Transcript
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Welcome to something more with Chris Boyd.
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Chris Boyd is a certified financial planner, practitioner,
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and senior vice president, financial advisor at wealth
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enhancement group.
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One of the nation's largest registered investment advisors.
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We call it something more because we'd like
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to talk not only about those important dollar
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and cents issues, but also the quality of
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life issues that make the money matters matter.
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Here he is your fulfillment facilitator, your partner
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in prosperity, advising clients on Cape Cod and
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across the country.
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Here's your host, Jay Christopher Boyd.
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Welcome everybody to another episode of something more
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with Chris Boyd.
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I'm Chris Boyd.
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I'm here with members of our team from
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the AMR team at wealth enhancement group.
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Uh, Russ Ball is in the studio with
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me.
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Jeff Perry is in Florida and Brian Regan
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is in Boston.
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So thank you all for being here.
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Uh, our topic today is to discuss the
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dogs of the Dow.
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I've run across this a couple of times
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recently after not having, uh, had exposure to
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the dogs of the Dow for, I don't
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know, it's been, it's been a long time
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since this came across my, my radar, but,
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uh, recently I've had a client who had
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this position as part of their portfolio and,
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um, I've, I've come across an article and
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a couple of things where people were talking
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about the dogs of the Dow.
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So now, uh, typically the, what maybe Brian,
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you want to explain for our listeners, what
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the dogs of the Dow is before we,
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uh, I want to dive into some of
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the, uh, the impact of a defined portfolio,
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but, uh, in a unit investment trust, but
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tell us a little bit about what is
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the dogs of the Dow?
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Sure.
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Uh, thanks for having me today, guys.
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It's been a while.
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It's always fun to do this.
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Um, so the dogs of the Dow is
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you take the, the 10 highest yielding stocks
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in the Dow Jones industrial average, which has
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30 stocks in it, um, and that you
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make that your portfolio for the year.
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Uh, that's, that's essentially what it is.
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The idea is if it has a high
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yield, if it's in a blue chip index,
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like the Dow Jones, um, then, uh, you
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know, that it might be a good indication
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of value.
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Um, so that's, that's the idea.
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Yeah.
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So they're presumably, these are quality companies generally,
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by virtue of being in the Dow Jones
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industrial average.
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And then, um, you're taking the 10 best
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income.
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So people who might be looking for a
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good yield, we can, we're going to talk
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about that.
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Let me come back to this.
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Uh, uh, some of the virtues and merits
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or, or not of this as an investment
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strategy, let's talk about how this is often
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acquired.
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Uh, oftentimes the way people obtain this, it's
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sold to them by a financial advisor who,
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uh, is selling a unit investment trust, a
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unit investment trust is a, uh, a bundle,
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a portfolio that you can buy now it,
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uh, it's an investment product, uh, oftentimes it's
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sold by commission, uh, though not always, but
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generally, um, and.
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Essentially, uh, it doesn't have to be as
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limited as 10 stocks.
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It can be something else, some other theme
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that drives the selection, but it is a
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portfolio that is retained for a specific period
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of time.
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Off, as you mentioned, the dogs of the
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Dow, the theory is often for 12 months.
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Um, the, a unit investment trust often will
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last for about 15 months, sometimes even longer,
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more like around three years.
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So depending on the product you might select,
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um, I generally think there are other products
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in today's world that I would utilize as
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a way to invest.
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Uh, by and large, um, uh, defined portfolio
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is something I'm going to buy in January,
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but there's no, um, Shane, excuse me.
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There's no change in the portfolio in any
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way over the course of the year.
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So there's no window, there's no opportunity for
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assessment or revision.
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Uh, it's either you own the bundle or
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you don't, that's essentially what a defined portfolio
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is.
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Um, you could argue, well, isn't that true
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with an ETF or, um, uh, mutual fund.
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And in some instances that may be true,
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but oftentimes there is active management and we
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can come back and talk about that, uh,
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the, the benefits and drawbacks of that.
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But in any case, a defined portfolio, a
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unit investment trust is usually how people acquire
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the dogs of the Dow.
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You could certainly do it yourself with the
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purchase.
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Uh, the question then becomes, are they held
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in equal weight?
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Are they held in cap weight?
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Uh, what's, what's the weighting mechanism you use?
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Is it somehow arranged by yield?
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So these are things you might not know.
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And, um, that's why people would typically acquire
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it and the form of a, a packaged
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product.
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Um, I generally am not a fan of
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unit investment trusts or defined portfolios.
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Anybody else want to weigh in on that
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question right out of the gate?
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Jeff, Brian, what do you think?
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Well, I don't really understand the point of
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a defined portfolio period ever, um, because things
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change.
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I mean, if we just look at the
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dogs of the Dow in 2024, for example,
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uh, Walgreens Boots Alliance was in, uh, was
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in the Dow Jones at the beginning of
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the year and it fell out during the
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year.
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So, you know, just from that mechanism, you
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know, you're not even holding true to your
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investment strategy is, is, is, you know, uh,
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not great as investment strategy, I think this
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is.
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We're not even holding true to it.
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Um, just because we're in a, you know,
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a defined position from, from the very beginning.
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Uh, I believe that you, we should, uh,
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research, research our stocks, but also, uh, before
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we buy them, but also monitor them for,
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for changes in business model, changes in price,
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um, et cetera, et cetera.
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There's lots of things that could, uh, change
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the value proposition of a, of an individual
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stock.
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Well said I I'm in complete agreement.
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Jeff, did you want to add to that
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in any way?
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No, I'm not, I'm not a proponent of
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it.
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It's, uh, the history of the dogs of
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the Dow and that's when you would buy
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those 10 stocks on the first trading day
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of the year with the highest yield and
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keep them, right?
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You don't, you don't take them out.
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If they fall out of the highest 10
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dividends, you keep them.
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So the old, that's right.
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The, the, in this issue though, if, if
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you're having the dogs of the Dow and
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one, the position falls out of the Dow,
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what do you do?
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It's a, uh, is it now you, you
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replace that position or, yeah.
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I mean, I guess you keep it, right.
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I mean, the idea is that you keep
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it the time in the market and that's
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somehow reflecting.
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I mean, it could, it could go out
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of the top 10 dividend payers and stay
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in the Dow because as a price appreciation,
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right, or a dividend decrease, I mean, if
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I'm going to, if I'm going to try
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to find a benefit of it, I like
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things that are, uh, have a little turnover.
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I don't want, I have, I have more
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selling stocks because when you sell a stock,
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it's, uh, you know, it can mean one
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of a few things.
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It could mean that the company has gone
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South.
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Uh, you know, the business model is no
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longer intact.
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The reason why you bought it is no
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longer there.
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Uh, or, you know, maybe it, uh, the
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price appreciated a whole lot and, uh, you're
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selling a company that you really like just
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because it's gotten too expensive.
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Um, you know, there's usually not a lot
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of great reasons to be selling a stock.
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You usually want to be holding it for,
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for a really, really long time and get
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those compounded returns.
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So from that aspect of it, it might
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hold people to a strategy who might otherwise
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have trouble with that.
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I like that idea.
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I don't necessarily love the execution through, uh,
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the strategy of the dogs of the DAO.
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I would argue that, um, the, the place
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for, uh, defined portfolios, unit investment trust is,
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is largely a by-product of a gone
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by era.
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Uh, this is a product that's, you know,
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designed to be, uh, uh, maybe a stockbroker
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sold.
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Uh, you know, it's a product sale, uh,
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where a commission is earned.
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Uh, I just think of that as something
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that, you know, today we want to design
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a portfolio.
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We want to have some ongoing, uh, control
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of that.
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And, uh, we're not just pushing a product
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that, you know, that this would, I think
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is more of that, uh, experience that, um,
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that era of, uh, experience.
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Chris for, uh, for our listeners.
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Can I take a second and just tell
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the listeners who they are right now or
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who they are for 25?
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Sure.
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Good idea.
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Might be helpful.
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So the 10 stocks with the highest dividend
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rate in the Dow are Verizon, Chevron, Amgen,
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Johnson and Johnson, Merck, Coca-Cola, IBM, Cisco,
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McDonald's and Procter and Gamble.
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So, I mean, a lot of names people
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know.
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Um, let's, let's talk about just the, uh,
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the concept of one of the things that
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the dogs of the Dow implies is the,
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uh, investment approach of investing for dividend.
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And, uh, is that meritorious or not?
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Um, it's very common.
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It's very common.
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And there's some attractive features for people who
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particularly who are in maybe own, uh, names,
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stocks, or a fund that they could just
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retain and draw cashflow from.
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And that sounds appealing.
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Right.
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Uh, but that's not really always the way
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we encourage investors to think.
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I'm going to let Brian tackle this, uh,
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the idea of income investing versus total return
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investing.
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It's not the first time we've talked about
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it, but I think it's worth, uh, revisiting
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as a topic.
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Yeah.
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Before I go on my normal speech here
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that you guys are all familiar with.
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I Chris, I thought you said something interesting
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that relates to this.
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He said, commission products are, uh, you know,
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time of a bygone era.
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Uh, but so is dividend investing.
273
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You know, there was a time probably, probably
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prior to 1950 where the dividend, uh, on
275
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an index like Dow Jones would almost always
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be higher than a treasury rate, for example.
