Jan 26, 2021
Happy New Investing Year & Stocks w/ Robert Raeburn of Life Pro Asset Mgmt
- BRT S02 EP04 01-24-21 (51)
Things We Learned This Week:
- Robert’s Core Philosophy on Picking Stocks - good co's, that are growing, leadership position in industry, positive cash flow, good balance sheets, & low debt
- Diversification Myths - why you should hold 20 – 25 stocks in a portfolio to avoid concentration risk
- Issues with the S&P & Zombie Co. (Too Much Debt!!)
- Value Investing & PE Ratios vs Growth - how to evaluate
- Low Inflation – Fed inflating asset classes, keeps $ cheap
- Importance of picking Good Co's & thinking Long Term
Guest: Robert Raeburn VP Wealth Mgmt, Life Pro Asset Mgmt
LPAM YouTube Channel: Here
Robert’s Weekly Insights - https://www.lifeproassetmanagement.com/insights
Robert’s core philosophy on picking stocks - good companies that are growing, leadership position in their industry, positive cash flow, good balance sheets, and low debt. Keep it simple and understand what you invest in. Zero to One (book) commentary of good business that execute at scale and reach customers efficiently.
Diversification myths, and why you should hold 20 – 25 stocks in a portfolio to avoid concentration risk. Robert tells of the issues with the S&P and its Zombie Co. problem.
Also, we review Value Investing and PE Ratios vs growth and how to evaluate. Then move on to the current Low Inflation – Fed inflating asset classes, keeping money cheap with high supply. Robert likes a stable environment with the economy plus a good credit market.
Notes
LPAM – Growth focused investors, grow client account value, pick stocks in multiple areas, not just growth stocks.
Lifepro asset management websites, also Weekly updates on YT channel.
Picks individual companies/stocks. Work to pick companies that are doing the disruption, 20-30 stocks, pick more than 30 & you are just diversifying your results, if pick less than 20, not enough balance. Could have individual stock risk.
- Good to have Stable economy and liquidity market, we want credit to be available.
- DC and Politics has little effect on markets. More emotion than substance.
- Fiscal and monetary policy can impact some sectors and industries. Example: energy. Often, assumptions on investing w/ politics / policy as guide are false.
- Closed based software, data, Human Genome are all areas that are growing and unlikely to be affected by Gov’t Policy.
GDP Outlook - Output Gap in economy, so inflation likely to be low in near term. Earnings are re-bounding, money is cheap and money supply is up. Asset prices inflated. Interest rates are low.
Stock Checklist - Good balance sheet, low risks, earnings, growth, secular growth, FCF, leaders in industry, low debt, stable economy and credit market, then L/T plan.
Keep it simple – go with the flow of market. Buy good companies. Robert does not short stocks or trade options.
Bull market – hard to make money shorting, market drag pulling most companies up, propelling some bad companies.
Under valued sectors – software, banks
Bubble sectors – EV and SPACs, cannabis
S&P Index Breakdown – S&P is top heavy, 30% in 6 companies – concentration risk.
Zombie companies – 15%. Value is eroding, too much debt, just paying debt service. Cost of debt greater than earnings.
Treading water – 30% of S&P Companies mediocre meandering along – little to no growth.
Good companies to invest in – 25% of S&P (100+ co’s)
Index is Inefficient – buying high and selling low. Ie: Tesla stock up 700% and then added to S&P.
Zero to One economy – winner take all. Tech companies and others that can scale grow and take market share, upwards 50% (30 P/E)
Every 1% ROI above Index, add years to retirement savings – 7 to 8% may not cut it. Recommended 4% per year, take out of retirement, earn 7%, fees if 1%, take out 4% = 2% growth.
Pick 25 companies/stocks – few miss and few outsized returns
Value Investing – Competitive Moat (leader in industry). Buy a business at a good price, idea of low P/E 7-12x may not be applicable anymore.
Microcap – smaller co’s, not as liquid, can have risk
Denver Nowicz of https://wealthforlife.net/
Denver is an advisor with nearly 20 years experience working with clients in investments and insurance, designing retirement plans with a combo of both. He takes us through different strategies for clients to get the best allocations for their money over the long term. It is the Combo Strategy of both Offense and Defense, the synergy of the mix, not ‘All or Nothing’.
Denver talks investing, and how he helps clients with their retirement. The importance of picking good companies, and thinking long term. How he and his team evaluate investments daily, very tactical to focus on growth.
Notes
Basics of Investing – simple rules: not investing in stock, but companies, 15 to 25 companies. Research each company and determine if you would own the biz vs invest in S&P 500, and not know 95% of companies invested in.
Peter Lynch – book, “One Up On Wallstreet” – Pick good companies you understand. Industries you work in and have insight into.
Buffet core tenet – focus on concentration, Punch-card with 20 punches, make them count.
500 companies in S&P, hard to know 500 stocks.
Buffet – invest in index, if you don’t do the work. Diversification is what to do when you don’t know what to do.
Professional Money Managers – can’t know more than 20-30 companies, let alone 500. If you own more than 30, or own 100 – not going to outperform market. Its hard to have more than 20 good ideas, be judicious with picks.
- Buffet adjusted investment plan – stocks are 10 or 15% of Berkshire, started buying entire companies. That’s how Buffett diversified, gained more business income streams.
- LPAM more tech and growth than usual fund manager, traditional companies using tech to hold high position in their industry.
Conservative vs Aggressive is not the best way to pick investments.
Balanced Investment Strategy – have core needs covered, then can risk more. Never go to Vegas with scared money.
Hold good companies – they will recover quicker.
Segmented investment buckets – income needs and basics covered, then L/T investments.
Peter Lynch – Earnings and sales growth analysis, not as much on P/E, if company growing at 25%, then ok if P/E is 25.
- Look for competitive advantages, if growing. Is there more room for growth?
- Topline growth over dividends.
L/T Long Term – Hard to invest for 10 years + with disruption & shorter cycles of companies, not many 50 or 100 year old companies anymore, and companies that are 40 years old or more usually have long down periods, that could last 10 years (think Microsoft from 2001 – 2011, or Apple in 1990s).
Zombie Co’s w/ lots of debt, Debt keeps many bad companies going, so a company that goes on for years could just be muddling along. Debt masks problems. Cheap can be cheap for a reason. Check balance sheet for debt.
Past performance does not guarantee future results.
Link to Taxes Show on 10/31/2021 w/ Denver: Here
Link to Offense / Defense Show on 6/6/2021 w/ Denver: Here
Link to Shows, Denver was a Guest: Here
Investing Topic: https://brt-show.libsyn.com/category/Investing-Stocks-Bonds-Retirement
More - BRT Best of: https://brt-show.libsyn.com/category/Best+of+BRT
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