 4Okay. All right. Well, I've got a very quick rant and then I got to run. So last week I shared a quote that has guided me a lot in life, right? That was the Carl Jung quote, until you make the unconscious conscious, it will rule your life and you will call it fate. A lot of people really like that. I'm glad to hear that because like I said, it has served me really well as a sort of reality check in life. I'm going to share another quote. I don't know who said it. It's kind of, old aphorism, but it's, you can't control what happens to you, but you can control what your response to that is. And as we kind of kicked off the conversation here today, I described you as a keeper of the faith, right? The person's just saying, Hey, everybody, don't panic. Don't panic. And I don't think what's happened this week has been, you know, particularly injurious for anybody yet. You know, maybe if you're holding the precious metals, you're, you're beginning to get really worried now. But you know, I'm just encouraging folks to take it as a preview of coming attractions at some point next year, five years from now, who knows? We're going to go through another big down market cycle. That's going to be scary and painful, right? And the point is, is whatever the tape is telling you at any given moment, what got us there to some cost, you can't go back in time. You can't change things, right? It's a matter of time. You can't go back in time. You can't of what do you do from there going forward. And so there's two things I want folks to take from that, which is the best way to move forward is with this passion and with a lot of intentional thought. And if you can't do that on your own, pull in an expert who can do that for you, right? This is a big reason why I have financial advisors like you on the program, Lance, to model this for folks and encourage most people to work with an advisor because most of us are human, all of us are humans. But most of us, investing isn't our primary skill set. And when things get rocky, our emotions take over and they lead us to start making really bad decisions. The second thing I want people to take from this is, you know, like they say, like the best time to plant a tree was 10 years ago. You know, the second best time is today, right? Is if this market turbulence that we're having right now is making you a little uncomfortable, take that as a sign. And to say, okay, well, you know, if we end up having a much bigger market correction at some point, are there things I can do today to make myself less vulnerable to that, to reduce my odds of being in a position where I will be freaking out, right? And so the best time to prepare for the next big market downdraft is not while it's happening, right? It's before. So, you know, again, if you've got any uneasiness here, just use that as a nudge from the universe to say, okay, you know, I got to do a full review of what my exposure is. And hey, if you do the full review and you're perfectly fine, great. You know, it doesn't mean you're not going to lose money going forward, but it means you'll be able to accept, hey, you know what? I was taking a reasonable risk. It went against me, but I had done everything that I could in my power to not put myself in a position where I'm going to lose, you know, an unnecessary amount of money. You know, the time to be making all those preparations is while the markets are still functioning, you know, generally well. And even though we're, you know, talking about a pretty rough week in the markets, I mean, we're still not that far from all-time highs, right? Like the S&P is all-time high is 78 something and we're at 77 right now. Yeah. Yeah. So, you know, things could get a lot worse, folks. I'm not saying they're going to, but I'm just saying, you know, you can't control what the market's going to do, but you can control what your reaction is. And part of a reaction is sometimes taking preemptive action or proactive action to make sure that if the things you're most worried about happen, they're not going to be completely destructive for you. So again, just use that as the nudge from the universe.
Speaker 3You want to add to that? Yeah. No, I, you know, one of the best pieces of advice I ever got was from a therapist that, you know, I was talking to her and she's like, you know, look, there's certain things, you know, to your point, there's certain things in life you can control, right? And there's certain things in life that you're presented with a problem and you can't control it. And so, you know, I was talking to her and she's like, you know, or there's at least nothing you can do about it right now. And she taught me, she goes to basically take whatever problem that is, put it in a box and put it up on a shelf. The problem's not going to go away. There's just nothing you can do about it today. But at some point, something's going to occur that allows you to solve that problem. You can take it off the shelf. You can solve that problem and you can move on. But worrying about it, fretting over it is self-destructive and it keeps us from moving forward because we're spending so much time trying to solve an unsolvable problem that we're not focusing on the things that we need to solve. And so, you know, I think that's we can take care of today and start making progress in those areas. And when it comes to investing, you know, there's, you know, a lot of, you know, historical investing legends and their whole process of managing money was to be prepared for outcomes. And they weren't necessarily taking actions to any degree, but they just prepared for the possibilities of these occur because the best time to invest is at the worst of times. And this is the thing that, you know, as investors, we always miss, you know, we're so concerned about trying to avoid the downturn that we don't realize that that's the time you want to start buying. That's where your best returns are going to come from. But we're so focused on the thing we can't solve right now, which is the market's going to crash someday. Yes, it absolutely is. But we're so focused on that. We're missing all the other stuff we should be doing today to help improve our wealth, improve our financial outcomes, understanding that that box is up on the shelf. And when I see implications in the markets coming to fruition that I can now deal with that box, I can deal with it then. I don't have to deal with it today.