277
00:10:23,620 --> 00:10:26,460
Um, and the reason for that is because
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stocks are, um, uh, more risky than, than,
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than fixed, uh, you know, uh, treasury treasury
280
00:10:33,300 --> 00:10:35,980
bond, you know, so they should require a
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higher rate of return.
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00:10:37,500 --> 00:10:39,800
Um, and in those days, you know, a
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lot of the industry was based on, uh,
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returning share returning cash to shareholders through, uh,
285
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dividends.
286
00:10:46,280 --> 00:10:48,240
Today we do a lot of that through
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share buyback and there's a lot more emphasis
288
00:10:51,860 --> 00:10:54,960
on, uh, research and development and capital expenditures,
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um, than there might've been prior to that
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time.
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So now the emphasis is on and the
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type of businesses that.
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Comprised the economy.
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There's been some evolution of that as well.
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And that may be part of why, right?
296
00:11:11,360 --> 00:11:12,840
I mean, to say the least, right.
297
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Uh, before 1995, we were bricks and mortar
298
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economy, and now we're a much more of
299
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a bites and bits economy.
300
00:11:18,200 --> 00:11:22,440
Uh, and that has, uh, reshaped, uh, a
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lot of the ways that we should be
302
00:11:23,580 --> 00:11:24,460
thinking about investing.
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00:11:24,680 --> 00:11:26,760
Uh, if you look at, uh, margins on
304
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the S and P 500, for example, from
305
00:11:28,340 --> 00:11:30,080
that time, we went from 6% in
306
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1995 to almost 13% today, uh, that
307
00:11:33,280 --> 00:11:36,560
is indicative of, uh, of software eating the
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world.
309
00:11:36,840 --> 00:11:39,380
Um, you know, margins on software are much
310
00:11:39,380 --> 00:11:42,320
greater than, uh, you know, you'll get, um,
311
00:11:42,320 --> 00:11:45,300
from, from selling, uh, items through, through Walmart
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at a discount.
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00:11:46,200 --> 00:11:48,560
So, uh, you know, that's just one example
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of, of how, how the economies change and,
315
00:11:50,780 --> 00:11:52,020
and how we need to think about that.
316
00:11:52,020 --> 00:11:53,880
But in addition to that, the reason why
317
00:11:53,880 --> 00:11:56,520
we don't, you know, we, we buybacks were
318
00:11:56,520 --> 00:11:58,240
far less common than they are now.
319
00:11:58,340 --> 00:12:01,460
Uh, buybacks are a way of returning, uh,
320
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uh, capital to shareholders.
321
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Uh, that's more tax efficient than dividends.
322
00:12:05,500 --> 00:12:08,040
And it often gets overlooked, especially when people
323
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are concentrating on dividend yield.
324
00:12:09,480 --> 00:12:11,420
I, it doesn't say anything about the buyback
325
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yield here.
326
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Uh, part of that is good reason.
327
00:12:13,740 --> 00:12:18,900
Um, the buyback is, uh, often temporary, um,
328
00:12:18,900 --> 00:12:20,960
where the dividend is often more consistent, uh,
329
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but not all the time.
330
00:12:21,740 --> 00:12:24,560
And that's important, especially when you're looking at,
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uh, some of these very, very high dividend
332
00:12:26,740 --> 00:12:27,560
paying stocks.
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Uh, sometimes there have very, very high dividend
334
00:12:30,200 --> 00:12:32,480
yields because the, the dividends going to be
335
00:12:32,480 --> 00:12:32,680
cut.
336
00:12:33,580 --> 00:12:35,380
Um, so that, that, you know, that kind
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of leads me into the four things that
338
00:12:37,540 --> 00:12:38,880
you can do with a company can do
339
00:12:38,880 --> 00:12:39,780
with its earnings, right?
340
00:12:40,020 --> 00:12:41,160
Uh, it could pay down debt.
341
00:12:41,360 --> 00:12:42,760
It can buy back shares.
342
00:12:42,760 --> 00:12:44,520
It can reinvest in the business or it
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can pay a dividend.
344
00:12:45,980 --> 00:12:48,360
Uh, and for each, uh, different type of
345
00:12:48,360 --> 00:12:51,220
business, uh, uh, different part of the maturity
346
00:12:51,220 --> 00:12:54,260
cycle, uh, different options might be appropriate, right?
347
00:12:54,260 --> 00:12:56,700
If they have, uh, if it's a new
348
00:12:56,700 --> 00:12:59,000
growing company, it might be better for them
349
00:12:59,000 --> 00:13:00,540
to reinvest in the business and get a
350
00:13:00,540 --> 00:13:01,820
high return on, on capital.
351
00:13:02,040 --> 00:13:04,380
If it's a more mature business, uh, you
352
00:13:04,380 --> 00:13:06,320
know, like say Coca-Cola, which is here
353
00:13:06,320 --> 00:13:07,700
on the, in the dogs of the Dow,
354
00:13:08,000 --> 00:13:09,400
it might make sense to pay a, pay
355
00:13:09,400 --> 00:13:10,060
a larger dividend.
356
00:13:10,740 --> 00:13:13,040
Um, but that's, uh, you know, company specific
357
00:13:13,040 --> 00:13:16,080
and it doesn't necessarily mean that one is,
358
00:13:16,260 --> 00:13:17,080
one is better than the other.
359
00:13:17,220 --> 00:13:19,300
If you have a really highly indebted company,
360
00:13:19,360 --> 00:13:21,680
uh, that is trading at a very, very
361
00:13:21,680 --> 00:13:25,420
low valuation because of its prospects of possible
362
00:13:25,420 --> 00:13:28,340
bankruptcy or lack of funding, and then it
363
00:13:28,340 --> 00:13:29,800
gets a lot of funding, even if it's
364
00:13:29,800 --> 00:13:31,400
through the equity market, you might see that
365
00:13:31,400 --> 00:13:33,780
stock go up because the reason why the
366
00:13:33,780 --> 00:13:35,660
valuation was depressed was because of the heavy
367
00:13:35,660 --> 00:13:36,020
debt load.
368
00:13:36,540 --> 00:13:39,340
So, um, a lot of how we evaluate
369
00:13:39,340 --> 00:13:42,040
stocks, you know, it's too simple to look
370
00:13:42,040 --> 00:13:43,220
at the dividend yield and say it's a
371
00:13:43,220 --> 00:13:43,720
good value.
372
00:13:44,180 --> 00:13:46,300
Uh, you need to look at the cash
373
00:13:46,300 --> 00:13:48,000
flows, the growth and what they're doing with
374
00:13:48,000 --> 00:13:49,860
those cash flows and whether that business model
375
00:13:49,860 --> 00:13:51,380
is going to continue well into the future
376
00:13:51,380 --> 00:13:52,940
or if it's, you know, a flash in
377
00:13:52,940 --> 00:13:53,180
the pan.
378
00:13:56,080 --> 00:13:58,920
So I think, you know, we, we have
379
00:13:58,920 --> 00:14:01,640
said over and over again to our listeners
380
00:14:01,640 --> 00:14:05,240
that as much as sometimes it can be
381
00:14:05,240 --> 00:14:08,380
attractive to think in terms of buying, uh,
382
00:14:08,380 --> 00:14:12,660
on the basis of dividends, very often we
383
00:14:12,660 --> 00:14:13,940
might be taking on risk.
384
00:14:14,060 --> 00:14:17,400
We don't recognize, um, the quality of the
385
00:14:17,400 --> 00:14:20,000
company, uh, that has a very high dividend,
386
00:14:20,140 --> 00:14:22,060
maybe at risk, right?
387
00:14:22,080 --> 00:14:23,300
There may be added risk there.
388
00:14:23,380 --> 00:14:25,820
And there may be some concern of the
389
00:14:25,820 --> 00:14:29,540
future earning capabilities, Brian, and you've talked about
390
00:14:29,540 --> 00:14:33,340
in many instances with clients, uh, examples of
391
00:14:33,340 --> 00:14:37,440
a high paying dividend, uh, company, but it's
392
00:14:37,440 --> 00:14:41,560
funding their dividend through a dilution of share
393
00:14:41,560 --> 00:14:42,040
value.
394
00:14:42,320 --> 00:14:44,720
Uh, there can be other considerations that can
395
00:14:44,720 --> 00:14:46,300
be problematic, right?
396
00:14:46,360 --> 00:14:51,080
So we often see instances where, uh, yield
397
00:14:51,080 --> 00:14:53,080
is as much as it can appear to
398
00:14:53,080 --> 00:14:54,820
be attractive to the investor.
399
00:14:55,440 --> 00:14:57,240
They actually be a warning sign.
400
00:14:57,240 --> 00:14:59,720
Sometimes it may not be as appealing as
401
00:14:59,720 --> 00:15:00,660
it might seem.
402
00:15:01,500 --> 00:15:03,280
Um, and that can be true with bonds
403
00:15:03,280 --> 00:15:04,940
as well as stocks that can be more
404
00:15:04,940 --> 00:15:08,740
risk when it comes to higher yield, um,
405
00:15:08,940 --> 00:15:09,760
comments.
406
00:15:10,380 --> 00:15:10,860
Yeah.
