5-5-26 Investing vs Trading - Finding the Balance

And now for something completely different. Forget everything you've been told by others before. I've never heard anybody wake up in the morning and go, mmm, mmm, mmm, mmm. Cheerios are delicious. So, you know. Get ready for the real deal. You know what my wife's favorite cereal is? Still to this day. And I'll catch her in, like, the closet, the pantry. Lucky charms. The full story. Well, they are magically delicious. They are magically. But she'll, like, go in. And she doesn't eat cereal with, like, milk. Yeah. She just sticks her hand in the box, gets him full of the lucky. The snack. Yes. The whole enchilada. That's her snack. It's her own box. Nobody will touch it because she sticks her hand in there. It's money news and information you can use to grow financially healthy, wealthy, and wise. I will disagree with Chad. They said don't go on credit to buy a Girl Scout Thin-Nit Cookies. Totally disagree. That is a need. That is not a want. Now, welcome in The Real Deal, The Real Investment Show with Lance Roberts. Presented by RIA Advisors. And good morning. Welcome to the show. It is Tuesday. Of course, it's Two Dads on Money. John Penn joining me this morning. And so we're going to get into trading versus investing a little bit today. Kind of go through some of those. We've got a lot of questions lately about that. You know, there's a lot of things that go into both sides of those kind of activities. And so we'll kind of discuss those in detail today with you. Of course, you know, if you've got any questions or comments, throw those in the chat. We can certainly try to pick those up as well along the way. So yesterday, markets sold off a little bit on news of reacceleration in Iran, of course, with the Iran crisis. And we talked about yesterday morning that right when we started the show, there was a headline that a U.S. ship had been struck in the Strait of Hormuz. And then a few minutes later, we get a different headline that says that's not the case. But anyway, so markets were all over the place yesterday because we did finish a little bit lower yesterday. And again, not surprising with oil prices back up, concerns about what's happening, you know, this lack of a resolution, so to speak. You know, a lot of this rally was based on getting this situation Iran resolved and, you know, that was going to be fine and, you know, we'd all move forward. Well, that hasn't happened yet. And so markets have become a little bit more concerned about that. And yesterday pulled back. But again, this pullback yesterday, very mild, very orderly by a large measure. Not really what you would expect if there was a lot of concern over what's happening with Iran. Again, when you take a look at what's happening with earnings growth, we've got the largest upgrade in earnings revisions above the historical averages like ever. the the you know we're we're currently tracking about a a very high double digit growth rate in earnings in q1 we're not through the earnings season yet we saw have nvidia to report we have amd today there's gonna be there's still a lot of companies but so far the the growth rate in earnings and corporate profits and revenues has been really pretty astonishing and this is that whole kind of AI business investment infrastructure coming through. We talked a little bit about that yesterday. ISM services, ISM manufacturing have turned up sharply here. That has a historical correlation to returns from the S&P 500. So pretty much the economy seems to be doing okay. Stocks are doing okay because of that. Earnings are doing great. So even though there's these headwinds sitting out there, and again, we wrote about this yesterday, is that we are getting concerned a bit heading into summer because, A, everybody's back to being exceptionally bullish. Markets are overbought and extended. And there's a lot of headwinds coming up. And again, if you didn't read the article yesterday, it's on the website. It's called Market Correction Risk, Why We're Concerned About the Summer of 2026. That's on the website right now, realinvestmentadvice.com. Also, if you follow me on Substack, at Lance Roberts on Substack, I post them there as well. So but if you haven't read that article yet, it's just a good primer of some of the risks that we're facing going into the summer, including Iran, and what's happening there and what the potential outcome for the markets may be. So, you know, again, as we just kind of think through these things, it's a function of just trying to measure and monitor risk. Right now, everything is very bullish. It seems to be right now there's absolutely no reason to be concerned about the markets. Everything's fine. But that's exactly the point where you want to start being a little bit concerned because technically when everybody's very bullish, very exuberant, very complacent, we've got VIX below 17. When you have that type of environment, markets tend to have corrections and that's just something to kind of be thinking about. But again, as we talked about yesterday, having a correction here would not be surprising and it's not going to be that big. We're not going to have some massive drawdown to worry about, but it's something certainly worth paying attention to and managing some risk. So that brings us to what you need to know before the bell this morning. So, sorry, I got distracted by a headline. Coinbase is cutting 14% of their workforce this morning because Bitcoin's not been doing well. So there you go. We've talked about this volume spread before. So this is volume of what's being bought and sold on the S&P 500, right? So the index itself. So this is SPY that we're looking at. And this is kind of the volume where that's traded, both bought and sold, at various price levels. So when you're taking a look at SPYDERS, and that has trading volume on it, that's why we use SPY for this analysis, is that we can see that between really about 6,600 and about 6,900, about 