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Speaker 4I think that's a great point. You're not saying this, but I just want to clarify it to make sure people don't take the wrong message. Putting it on the box, in the box and on the shelf doesn't mean. Yeah. Yeah. So to my point, you know, if you've got worries about what could happen to your point about the grades of investing, there are steps you can take today to prepare so that if your big fear happens, you know, you're, you're, you're not decimated by it at the same time. You don't want your fear to be keeping you from, you don't want, you don't want it to generate a massive opportunity cost where you're just sitting in paralysis or whatever because of the fear. Yeah. Um, all right. Well, I, I, I think folks got the message. It is, I'll just close on this though, is, is that, that phrase, you know, the, the, the advice, um, don't worry about what you can't control, focus on your reaction because that's what you can. When that really kind of came into my, the first time I heard that where I really absorbed it was one of my early jobs. It was actually right out of business school where I was working for a startup and that startup eventually became, it was very successful. And then it became an early casualty of the dot-com bust. And so basically everybody at the company got pretty much laid off around the same time. And my boss at the time was one of the quote-unquote adults at the company. He was probably like 40, but he was ancient compared to the rest of us. And we all got together for drinks after the layoff announcement and all the young people were totally freaking out because we didn't know what was going on. And so I was like, okay, I'm going to do this. I'm going to do this. And I'm like, okay, I'm going to do this. And I'm like, I'm going to do this. And of course, looking around the landscape around us, it was like, it's going to be really hired to get hired somewhere else at this point in time because companies are dying right and left right now. And so it just felt like the world was ending. And so these young people were freaking out. And he was the calming voice of wisdom that just said, hey, look, life moves in cycles. I can't guarantee what's going to happen here. But what I can guarantee is you can't do anything about what got you to right here. We are where we are. Your energies are much better spent trying to figure out where you want to go from here and start just taking the steps one after the other to try to get closer and closer to that. Yeah, it might seem far away right now. But I guarantee you just as today feels terrible, you're going to have days coming up, they're going to feel amazing. And, you know, again, just focus on what you can do. And since then, I have seen in life, the people who take that advice, and how successful they generally become, versus the life sucks, and the universe hates me and all that type of stuff. And it really is one of those things that separates the successors, the success, the successes from the folks that, you know, just don't really go anywhere in life. So very important advice. All right. Well, look, if you think one of the best ways to control your destiny and guide it to the best place possible for you is to continue listening to Lance Roberts on this channel week in and week out, please let him know that by hitting the like button. And then clicking on the subscribe button below as well as that little bell icon right next to it. Obviously, there's a lot going on in the markets as we have outlined here. If you would like any help in assessing your portfolio around this making changes in your portfolio based on anything that Lance and I talked about here, highly recommend that you do that under the guidance of a good professional financial advisor. If you do not have one guiding you, or you just like a second opinion from one that thoughtful money thinks is good. Consider talking to one of the firms that thoughtful money endorses. These are the firms you see with me on this channel. Frequently, perhaps you'd like to talk to Lance himself there and the team at RIA. To do that just fill out the very short form at thoughtfulmoney.com and the firms will be in touch with you right after you do that. All right, Lance. Great week. We gave people a little bit more than I thought we would. But again, usually when I say we're going to go short, we don't. But I do have to run now. Hopefully, your calm hand helps people make it through the week and hopefully next week's a little bit calmer than this. And I will see you then.
Speaker 3I would appreciate a calmer week next week. That would be great.
Speaker 4Hopefully, the universe is listening. Every time. Everybody else. Thanks so much for watching.
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