407
00:15:10,900 --> 00:15:12,660
I mean, as you guys know, sometimes I
408
00:15:12,660 --> 00:15:15,160
struggle with being diplomatic with my speech, uh,
409
00:15:15,160 --> 00:15:17,940
and I've often called those types of stocks.
410
00:15:19,780 --> 00:15:21,980
I've often called those types of stocks that
411
00:15:21,980 --> 00:15:24,740
Chris has mentioned as Ponzi schemes, which may
412
00:15:24,740 --> 00:15:26,580
or may not be fair, but, um, you
413
00:15:26,580 --> 00:15:28,520
know, you'll see that they'll issue shares and
414
00:15:28,520 --> 00:15:30,240
then increase their dividend at the same time,
415
00:15:30,340 --> 00:15:33,460
which, uh, you know, you're basically, um, you
416
00:15:33,460 --> 00:15:35,320
know, robbing Peter to pay Paul, uh, which
417
00:15:35,320 --> 00:15:36,480
doesn't make a whole lot of sense to
418
00:15:36,480 --> 00:15:36,640
me.
419
00:15:36,680 --> 00:15:38,900
It's not, it's not very common, uh, but
420
00:15:38,900 --> 00:15:39,840
it certainly happens.
421
00:15:40,000 --> 00:15:43,360
Uh, and I, you know, I, if anybody
422
00:15:43,360 --> 00:15:44,940
wants to contest me on that, I have
423
00:15:44,940 --> 00:15:46,060
a couple of stocks in mind that I
424
00:15:46,060 --> 00:15:48,660
don't necessarily, um, you know, aim right now.
425
00:15:48,720 --> 00:15:48,900
Yeah.
426
00:15:49,300 --> 00:15:52,300
But even, uh, less nefariously, right?
427
00:15:52,300 --> 00:15:54,660
Like Verizon is the highest yielding stock on
428
00:15:54,660 --> 00:15:57,120
this list at 6.82%. Right.
429
00:15:57,960 --> 00:16:00,360
Uh, we all are well aware of Verizon.
430
00:16:00,520 --> 00:16:01,480
We're well aware of the brand.
431
00:16:01,600 --> 00:16:04,400
I'm sure, I'm sure most of us, if
432
00:16:04,400 --> 00:16:06,180
not all of us pay a bill to
433
00:16:06,180 --> 00:16:06,560
Verizon.
434
00:16:07,080 --> 00:16:09,480
Um, so, you know, it's, it's very commonly
435
00:16:09,480 --> 00:16:12,780
thought of as, um, you know, a, a
436
00:16:12,780 --> 00:16:16,060
relatively low risk staple, which, you know, I
437
00:16:16,060 --> 00:16:16,660
think it is.
438
00:16:16,660 --> 00:16:18,100
If you, if you look at the financial
439
00:16:18,100 --> 00:16:21,160
statements, you know, the, there's no growth whatsoever.
440
00:16:21,700 --> 00:16:23,540
Uh, there's not a whole lot of decline
441
00:16:23,540 --> 00:16:23,880
either.
442
00:16:23,880 --> 00:16:27,040
Uh, there's, there's marginal decline and there's marginal
443
00:16:27,040 --> 00:16:29,180
risk, but on the whole, I would say
444
00:16:29,180 --> 00:16:31,180
it's, um, you know, the revenue growth is
445
00:16:31,180 --> 00:16:31,520
flat.
446
00:16:32,040 --> 00:16:33,840
So the revenue growth is flat and we
447
00:16:33,840 --> 00:16:37,300
get a yield of 6.82%. What's your
448
00:16:37,300 --> 00:16:38,940
reasonable guess on what your return is going
449
00:16:38,940 --> 00:16:40,800
to be on this, on this stock, all
450
00:16:40,800 --> 00:16:41,380
things equal.
451
00:16:41,840 --> 00:16:44,180
My guess would be 6.82%, right?
452
00:16:44,240 --> 00:16:45,680
You're not, the company's not growing.
453
00:16:46,560 --> 00:16:49,060
Um, and you know, you, you, you're getting
454
00:16:49,060 --> 00:16:50,240
6.82% in the dividend.
455
00:16:50,400 --> 00:16:51,180
You know, you're only going to get the
456
00:16:51,180 --> 00:16:51,440
income.
457
00:16:51,500 --> 00:16:52,740
You're not going to get much price appreciation.
458
00:16:53,220 --> 00:16:55,920
Now, um, yields could fall and that could
459
00:16:55,920 --> 00:16:57,260
lead to price appreciation.
460
00:16:57,860 --> 00:17:01,160
Um, you know, they, they could restructure their
461
00:17:01,160 --> 00:17:02,640
debt, which they have a whole lot of,
462
00:17:02,760 --> 00:17:03,800
which is part of the reason why it's
463
00:17:03,800 --> 00:17:04,480
the press stock.
464
00:17:05,859 --> 00:17:09,780
Um, they are buying, uh, a competitor, uh,
465
00:17:09,780 --> 00:17:11,800
that could go well, but it probably won't.
466
00:17:11,819 --> 00:17:13,460
Um, and I'm not saying that that is
467
00:17:13,460 --> 00:17:15,119
disparagingly to Verizon.
468
00:17:15,520 --> 00:17:18,220
Statistically, most of these large acquisitions do not
469
00:17:18,220 --> 00:17:18,500
work.
470
00:17:18,740 --> 00:17:20,900
So we have a highly indebted company that's
471
00:17:20,900 --> 00:17:23,609
getting more into debt by a competitor that's
472
00:17:23,609 --> 00:17:24,829
already not growing very much.
473
00:17:25,810 --> 00:17:28,250
Um, you know, to, you're, you're taking a
474
00:17:28,250 --> 00:17:29,390
good amount of risk to get that 6
475
00:17:29,390 --> 00:17:33,990
.82%. Now take, um, you know, the S
476
00:17:33,990 --> 00:17:36,250
&P 500, for example, that's average 14 to
477
00:17:36,250 --> 00:17:38,870
15% over the last decade, uh, that
478
00:17:38,870 --> 00:17:40,510
doesn't match up very nicely.
479
00:17:40,610 --> 00:17:42,910
Uh, and if you think that's an unfair
480
00:17:42,910 --> 00:17:46,250
comparison, because you might recognize that, you know,
481
00:17:46,250 --> 00:17:49,210
the S&P 500 might have, uh, things
482
00:17:49,210 --> 00:17:51,190
in it that aren't necessarily staples, then you
483
00:17:51,190 --> 00:17:53,070
can look at the high yield bond market,
484
00:17:53,210 --> 00:17:55,050
which you could probably get close to a
485
00:17:55,050 --> 00:17:58,170
7% yield in today, maybe, maybe, you
486
00:17:58,170 --> 00:17:59,590
know, six and a half, something like that
487
00:17:59,590 --> 00:18:00,130
on average.
488
00:18:00,730 --> 00:18:03,030
Um, so I can actually go down in
489
00:18:03,030 --> 00:18:05,430
the capital structure, take less risk, diversify my
490
00:18:05,430 --> 00:18:07,410
bond portfolio and get a similar yield.
491
00:18:07,730 --> 00:18:09,750
Um, that is a better prospect to me.
492
00:18:09,790 --> 00:18:12,870
And that's why, you know, I don't think,
493
00:18:12,870 --> 00:18:16,650
uh, Verizon, despite its high yield shows, you
494
00:18:16,650 --> 00:18:19,110
know, significant amounts of quote unquote value, uh,
495
00:18:19,110 --> 00:18:20,350
which I think a lot of people would,
496
00:18:20,350 --> 00:18:22,750
would, uh, bucket this as a quote unquote
497
00:18:22,750 --> 00:18:23,450
value stock.
498
00:18:24,230 --> 00:18:26,230
Brian, are there any other names in the,
499
00:18:26,230 --> 00:18:28,630
uh, the dogs of the Dow list that
500
00:18:28,630 --> 00:18:31,410
you would, um, want to talk about that
501
00:18:31,410 --> 00:18:33,370
you'd look at and say, oh, well, you
502
00:18:33,370 --> 00:18:34,950
know, there's things out there.
503
00:18:35,090 --> 00:18:35,330
Yeah.
504
00:18:36,830 --> 00:18:39,230
Well, I love consistency and growth as you
505
00:18:39,230 --> 00:18:39,670
guys know.
506
00:18:39,710 --> 00:18:40,010
Right.
507
00:18:40,230 --> 00:18:42,710
So if you look down this list and
508
00:18:42,710 --> 00:18:45,130
I'll repeat it for everybody, Verizon, Chevron, Amjon,
509
00:18:45,250 --> 00:18:48,730
Johnson and Johnson, Mark, Coca-Cola, IBM, Cisco,
510
00:18:48,850 --> 00:18:50,150
McDonald's, and Procter and Gamble.
511
00:18:51,450 --> 00:18:53,390
Um, that's the 2025 list.
512
00:18:53,710 --> 00:18:55,970
Do any of those scream to you that
513
00:18:55,970 --> 00:18:57,430
they're going to have any growth in the
514
00:18:57,430 --> 00:18:57,690
future?
515
00:18:59,790 --> 00:19:01,190
To me, they don't.