6,850 on the S&P 500, you had just a lot of buying and selling volume. And this was going even previous to the correction that we had. And then coming out of that correction, this is where a big bulk of the volume was. And we talked about this previously, is that when we were having that correction, that we had broken through that big kind of support level where buyers and sellers were, we said there's a lot of trap longs there. And so we're going to potentially see some risks there as we get through that. But the markets came back up through that. You'll notice that volume up at these recent levels has been far, far smaller. So even though the bulk of the buying was in these levels, and this was people getting put back into the markets once the market bottomed and started rallying, people started buying back in here, that volume has dried up here specifically. And that's expected normal, right? Everybody that's going to buy something is probably already bought right now. You're pretty fully invested, et cetera. But what that sets us up for is when we have a correction, we'll have a correction back to this area where we have this cluster of support and then also a cluster of buying and selling right in here. So there was a lot of activity right at these levels. So between that 6800 and 6900 level, that's kind of where I would expect to have a pullback to of some sort. And then that would potentially reset the market. Now we're getting very close to a momentum sell signal here as well. And we're still overbought on a relative strength basis. So again, that's what I'm saying is that there's risk here for a bit of a correction, just kind of a cooling off. Everybody's gotten really, really exuberant here. And again, very optimistic. Everybody's just got their foot kind of pressed to the floorboard of the car at the moment. So a bit of a relaxation here would not be surprising. Come down, retest some of this support, get back into this kind of area of volume. And again, that should correct some of these overbought conditions as well and give you a better opportunity to put some capital to work. And so that's why we're looking at right now, probably in the next day, I talked a little bit about this yesterday, but probably today or tomorrow, we're just going to go in, take some profits and stocks that we bought back here at the lows, just take some profits, those rebalance those back to target weights, nothing major. a couple of positions we may want to add some stuff to here that that that you know are a little bit more defensive in nature so if the market pulls back money tends to rotate to those areas but just doing again we've talked about before just kind of doing this nipping and tucking within the portfolio just you know thinking about a garden you know just kind of pruning and trimming your your your your plants so that they produce more bounty in the future just good process right so we're just talking about a little process here but I would expect this market to have a bit of a correction here at least sometime over the next month. Again, doesn't mean the markets can't go up here in the short term. That's okay. You should be okay with that. You take a little profit, raise a bit of cash, market goes up a little bit more. That's okay. There's nothing wrong with that. You don't have to worry about chasing the market, you know, point per point going higher because, again, the whole point is trying to protect ourselves on these declines so we have cash to buy when we get a better entry opportunity. Anyway, so that's what you need to know before the bell this morning. All right, we're going to come back, pick up with John Penn, talk about trading versus investing. Don't go away. Get daily investment news you can use. Delivered at the speed of the internet at realinvestmentadvice.com. Our next Candid Coffee will walk you through practical real-world strategies to get organized and take control of your financial life. It's Saturday, May 16th. Danny Ratliff and Jonathan McCarty show how to consolidate and simplify financial accounts, documents you actually need and what you don't. Plus, easy systems for tracking income, expenses, and goals. Fine-tune your system. Join this Candid Coffee for actionable ideas, reduce stress, and improve clarity around your finances. Register for our next Candid Coffee, Saturday, May 16th, at realinvestmentadvice.com. realinvestmentadvice.com. You're listening to The Real Investment Show. All right, welcome back to the show. Good morning, John. How are you? I'm good. How are you? Good, good. It's Tuesday. It is Tuesday. It is Tuesday already. We've got that established. Yeah, it's Tuesday. The rest of the day will be great. It's May, right? It's the first Tuesday of May. Importantly, Cinco de Mayo. It is Cinco de Mayo. Cinco de Mayo today, that's right. Yeah. Do you know the story behind Cinco de Mayo? Not exactly. So Napoleon, the French were invading Mexico and the Mexican army won a very, won one of the first initial battles on the 5th of May. Yeah. And so we celebrate that. Now, what we don't know is, is that the French came back and kicked their ass in the second battle. But the Mexicans won the first battle. So that's why we celebrate Cinco de Mayo. Cinco de Mayo. Yes. So today is tacos and it's Tuesday. So it's Taco Tuesday on Cinco de Mayo. I think my head's about to explode. I can't take all of that. Exactly, right? Plus, I'm on this new diet right now, so it's no carbs, no sugar, so no tacos. Well, you can have the tacos. Yeah, just have everything in the middle. Just make a bowl out of it. Exactly. That's what we do. Taco bowls. Taco bowls. No shell, no tortilla. Yeah, but what's the joy in that? You take away my whole joy of the taco shell. That is true. Even the carb counter, like we do those carb-light tortillas, they're not the same. No, they're not the same. It's literally like you're wrapping your taco in cardboard. Just go with the bowl. Or just either look. Either go with the