516
00:19:01,310 --> 00:19:01,490
Yeah.
517
00:19:01,630 --> 00:19:02,730
I mean, not a single one.
518
00:19:03,070 --> 00:19:05,910
Um, you know, Merck's biggest drug is Keytruda.
519
00:19:06,270 --> 00:19:07,570
Uh, it's one of the best selling drugs
520
00:19:07,570 --> 00:19:08,070
of all time.
521
00:19:08,110 --> 00:19:09,870
It's a cancer and, uh, it's a cancer
522
00:19:09,870 --> 00:19:10,290
therapy.
523
00:19:10,890 --> 00:19:13,270
Uh, but my understanding is part of the
524
00:19:13,270 --> 00:19:15,210
reason why Merck is trading down is that
525
00:19:15,210 --> 00:19:18,230
the patent is coming up relatively soon, which
526
00:19:18,230 --> 00:19:20,890
means that you will get, uh, and I
527
00:19:20,890 --> 00:19:22,430
also think it's part of the, on the
528
00:19:22,430 --> 00:19:24,510
Medicare list and the negotiated prices.
529
00:19:25,170 --> 00:19:27,270
Um, so, you know, for those two reasons,
530
00:19:27,310 --> 00:19:29,890
the, the optimism around that drug might not
531
00:19:29,890 --> 00:19:31,930
be where you might imagine it to be
532
00:19:31,930 --> 00:19:33,210
for one of the best selling drugs of
533
00:19:33,210 --> 00:19:33,730
all time.
534
00:19:34,610 --> 00:19:36,950
Uh, Chevron is an oil and gas major.
535
00:19:37,130 --> 00:19:38,810
It's very, very highly cyclical.
536
00:19:38,950 --> 00:19:40,410
It might grow for a little bit, but
537
00:19:40,410 --> 00:19:42,030
we are, we know that cyclical is not
538
00:19:42,030 --> 00:19:42,450
consistent.
539
00:19:42,970 --> 00:19:44,290
Um, so it's not going to get up,
540
00:19:44,350 --> 00:19:47,130
you know, a nice valuation for that reason.
541
00:19:47,130 --> 00:19:50,930
Um, you know, McDonald's is, it's interesting.
542
00:19:51,230 --> 00:19:52,910
Uh, there's been times when I've thought about
543
00:19:52,910 --> 00:19:53,750
pulling the trigger there.
544
00:19:53,870 --> 00:19:55,730
Uh, there's certainly, it's certainly consistent.
545
00:19:56,750 --> 00:20:00,850
Um, you know, they've had some interesting history
546
00:20:00,850 --> 00:20:03,370
with their CEOs, uh, too much turnover for,
547
00:20:03,470 --> 00:20:05,710
for my, for my taste, uh, which is
548
00:20:05,710 --> 00:20:06,890
part of the reason why we stayed away.
549
00:20:07,510 --> 00:20:10,090
Procter and Gamble, again, very consistent, but you're
550
00:20:10,090 --> 00:20:11,970
probably only looking at three, 4% growth
551
00:20:11,970 --> 00:20:13,810
trades at over 30 times earnings.
552
00:20:13,890 --> 00:20:16,390
The last time I checked, I'm not, through
553
00:20:16,390 --> 00:20:22,250
some, uh, uh, revisions and, uh, they've had
554
00:20:22,250 --> 00:20:22,950
some iterations.
555
00:20:22,970 --> 00:20:25,030
Anything, anything interesting happening there?
556
00:20:25,410 --> 00:20:27,090
I mean, it's been a while since I
557
00:20:27,090 --> 00:20:29,830
did a deep dive on IBM, but to
558
00:20:29,830 --> 00:20:32,270
me, they should be, they should be able
559
00:20:32,270 --> 00:20:33,790
to come up with something, you know, that,
560
00:20:33,790 --> 00:20:36,010
that could be interesting because if you think
561
00:20:36,010 --> 00:20:38,490
about we're in the age of artificial intelligence
562
00:20:38,490 --> 00:20:39,110
here, right.
563
00:20:39,210 --> 00:20:40,410
And who came up with Watson?
564
00:20:40,590 --> 00:20:42,510
Does anybody ever watch Watson on?
565
00:20:42,510 --> 00:20:42,790
Yeah.
566
00:20:43,810 --> 00:20:46,190
Um, I, I was always amazed at how
567
00:20:46,190 --> 00:20:48,750
that kind of disappeared into, you know, nothingness
568
00:20:48,750 --> 00:20:51,270
and never really found any, um, pretty common
569
00:20:51,270 --> 00:20:53,990
in the business, in the business cycle, development
570
00:20:53,990 --> 00:20:54,570
cycle, right?
571
00:20:54,590 --> 00:20:56,650
The first to have the idea isn't usually
572
00:20:56,650 --> 00:20:58,030
the one who makes all the money.
573
00:20:58,410 --> 00:20:58,830
Right.
574
00:20:58,910 --> 00:21:00,490
You know, it's like that Gartner hype cycle
575
00:21:00,490 --> 00:21:00,770
thing.
576
00:21:00,850 --> 00:21:01,990
Have you ever seen that chart?
577
00:21:02,090 --> 00:21:04,250
So it's pretty interesting, interesting chart.
578
00:21:04,310 --> 00:21:06,070
I like to lay it over the.com
579
00:21:06,070 --> 00:21:06,330
boom.
580
00:21:06,430 --> 00:21:07,930
I think that's, you know, fascinating.
581
00:21:08,330 --> 00:21:10,170
I don't get much activity on my MySpace
582
00:21:10,170 --> 00:21:11,050
account anymore.
583
00:21:11,190 --> 00:21:11,590
I don't know.
584
00:21:12,930 --> 00:21:13,350
Right.
585
00:21:14,170 --> 00:21:15,310
I mean, there's a lot of things like
586
00:21:15,310 --> 00:21:15,530
that.
587
00:21:17,170 --> 00:21:19,250
And now, you know, Cisco, one of the
588
00:21:19,250 --> 00:21:20,850
interesting things about this, and I was actually
589
00:21:20,850 --> 00:21:24,050
talking about this, um, over this past weekend
590
00:21:24,050 --> 00:21:27,170
with somebody, uh, you know, I was basically
591
00:21:27,170 --> 00:21:28,630
asked, like, can a stock go down because
592
00:21:28,630 --> 00:21:29,510
it's priced too high?
593
00:21:29,510 --> 00:21:30,970
And I go, do you know that Cisco
594
00:21:30,970 --> 00:21:33,230
has never made its 2000 high again in
595
00:21:33,230 --> 00:21:35,130
the last 25 years, despite it's, you know,
596
00:21:35,130 --> 00:21:37,390
continue to grow, uh, and be a viable
597
00:21:37,390 --> 00:21:38,150
organization.
598
00:21:39,190 --> 00:21:41,670
So, um, there's nothing here that I'm excited
599
00:21:41,670 --> 00:21:41,990
about.
600
00:21:41,990 --> 00:21:43,870
Uh, there's nothing here that I own anymore,
601
00:21:43,990 --> 00:21:44,910
you know, for disclosure.
602
00:21:45,350 --> 00:21:47,890
Um, so, you know, take that for what
603
00:21:47,890 --> 00:21:49,810
it is, but you know, the dogs of
604
00:21:49,810 --> 00:21:53,590
the Dow, uh, in 2024, if I'm looking
605
00:21:53,590 --> 00:21:56,250
at this article from, uh, investing.com only
606
00:21:56,250 --> 00:21:58,750
did 2.5, 3% in 2024.
607
00:21:59,950 --> 00:22:01,870
Um, I don't know, that's not too impressive
608
00:22:01,870 --> 00:22:03,210
in a, in a year with the S
609
00:22:03,210 --> 00:22:04,730
&P 500 to 25%.
610
00:22:04,730 --> 00:22:07,330
So, um, you know, that's kind of my
611
00:22:07,330 --> 00:22:08,530
take on, on these stocks.
612
00:22:08,570 --> 00:22:10,930
They're, they're kind of old, they're mature.
613
00:22:10,930 --> 00:22:14,290
Um, they might, uh, they're, they're cyclical.
614
00:22:14,710 --> 00:22:18,090
Um, you know, they might surprise you, but,
615
00:22:18,170 --> 00:22:21,270
uh, I, I wouldn't, they don't, they don't
616
00:22:21,270 --> 00:22:23,170
check my boxes of consistency and growth.
617
00:22:23,690 --> 00:22:26,150
I don't disagree with anything Brian's saying.
618
00:22:26,410 --> 00:22:28,890
Um, but I do, I, I do have
619
00:22:28,890 --> 00:22:31,050
a question for Chris and Brian here.
620
00:22:31,050 --> 00:22:32,910
So I think one of the reasons that,
621
00:22:32,970 --> 00:22:35,510
uh, the dogs of the Dow maybe less
622
00:22:35,510 --> 00:22:37,210
than used to be, but is attractive to
623
00:22:37,210 --> 00:22:40,050
people because they want to own a significant
624
00:22:40,050 --> 00:22:43,750
number of investors, savers want to own individual
625
00:22:43,750 --> 00:22:44,150
stocks.
626
00:22:44,150 --> 00:22:46,170
They'd like owning individual stocks.
627
00:22:46,710 --> 00:22:49,350
Um, and how can they do that?
628
00:22:49,410 --> 00:22:51,910
Are they just going to randomly pick companies
629
00:22:51,910 --> 00:22:53,290
that they know and do a little research
630
00:22:53,290 --> 00:22:54,170
and buy them individually?
631
00:22:54,350 --> 00:22:56,030
This is a strategy that at least has
632
00:22:56,030 --> 00:22:57,170
a theory behind it.
633
00:22:57,410 --> 00:23:01,470
It's in companies that are, you know, known
634
00:23:01,470 --> 00:23:03,790
and there's information available about it, I think
635
00:23:03,790 --> 00:23:06,190
that's the attractiveness to some people to maybe
636
00:23:06,190 --> 00:23:09,230
employee, uh, dogs of the Dow strategy.
637
00:23:09,230 --> 00:23:11,830
And they, because they want to own individual
638
00:23:11,830 --> 00:23:13,330
stocks and they really don't know how to
639
00:23:13,330 --> 00:23:13,950
approach it.
640
00:23:14,450 --> 00:23:17,030
Um, if you have a client framework, if
641
00:23:17,030 --> 00:23:18,410
you have a client that comes in and
642
00:23:18,410 --> 00:23:20,810
says, I'd love, maybe they have a portfolio
643
00:23:20,810 --> 00:23:23,610
that they're bringing in and it's individual stocks
644
00:23:23,610 --> 00:23:25,490
and they want to own them, what's, what's
645
00:23:25,490 --> 00:23:28,290
the best advice for people who, you know,
646
00:23:28,310 --> 00:23:30,030
maybe have the assets that they can afford
647
00:23:30,030 --> 00:23:31,930
the risk of owning some individual stocks.
648
00:23:31,990 --> 00:23:33,410
How, how should they approach that?
649
00:23:36,160 --> 00:23:37,140
Do you want to take that Chris?
650
00:23:37,200 --> 00:23:38,000
You want me to run with it?
651
00:23:38,000 --> 00:23:38,820
Yeah, go for it.
652
00:23:38,880 --> 00:23:39,540
I'm going to let you.
653
00:23:41,460 --> 00:23:43,900
Oh, well, you know, I, I, uh, we
654
00:23:43,900 --> 00:23:45,240
have a portfolio of stocks.
655
00:23:45,340 --> 00:23:47,620
It's, it's between, uh, you know, 30 and
656
00:23:47,620 --> 00:23:48,320
40 stocks.
657
00:23:48,320 --> 00:23:50,080
It rarely ever gets as high as 40
658
00:23:50,080 --> 00:23:51,980
stocks because we like to keep it concentrated.
659
00:23:52,220 --> 00:23:53,080
Uh, why do we like to keep it
660
00:23:53,080 --> 00:23:53,440
concentrated?
661
00:23:53,560 --> 00:23:55,320
There's not a ton of stocks that, uh,
662
00:23:55,320 --> 00:23:55,740
we love.
663
00:23:56,040 --> 00:23:58,920
Um, and we want to have good allocations
664
00:23:58,920 --> 00:24:01,100
to, to the stocks that, uh, we really
665
00:24:01,100 --> 00:24:01,400
like.
666
00:24:02,000 --> 00:24:04,380
So, you know, I think my, my first
667
00:24:04,380 --> 00:24:07,020
thought on this, uh, you know, find somebody
668
00:24:07,020 --> 00:24:10,000
that you trust, uh, to, uh, invest, uh,
669
00:24:10,000 --> 00:24:12,140
logically in a, in a more concentrated portfolio,
670
00:24:12,140 --> 00:24:13,820
because if you're not going to do a
671
00:24:13,820 --> 00:24:15,640
more concentrated portfolio, you might as well, why
672
00:24:15,640 --> 00:24:17,180
do we diversify through it, through an ETF?
673
00:24:17,340 --> 00:24:18,260
That's, that's my position.
674
00:24:18,360 --> 00:24:19,420
You're probably not going to perform.
675
00:24:19,780 --> 00:24:21,080
Uh, one of the things about the dogs
676
00:24:21,080 --> 00:24:22,680
and the Dow is it's concentrated, right?
677
00:24:22,680 --> 00:24:24,000
It's only, it's only 10 stocks.
678
00:24:24,060 --> 00:24:25,320
I mean, it's not that it's not the
679
00:24:25,320 --> 00:24:26,600
10 stocks that I would pick, but I
680
00:24:26,600 --> 00:24:28,240
would say it checks those boxes.
681
00:24:29,240 --> 00:24:31,080
Um, the second thing that you need to
682
00:24:31,080 --> 00:24:33,140
do when you're looking at, uh, individual stocks
683
00:24:33,140 --> 00:24:34,480
is make sure you're diversified.
684
00:24:34,480 --> 00:24:36,300
I could argue that the dogs, the Dow
685
00:24:36,300 --> 00:24:38,900
isn't extremely widely diversified.
686
00:24:39,360 --> 00:24:40,460
It's diversified enough.
687
00:24:40,660 --> 00:24:42,420
You know, there's drug stocks, there's some tech
688
00:24:42,420 --> 00:24:44,560
stocks, but they're kind of old, old tech
689
00:24:44,560 --> 00:24:44,880
stocks.
690
00:24:45,420 --> 00:24:47,240
Uh, there's a material stock.
691
00:24:47,440 --> 00:24:48,940
Um, you know, it's, it's fine.
692
00:24:49,200 --> 00:24:52,480
Kind of a enough, enough, uh, there's consumer
693
00:24:52,480 --> 00:24:52,840
staples.
694
00:24:53,000 --> 00:24:55,300
There's kind of enough, uh, diversification.
695
00:24:56,000 --> 00:24:58,940
Um, what, what the dogs, the Dow is
696
00:24:58,940 --> 00:25:00,280
missing is growth, right?
697
00:25:00,280 --> 00:25:03,100
We, we want to find, if I'm going
698
00:25:03,100 --> 00:25:04,700
to pick on one thing that I really
699
00:25:04,700 --> 00:25:06,340
think we want to find business models that
700
00:25:06,340 --> 00:25:08,240
are going to continue to grow well into
701
00:25:08,240 --> 00:25:08,700
the future.
702
00:25:09,060 --> 00:25:13,180
Um, and that's hard to find.
703
00:25:13,200 --> 00:25:15,100
It's really easy to find companies that have
704
00:25:15,100 --> 00:25:15,700
grown recently.
705
00:25:15,880 --> 00:25:17,260
Uh, they get a lot of play on
706
00:25:17,260 --> 00:25:17,620
CNBC.
707
00:25:17,720 --> 00:25:19,840
Usually their stock market, uh, stock prices are
708
00:25:19,840 --> 00:25:20,740
doing really, really well.
709
00:25:21,260 --> 00:25:23,440
Um, and there can be very tempting to
710
00:25:23,440 --> 00:25:23,740
buy.
711
00:25:24,020 --> 00:25:26,400
Uh, it's really hard to find stocks that,
712
00:25:26,480 --> 00:25:28,820
uh, are going to grow consistently for, for
713
00:25:28,820 --> 00:25:29,340
a long time.
714
00:25:29,340 --> 00:25:31,000
And sometimes, and this is a good thing.
715
00:25:31,360 --> 00:25:33,140
Sometimes they're in very boring sectors.
716
00:25:33,460 --> 00:25:35,060
Sometimes they're in exciting sectors.
717
00:25:35,160 --> 00:25:36,680
And the good thing about this is that's
718
00:25:36,680 --> 00:25:38,140
a great way that we can get diversification.
719
00:25:38,640 --> 00:25:40,100
I will take a boring sector.
720
00:25:40,100 --> 00:25:41,560
That's getting some good growth.
721
00:25:41,680 --> 00:25:42,640
I'll give you an example.
722
00:25:42,800 --> 00:25:45,320
I know consumer staples that are growing at,
723
00:25:45,340 --> 00:25:46,700
uh, 8% a year.
724
00:25:47,380 --> 00:25:50,320
Um, they're expensive, but, uh, you know, that's,
725
00:25:50,400 --> 00:25:52,300
that's not bad growth for a consumer staple,
726
00:25:52,300 --> 00:25:52,600
right?
727
00:25:52,600 --> 00:25:54,160
It's not a hundred percent growth.
728
00:25:54,240 --> 00:25:55,380
It's not 50% growth.
729
00:25:55,880 --> 00:25:58,700
Um, but it's, it's, it's fairly good.
730
00:25:58,700 --> 00:26:01,400
Uh, you know, there are banks are reporting
731
00:26:01,400 --> 00:26:01,900
this week.
732
00:26:02,440 --> 00:26:03,840
They had blowout earnings.
733
00:26:04,220 --> 00:26:06,760
They don't always have blowout earnings, but some
734
00:26:06,760 --> 00:26:07,720
of the best banks do.
735
00:26:07,800 --> 00:26:10,020
I typically do do very well.
736
00:26:10,080 --> 00:26:11,480
And what do I look for there to
737
00:26:11,480 --> 00:26:12,140
get consistency?