cardboard. Just go all in. Just get your real tortilla. Just live a little bit. Just go all in. Yeah. Yeah. So anyway, thank God the summer's almost here. Well, that's the issue. Like you said, it's Cinco de Mayo. I mean, my mind is just not May. It just isn And this is such a busy time of year with graduations and everything else going on Folks are just really busy right now with just events going on graduations etc And for whatever reason, I'm still back in February. I just, like when you said Cinco de Mayo, I'm like, oh yeah, you're right. No, no, it's just that this past Saturday we drove up to Baylor to move some of my daughter's stuff back home for the summer. Yeah. And it's like, it's already been a year. I was like, where'd it go? Yeah. Because I'm like you, I'm still back in January, February, so I'm still playing catch-up here. But, yeah, it's crazy. So was this her first year there? Yeah, first full year. Does she like it? She absolutely loves Baylor. Yeah. It is just everything about it. The campus is really cool, but she absolutely loves it. But, you know, it's her first year. She goes into pre-med next year. So, you know, it's all getting very real very quick now. Oh, good for her. So year one under the belt. That's awesome, man. Good for y'all. Yeah, just what, like 12 more four to go. That's right. It'll happen. But I remember when I was in school, it was like I never, like when you were there, it felt like you were never going to really graduate or like be done. And then once you get out of school, it's just like time just flies. I look back, I'm like, oh, my gosh. I can't believe I graduated in the late 90s. Now I'm really dating myself, right? But it's just amazing how quickly time goes when you're out of school. Late 90s. Late 90s. I graduated in 87. Back in the last century. Exactly. I grew up in the 80s, though. Yeah. So, you young whippersnapper. Yeah. I've really derailed this conversation this morning, haven't I? Speaking of derailing, all right, let's get back on the tracks here. So, let's talk a little bit about trading and investing. Yeah. So, I'm getting a lot of questions or just a lot of comments just around the market environment that we're in. because it seems like it's much more of a speculative or quote-unquote gambler's market more than an investor's market. And even in the most recent Berkshire Hathaway meeting, Warren Buffett was talking about how he hasn't seen, in his mind, just his perception is he hasn't seen this level of kind of an approach of gambling in the markets. He almost compared it to like there's a church with a casino attached to it, And there's still more people maybe in the church, but the casino is looking more and more attractive. And he's finding like more folks are being kind of lured in by the casino to get that itch to trade a little bit. So I think some of the questions that I've been getting as of late are, well, if I really want to be an investor, how can we really approach this in a market that just seems to be more speculative in nature? It's a great point. And Warren Buffett's right. I mean, it's interesting. The state of Texas right now is trying to pass a bill to ban Calci and prediction markets from Texas, right? Because it's just straight up gambling. That's all it is. And, you know, we've had laws for a very long time that prohibited gambling in Texas and other states, right? That's why you could only, you know, back in the last century, if you wanted to gamble, you had to go to Vegas or Atlantic City. And then since then, there's been small little loopholes. They figured out that they could put a boat on the water and then go out 12 miles and you could gamble in international waters. So you get on this boat and go out. But over the years, we kind of slowly degraded those laws to allow more and more gambling into the country. And then, of course, Polymarkets and Calci have figured out loopholes around that, along with DraftKings and others, to where now you can bet on sports or you can bet on prediction markets, et cetera. And the current administration, the Trump administration, is fully behind this, right? So they're completely fine with allowing the prediction markets to come into the markets. The CBOE is now wanting to provide more support for the prediction markets in terms of the futures markets, etc. So now the prediction markets would move on to the CBOE exchanges, etc. So there's a lot of push for this more of a speculative nature. I was just noting this morning on X, I just posted a chart, zero days to expiration options now make up 94% of traded volume. So these are options that expire in less than 24 hours. So I'm buying an option on a stock or a market that will expire in less than 24 hours. That's a pure bet. I'm betting on whether the market's going to open up or down this morning, and that's it, because they'll expire by the end of the day. And again, you can say that there's nothing wrong with that. And again, how you want to use your money in the markets is solely up to you. And if you are really, really good at speculative investing, it's fantastic. 97% of people aren't. They wind up losing money. Yeah. And they wind up losing money over time. So again, I know everybody in chat, y'all are just making money hands over fists, speculating in markets and trading options. I know because I see your chat. But 97% of people don't over time. And it's, you know, we just migrated the market. We've talked about this before. You know, we've migrated this market now, you know, with the advent of Robinhood and social media. And I can't tell you how many TikToks that I see with, you know, some guy has a trading program or some type of new trading algorithm, whatever it is. It's going to make you all this money. Just, you know, buy my system and it'll work. You know, you always have to ask yourself this one simple question. If their system works so well, why would I sell it to you? Right. Why wouldn't I just keep it and be rich and be on a beach? Right. But