738
00:26:12,660 --> 00:26:14,980
Uh, I look for a diversified bank with
739
00:26:14,980 --> 00:26:15,600
a good manager.
740
00:26:15,760 --> 00:26:17,240
So what do I mean by diversified?
741
00:26:17,340 --> 00:26:19,260
Usually they have custody, they have investment management,
742
00:26:19,340 --> 00:26:20,320
they have investment banking.
743
00:26:20,840 --> 00:26:22,940
Um, and they have, uh, you know, investment
744
00:26:22,940 --> 00:26:24,840
banking can have sales and trading and can
745
00:26:24,840 --> 00:26:28,000
have, um, you know, uh, uh, advisory businesses,
746
00:26:28,000 --> 00:26:30,740
investment manager, and then it has conventional banking
747
00:26:30,740 --> 00:26:31,120
as well.
748
00:26:31,300 --> 00:26:33,320
So, um, those are the four things I'm
749
00:26:33,320 --> 00:26:33,940
looking for.
750
00:26:34,180 --> 00:26:35,800
Uh, not, not every bank has that.
751
00:26:35,860 --> 00:26:38,140
For example, Goldman Sachs is very heavily indexed
752
00:26:38,140 --> 00:26:39,280
towards investment banking.
753
00:26:39,280 --> 00:26:40,760
So, so they can be more cyclical.
754
00:26:41,000 --> 00:26:43,660
Uh, JP Morgan has, you know, all four,
755
00:26:43,940 --> 00:26:45,580
all four categories that I'm looking for.
756
00:26:46,760 --> 00:26:48,340
Um, but they're also growing.
757
00:26:48,420 --> 00:26:50,380
I mean, their, their, their growth, their earnings
758
00:26:50,380 --> 00:26:51,960
increased 50% year over year.
759
00:26:52,800 --> 00:26:54,440
They've had the same CEO for quite a
760
00:26:54,440 --> 00:26:54,900
long time.
761
00:26:54,900 --> 00:26:58,120
Um, you know, that's consistency, consistency with growth.
762
00:26:58,260 --> 00:27:00,240
You might find it in a place like
763
00:27:00,240 --> 00:27:03,260
the utility sector, which, you know, typically is
764
00:27:03,260 --> 00:27:04,800
the head one to 2% growth, but
765
00:27:04,800 --> 00:27:06,320
now is expected to have seven to 8
766
00:27:06,320 --> 00:27:08,400
% annualized growth for the foreseeable future.
767
00:27:08,700 --> 00:27:10,600
You know, seven to 8% growth.
768
00:27:10,740 --> 00:27:13,520
Again, it's not, it's not mind boggling growth,
769
00:27:13,580 --> 00:27:15,280
but it's 4% higher than GDP.
770
00:27:16,080 --> 00:27:18,460
Um, it's 3% higher than nominal GDP.
771
00:27:18,860 --> 00:27:20,200
Uh, so it's not bad.
772
00:27:20,200 --> 00:27:21,820
And if you can get those at a
773
00:27:21,820 --> 00:27:24,560
decent price, uh, plus, you know, a decent
774
00:27:24,560 --> 00:27:27,580
dividend yields, you, you, you could reasonably expect,
775
00:27:27,720 --> 00:27:30,040
you know, 10% on that, on a
776
00:27:30,040 --> 00:27:30,780
company like that.
777
00:27:31,340 --> 00:27:33,520
Um, then there can be like staples, like
778
00:27:33,520 --> 00:27:37,840
a Costco or, um, which again, unexciting, but
779
00:27:37,840 --> 00:27:40,480
they can raise prices on their membership fees,
780
00:27:40,480 --> 00:27:42,320
uh, which is cashflow to the bottom line.
781
00:27:42,780 --> 00:27:45,380
Um, and you know, they have over a
782
00:27:45,380 --> 00:27:46,780
90% retention rate.
783
00:27:46,860 --> 00:27:49,160
So there's things like that, that are consistent,
784
00:27:49,160 --> 00:27:51,940
that have steady growth, that are in a
785
00:27:51,940 --> 00:27:54,080
wide variety of sectors that have proven business
786
00:27:54,080 --> 00:27:56,440
models, um, that you can have a fair
787
00:27:56,440 --> 00:27:58,240
amount of confidence that are, is going to
788
00:27:58,240 --> 00:28:01,120
be, um, consistent for, uh, the foreseeable future.
789
00:28:02,060 --> 00:28:04,100
One of the things I wanted to include
790
00:28:04,100 --> 00:28:07,620
in this conversation, um, is something that I
791
00:28:07,620 --> 00:28:10,000
know it's not the way, uh, Brian thinks
792
00:28:10,000 --> 00:28:16,000
about, uh, investing, but it we'd talk about,
793
00:28:16,020 --> 00:28:19,560
uh, uh, investing, we'd talk about, uh, style
794
00:28:19,560 --> 00:28:24,360
boxes and, uh, growth and value and this
795
00:28:24,360 --> 00:28:29,480
notion of, um, uh, historically, you know, you'd
796
00:28:29,480 --> 00:28:32,600
have this battle between growth and value and,
797
00:28:32,740 --> 00:28:35,320
you know, alternate between the two.
798
00:28:35,320 --> 00:28:37,880
And we've had this long run where growth
799
00:28:37,880 --> 00:28:40,120
companies generally have done better.
800
00:28:40,720 --> 00:28:42,940
Um, but you know, the dogs, the Dow
801
00:28:42,940 --> 00:28:45,180
represents more of that value end of the
802
00:28:45,180 --> 00:28:45,580
spectrum.
803
00:28:46,200 --> 00:28:49,460
Um, but, uh, you know, I, I sometimes,
804
00:28:49,700 --> 00:28:51,240
uh, you know, I know the way people
805
00:28:51,240 --> 00:28:53,860
think about value today is different.
806
00:28:53,860 --> 00:28:55,760
It's not necessarily the way we used to
807
00:28:55,760 --> 00:28:56,760
talk about it in the past.
808
00:28:56,760 --> 00:28:59,860
When you think about utilities and, um, you'd
809
00:28:59,860 --> 00:29:03,420
think about, uh, dividend payers and, and things
810
00:29:03,420 --> 00:29:03,960
like that.
811
00:29:04,320 --> 00:29:06,440
Um, and the way we talk about growth
812
00:29:06,440 --> 00:29:08,600
is not necessarily the same, you know, I
813
00:29:08,600 --> 00:29:11,720
perhaps it's more granular, it's more nuanced.
814
00:29:12,140 --> 00:29:17,680
It's, uh, it's not necessarily industry oriented, uh,
815
00:29:17,760 --> 00:29:19,340
you know, as much, uh, as it is
816
00:29:19,340 --> 00:29:23,040
company, uh, specific, but, um, Brian, uh, you
817
00:29:23,040 --> 00:29:25,080
know, I, I'll give you a chance to,
818
00:29:25,140 --> 00:29:26,840
to talk about that, but I, I do
819
00:29:26,840 --> 00:29:29,460
think that, you know, investors still sometimes think
820
00:29:29,460 --> 00:29:31,340
about the notion of, you know, will there
821
00:29:31,340 --> 00:29:34,880
be a, a cyclical, you know, element of
822
00:29:34,880 --> 00:29:38,180
the way the economy moves and whether industries
823
00:29:38,180 --> 00:29:41,200
will be benefited by different, you know, industry
824
00:29:41,200 --> 00:29:44,040
impact in the, in the economic cycle and,
825
00:29:44,180 --> 00:29:47,520
um, growth and value kind of feeds into
826
00:29:47,520 --> 00:29:50,340
that mindset, um, somewhat.
827
00:29:51,060 --> 00:29:53,340
Uh, do you want to talk at all
828
00:29:53,340 --> 00:29:56,880
about that, uh, notion of, uh, how investors
829
00:29:56,880 --> 00:30:01,860
might, uh, maybe either correctly or incorrectly think
830
00:30:01,860 --> 00:30:03,580
about growth and value and how it should
831
00:30:03,580 --> 00:30:05,780
be represented in their portfolio?
832
00:30:07,520 --> 00:30:11,480
Yeah, I think, um, I think it's a
833
00:30:11,480 --> 00:30:12,820
big mistake to spend a lot of time
834
00:30:12,820 --> 00:30:15,140
thinking about the, the, the style boxes and
835
00:30:15,140 --> 00:30:17,480
what, especially when you're buying individual stocks, maybe
836
00:30:17,480 --> 00:30:20,120
not necessarily on an ETF mutual funds, um,
837
00:30:20,120 --> 00:30:22,440
allocation, it might help you get diversified, uh,
838
00:30:22,440 --> 00:30:22,980
in a way.
839
00:30:23,200 --> 00:30:24,740
Um, you know, if you're doing it from
840
00:30:24,740 --> 00:30:27,320
that perspective, but if you're looking for individual
841
00:30:27,320 --> 00:30:28,980
stocks, as far as I can tell, and
842
00:30:28,980 --> 00:30:30,600
you correct me if I'm wrong, but the
843
00:30:30,600 --> 00:30:33,020
biggest methodology used to determine whether a stock
844
00:30:33,020 --> 00:30:36,240
is growth or value is the price to
845
00:30:36,240 --> 00:30:36,840
earnings ratio.
846
00:30:38,460 --> 00:30:40,140
Um, would you agree with that?
847
00:30:40,400 --> 00:30:41,060
I think that's true.
848
00:30:41,660 --> 00:30:43,000
I think that's true for the most part.
849
00:30:43,160 --> 00:30:45,660
Um, and I don't like the price earnings
850
00:30:45,660 --> 00:30:46,000
ratio.
851
00:30:46,320 --> 00:30:48,880
Uh, so here's, here's why I don't like
852
00:30:48,880 --> 00:30:49,680
the price earnings ratio.
853
00:30:49,740 --> 00:30:52,240
It only takes into account one year of,
854
00:30:52,300 --> 00:30:52,880
of earnings.
855
00:30:53,240 --> 00:30:55,100
Uh, and it only takes into account the
856
00:30:55,100 --> 00:30:55,560
current price.
857
00:30:55,560 --> 00:30:57,900
So, uh, if you have a trailing PE
858
00:30:57,900 --> 00:31:00,120
ratio, it says, you know, what's the price
859
00:31:00,120 --> 00:31:01,840
today versus the earnings that they made in
860
00:31:01,840 --> 00:31:03,860
the prior 12 months, if you're looking at
861
00:31:03,860 --> 00:31:05,620
the forward earnings ratio, you're saying what's the
862
00:31:05,620 --> 00:31:08,560
price today, uh, versus the earnings, um, that
863
00:31:08,560 --> 00:31:10,120
are expected over the next 12 months.
864
00:31:11,100 --> 00:31:14,300
So there's, there's some obvious problems with this,
865
00:31:14,380 --> 00:31:14,540
right?
866
00:31:14,560 --> 00:31:17,100
We can, a company might've had a great
867
00:31:17,100 --> 00:31:22,080
2024, uh, and they, they would have a
868
00:31:22,080 --> 00:31:25,220
very, you know, relatively low PE ratio because
869
00:31:25,220 --> 00:31:26,180
they had a great 2024.
870
00:31:26,600 --> 00:31:28,480
I mean, the market might be saying, Hey,
871
00:31:28,540 --> 00:31:30,240
it was a one-time thing, right?
872
00:31:30,300 --> 00:31:31,900
That it was a commodity cycle.
873
00:31:31,900 --> 00:31:33,680
For example, you see this sometimes with like
874
00:31:33,680 --> 00:31:34,260
steel companies.
875
00:31:34,420 --> 00:31:35,880
One time I remember I saw us steel
876
00:31:35,880 --> 00:31:37,240
had a PE ratio of one.
877
00:31:37,880 --> 00:31:39,340
Um, why did that have a PE ratio
878
00:31:39,340 --> 00:31:39,640
of one?
879
00:31:39,680 --> 00:31:41,120
Because it was expected to lose money for
880
00:31:41,120 --> 00:31:42,020
the foreseeable future.
881
00:31:42,620 --> 00:31:45,120
Um, that's not, that's not value to me.
882
00:31:45,160 --> 00:31:47,420
Uh, that's a, that's a dying organization.
883
00:31:47,720 --> 00:31:50,100
Um, and that would be bucketed as, as
884
00:31:50,100 --> 00:31:50,540
value.
885
00:31:50,540 --> 00:31:53,060
Uh, and to me, value is what you
886
00:31:53,060 --> 00:31:54,880
get and price is what you pay.
887
00:31:54,960 --> 00:31:58,360
Um, that'll, that'll adage and, you know, growth
888
00:31:58,360 --> 00:32:00,100
needs to be considered in that formula.
889
00:32:00,340 --> 00:32:03,580
So, um, you know, one of the recent
890
00:32:03,580 --> 00:32:06,180
changes that we made in our discretionary portfolios
891
00:32:06,180 --> 00:32:08,320
is we sold Verizon, which is on the,
892
00:32:08,400 --> 00:32:09,280
in the dogs of the Dow.
893
00:32:09,940 --> 00:32:11,360
Uh, and we bought Uber.
894
00:32:12,200 --> 00:32:14,520
Uh, and if we're going to look at
895
00:32:14,520 --> 00:32:18,340
expected return, um, we already talked about how
896
00:32:18,340 --> 00:32:19,400
Verizon is expected.
897
00:32:19,500 --> 00:32:20,300
Let's call it 7%.
898
00:32:20,300 --> 00:32:21,140
Let's just round up.
899
00:32:21,280 --> 00:32:22,740
They're expected to have 7% growth.
900
00:32:23,920 --> 00:32:26,760
Uh, you know, Uber is growing, you know,
901
00:32:26,820 --> 00:32:31,800
historically the last couple quarters between the 15
902
00:32:31,800 --> 00:32:35,020
and 20% range on, on revenue, uh,
903
00:32:35,040 --> 00:32:39,040
and they're, they're just became profitable and they're,
904
00:32:39,060 --> 00:32:42,300
they're, you know, clocking some, some serious revenue
905
00:32:42,300 --> 00:32:42,680
growth.
906
00:32:42,840 --> 00:32:44,640
The numbers are in the thousands, so it's
907
00:32:44,640 --> 00:32:45,480
not even worth quoting.
908
00:32:45,980 --> 00:32:48,460
Um, and the PE ratio is around 30.
909
00:32:49,940 --> 00:32:52,240
So that you have a question of, okay.
910
00:32:52,880 --> 00:32:55,000
On the face of it, it, you know,
911
00:32:55,140 --> 00:32:56,140
Uber doesn't pay a dividend.
912
00:32:56,540 --> 00:32:59,240
Uh, they did, they did start a buyback.
913
00:32:59,340 --> 00:33:00,160
So if you're just going to look at
914
00:33:00,160 --> 00:33:01,880
that metric, you're going to say Uber is
915
00:33:01,880 --> 00:33:04,640
not very, um, it's not a good value
916
00:33:04,640 --> 00:33:06,780
versus Verizon, but it basically, if you look
917
00:33:06,780 --> 00:33:09,580
at any other metric, um, including growth, including,
918
00:33:09,660 --> 00:33:12,480
you know, uh, expected future cash flows, uh,
919
00:33:12,500 --> 00:33:14,760
it's, it's a much better value, um, than
920
00:33:14,760 --> 00:33:15,040
Verizon.
921
00:33:15,040 --> 00:33:16,940
At least in my opinion, I would expect
922
00:33:16,940 --> 00:33:20,220
a company growing at, uh, you know, close
923
00:33:20,220 --> 00:33:21,860
to a PEG ratio of one, let's call
924
00:33:21,860 --> 00:33:24,680
it, or, or some metrics, you know, PEG
925
00:33:24,680 --> 00:33:28,320
ratio well below one, um, would, uh, would
926
00:33:28,320 --> 00:33:31,180
have an expected return much greater than, uh,
927
00:33:31,500 --> 00:33:33,220
you know, the dividend yield of Verizon.
928
00:33:34,280 --> 00:33:36,200
And, you know, that's, that's what we're hoping
929
00:33:36,200 --> 00:33:36,500
for.
930
00:33:36,600 --> 00:33:39,840
And ultimately I think that stocks do reach
931
00:33:39,840 --> 00:33:40,280
their value.
932
00:33:40,340 --> 00:33:43,060
I think the price comes to, um, close
933
00:33:43,060 --> 00:33:44,820
to what you get in the long term,
934
00:33:44,860 --> 00:33:46,400
not necessarily in the short term, but in
935
00:33:46,400 --> 00:33:47,480
the long term, I think that's true.
936
00:33:48,360 --> 00:33:49,820
So, you know, that's a good example of
937
00:33:49,820 --> 00:33:51,580
how I think Uber is a better value,
938
00:33:51,740 --> 00:33:53,660
even though it's a quote unquote growth stock
939
00:33:53,660 --> 00:33:57,640
than maybe the conventional company Verizon, which is
940
00:33:57,640 --> 00:34:00,320
probably bucketed as a, as a value stock.
941
00:34:01,280 --> 00:34:01,760
Thanks.
942
00:34:02,120 --> 00:34:04,660
I want to take a moment to just
943
00:34:04,660 --> 00:34:08,659
mention for compliance, uh, mention of specific stocks
944
00:34:08,659 --> 00:34:10,920
is not a recommendation or offer.
945
00:34:11,480 --> 00:34:14,080
Individual investors should do their own due diligence
946
00:34:14,080 --> 00:34:18,719
to determine opportunities for, for their own circumstances
947
00:34:18,719 --> 00:34:22,400
and, uh, always consult your advisor, or if
948
00:34:22,400 --> 00:34:24,179
you need help with that, you can certainly
949
00:34:24,179 --> 00:34:25,020
reach out to us.
950
00:34:25,980 --> 00:34:28,219
So, uh, this was a good conversation.
951
00:34:28,219 --> 00:34:29,060
Thank you guys.
952
00:34:29,139 --> 00:34:29,900
I appreciate it.
953
00:34:29,900 --> 00:34:32,300
And, uh, anything to add, anybody want to
954
00:34:32,300 --> 00:34:34,900
add any additional thoughts before we wind down?
955
00:34:36,620 --> 00:34:37,760
No, thank you, Brian.
956
00:34:37,900 --> 00:34:38,040
Great.
957
00:34:38,040 --> 00:34:40,219
I just wanted to tag on at the
958
00:34:40,219 --> 00:34:40,480
end.
959
00:34:41,460 --> 00:34:43,139
Um, you know, I, I did a brief
960
00:34:43,139 --> 00:34:45,820
synopsis on, uh, on Uber and Verizon in
961
00:34:45,820 --> 00:34:47,620
there, but one of the things I think
962
00:34:47,620 --> 00:34:50,880
is important is the longevity of these companies,
963
00:34:50,880 --> 00:34:51,120
right?
964
00:34:51,120 --> 00:34:52,880
We, we want consistency with that growth.
965
00:34:52,980 --> 00:34:55,159
We've established that Uber has significantly more growth,
966
00:34:55,260 --> 00:34:56,860
but do I think it's going to last
967
00:34:56,860 --> 00:34:57,780
longer than Verizon?
968
00:34:57,860 --> 00:35:00,080
And this is why Uber is trading so
969
00:35:00,080 --> 00:35:00,820
inexpensively.
970
00:35:01,040 --> 00:35:03,740
There is a big debate, uh, about what
971
00:35:03,740 --> 00:35:05,880
is going to happen when automated cars come
972
00:35:05,880 --> 00:35:06,040
in.
973
00:35:06,640 --> 00:35:08,340
I, I think it's a very fair and
974
00:35:08,340 --> 00:35:08,860
healthy debate.
975
00:35:09,180 --> 00:35:11,720
Um, what, what I, what my position is
976
00:35:11,720 --> 00:35:12,720
probably going to be is they're going to
977
00:35:12,720 --> 00:35:14,680
make a lot of, uh, continued agreements with
978
00:35:14,680 --> 00:35:17,320
companies that they've made with Waymo, with Waymo.
979
00:35:17,420 --> 00:35:18,980
They basically said, you can have access to
980
00:35:18,980 --> 00:35:19,520
our platform.
981
00:35:19,560 --> 00:35:20,780
If we can have access to your cars,
982
00:35:20,980 --> 00:35:22,160
they have a partnership.
983
00:35:22,340 --> 00:35:24,040
I think that's going to continue with most
984
00:35:24,040 --> 00:35:25,820
autonomous driving, um, which I think is an
985
00:35:25,820 --> 00:35:26,620
exciting opportunity.
986
00:35:26,680 --> 00:35:27,040
Why?
987
00:35:27,160 --> 00:35:28,180
Cause they have the network effects.
988
00:35:28,220 --> 00:35:29,380
They have the people who are already on
989
00:35:29,380 --> 00:35:29,700
the app.
990
00:35:30,180 --> 00:35:34,040
Why try to recreate that, um, community when
991
00:35:34,040 --> 00:35:35,320
it's already there, when you can just go
992
00:35:35,320 --> 00:35:36,400
into a partnership with Uber.
993
00:35:36,680 --> 00:35:37,840
So that's my position, right?
994
00:35:37,860 --> 00:35:39,080
So that's why you have to think about
995
00:35:39,080 --> 00:35:40,700
the business model in the longterm.
996
00:35:41,140 --> 00:35:43,960
Now, Verizon, it might seem like, you know,
997
00:35:43,980 --> 00:35:46,040
they have very few competitors, but they have
998
00:35:46,040 --> 00:35:48,180
two very big competitors in AT&T and
999
00:35:48,180 --> 00:35:51,920
T-Mobile, um, along with some, some smaller
1000
00:35:51,920 --> 00:35:52,400
competitors.
1001
00:35:52,980 --> 00:35:55,780
Um, in addition to that, you know, goodbye
1002
00:35:55,780 --> 00:35:57,520
to, uh, linear TV.
1003
00:35:57,620 --> 00:35:59,380
That's not even a business that they're in
1004
00:35:59,380 --> 00:35:59,700
anymore.
1005
00:36:00,140 --> 00:36:02,920
Um, and, uh, hello to Starlink.
1006
00:36:03,260 --> 00:36:05,100
Uh, you know, I don't think that gets
1007
00:36:05,100 --> 00:36:08,080
a lot of, uh, talk yet.
1008
00:36:08,280 --> 00:36:11,540
Uh, but you know, reasonably this is providing
1009
00:36:11,540 --> 00:36:13,320
internet access to places that don't have internet
1010
00:36:13,320 --> 00:36:13,780
access.
1011
00:36:15,440 --> 00:36:18,560
Um, you know, satellite internet hasn't been reliable
1012
00:36:18,560 --> 00:36:20,140
that reliable in the past.
1013
00:36:20,280 --> 00:36:24,660
Uh, but I, I, I have reason to
1014
00:36:24,660 --> 00:36:26,100
believe that that could change.
1015
00:36:26,160 --> 00:36:27,780
I mean, just like everything, things tend to
1016
00:36:27,780 --> 00:36:29,020
get better with time.
1017
00:36:29,020 --> 00:36:32,060
So, um, you know, we get those two
1018
00:36:32,060 --> 00:36:34,040
big competitors and they obviously have, they have
1019
00:36:34,040 --> 00:36:34,580
more competitors.
1020
00:36:34,580 --> 00:36:36,780
They have some businesses that are dying.
1021
00:36:36,980 --> 00:36:38,240
Um, they have a lot of debt.
1022
00:36:38,560 --> 00:36:39,840
Uh, you know, these are, these are all
1023
00:36:39,840 --> 00:36:41,580
things to consider about the longevity of, of
1024
00:36:41,580 --> 00:36:42,340
that business model.
1025
00:36:42,540 --> 00:36:44,080
And I'm not saying that Verizon is going
1026
00:36:44,080 --> 00:36:45,740
to go away anytime soon or anything like
1027
00:36:45,740 --> 00:36:45,980
that.
1028
00:36:45,980 --> 00:36:48,040
I'm just saying if you're going to compare,
1029
00:36:48,260 --> 00:36:50,620
you know, the upstart versus the incumbent, um,
1030
00:36:50,640 --> 00:36:52,060
which in this case we kind of are,
1031
00:36:52,400 --> 00:36:54,140
I think it's a, it's a fair conversation
1032
00:36:54,140 --> 00:36:56,500
or fair, uh, thought experiment to have.
1033
00:36:57,700 --> 00:36:58,080
Good stuff.
1034
00:36:58,740 --> 00:37:00,160
Brian, it's been fun having you on.
1035
00:37:00,260 --> 00:37:01,540
Thanks for joining us today.
1036
00:37:02,220 --> 00:37:02,900
Thanks for having me guys.
1037
00:37:03,040 --> 00:37:04,180
I really, I really enjoy it.
1038
00:37:04,640 --> 00:37:06,760
Before we wrap up, I wanted to, uh,
1039
00:37:06,800 --> 00:37:09,620
wish my mom a happy birthday and, uh,
1040
00:37:09,620 --> 00:37:11,400
for anyone else, if you need any help
1041
00:37:11,400 --> 00:37:14,260
with your financial planning or portfolio management, don't
1042
00:37:14,260 --> 00:37:16,440
hesitate to reach out to us until next
1043
00:37:16,440 --> 00:37:18,060
time, everybody keeps driving for something.
1044
00:37:18,860 --> 00:37:21,140
Thank you for listening to something more with
1045
00:37:21,140 --> 00:37:21,860
Chris Boyd.
1046
00:37:22,120 --> 00:37:24,300
Call us for help, whether it's for financial
1047
00:37:24,300 --> 00:37:28,220
planning or portfolio management, insurance concerns, or those
1048
00:37:28,220 --> 00:37:30,280
quality of life issues that make the money
1049
00:37:30,280 --> 00:37:31,360
matters matter.
1050
00:37:31,720 --> 00:37:33,880
Whatever's on your mind, visit us at something
1051
00:37:33,880 --> 00:37:36,880
more with chrisboyd.com or call us toll
1052
00:37:36,880 --> 00:37:41,860
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1053
00:37:41,960 --> 00:37:45,740
Or send us your questions to amr-info
1054
00:37:45,740 --> 00:37:47,680
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1055
00:37:47,800 --> 00:37:49,800
You're listening to something more with Chris Boyd,
1056
00:37:49,860 --> 00:37:52,420
financial talk show, wealth enhancement, advisory services, and
1057
00:37:52,420 --> 00:37:54,580
Jay Christopher Boyd provide investment advice on an
1058
00:37:54,580 --> 00:37:57,120
individual basis to clients only proper advice depends
1059
00:37:57,120 --> 00:37:58,920
on a complete analysis of all facts and
1060
00:37:58,920 --> 00:37:59,480
circumstances.
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The information given on this program is general
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financial comments and cannot be relied upon as
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00:38:03,580 --> 00:38:05,200
pertaining to your specific situation.
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00:38:05,400 --> 00:38:07,340
Wealth Enhancement Group cannot guarantee that using the
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00:38:07,340 --> 00:38:09,340
information from this show will generate profits or
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00:38:09,340 --> 00:38:10,460
ensure freedom from loss.
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00:38:10,660 --> 00:38:12,820
Listeners should consult their own financial advisors or
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00:38:12,820 --> 00:38:14,920
conduct their own due diligence before making any
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00:38:14,920 --> 00:38:15,680
financial decisions.