the reality is these systems don't work over time. And eventually the market is going to have a self-correcting feature to it that wipes out a lot of the speculative behavior. But in the midst of a bull market where we are, and it seems like it just won't quit no matter what. You know, we have a crisis with Iran and the market goes to do all-time highs. Right? You have some other event and markets go to all-time highs. And every time you think that AI is dead, AI comes roaring back. whatever it is. It's hard to be short or out of this market, whatever it is, when every day the market just goes up. And ultimately that has bad consequences. And the reason that Texas is trying to ban prediction markets from Texas in particular is because it has a very bad outcome for psychology. It leads to gambling addiction, all these types of things. Nothing good for an economy. And so you really don't want this environment in your economy because it's not good for the population. Even lotteries are attacks on poor people. And we talk about this K-shaped economy and everybody's like, well, I don't understand why the rich people have all this money and poor people don't. Well, rich people don't do zero day to expiration options. They're investing in companies. They're investing in real estate. They're investing their capital for long-term returns. It's only the poor people that are speculating, trying to get rich and wind up losing all their money and they stay poor because they're making bad decisions. But that's why that K-shaped economy exists more and more is because we keep taxing poorer people. I shouldn't say poor people, but just normal people go spend $10, $20 on a lottery ticket. That's just 10, 20 bucks on a lottery ticket. No big deal. You have about a 35 million to one chance you're actually going to win, whatever the odds are for the lottery. But that 20 bucks here and 20 bucks there, it adds up into real money. And then if you had invested that capital long term, that money would be worth a whole lot more in the future. Right. Absolutely. I mean, that so it reminds me that when you were talking about, you know, the lottery or just buying a couple tickets here or there when I was, you know, a young kid, you know, in junior high. And, you know, I was a I was a bag boy at the local grocery store in our neighborhood. Right. I just started off and I was, you know, earning my minimum wage and, you know, taking groceries out to cars to get tips or what have you. And I remember there was an employee at the time who I thought was much older. They were probably my age at the time. And they, like every other paycheck, they would just go up to the counter and just buy nothing but lottery tickets. You know, at the time, you know, every other paycheck was a couple hundred bucks. I mean, to me, that was a ton of money, right? But they would just sit there and just buy a wad of lottery tickets and scratch it off. And I asked, I said, what are you doing there? I said, I'm working on my retirement. Literally. I mean, so when you were talking about that, it brought back to my youth, right? But even Buffett, when you were talking about the zero-day expiration options, he didn't even consider that speculation. He's just like, that is just pure gambling, right? Now, I'm not- Well, speculation is a polite term for gambling. Yeah. Yeah, but even, yeah, I see that. And I don't want to talk badly about folks that might be using zero day expiration options. But I think there are a lot of folks out there where it's almost, I think there's a lot of folks out there, they almost wish that there were maybe two markets, like the church and the casino, but keep them separate. Where, hey, this is where all the gambling is going on, but then this market here is really for the folks that really want to be fundamental, looking at the balance sheets, trying to figure out really what is value with businesses. And I just don't see a world where- You can't separate the two. You can't separate them at this point, right? Well, no, you can't separate them, period. Yeah. And the reason is that if you had a market where people were just investing, that market wouldn't move a whole lot, right? And so you'd eventually suck all the capital out of that into the speculative market, which is where all the activity is happening, and that's where the money is made. Yeah. And I don't mean money is being made by the individuals that are doing the speculating. The money is being made by Wall Street that's providing you the tools to speculate and lose your capital with. Right? So they make money, you don't. And that's just how that works out over time. And again, in the midst of the hype, in the midst of the market, everybody's making money right now, it all feels good. When it eventually reverses, and it will, but it could be next year, it could be two years from now, it could be five years from now, a lot of that wealth will get evaporated very, very quickly. And we just see this over history, over and over and over again. But these speculative periods can last for a very long time. So it's easy to get sucked into it and to start taking on more risk than you realize. And I talk to a lot of people. They go, oh, I'm a very conservative investor. I look at their portfolio. I'm like, there's nothing conservative about your portfolio at all. You're taking on a tremendous amount of risk, either through concentration risk or through the companies you're investing in. In fact, there was interesting statistics out this morning that the fundamentally worst companies are the best performers this year. So, again, that just goes to show you that that investing, people aren't investing. They are just literally chasing kind of whatever's going up. And this is one of the, this is, I've got an article coming out next Monday talking about Warren Buffett because of the meeting. So I wrote this article. He's got $394 billion in cash. Yes, he does. And, you know, everybody's like, well, that's a, he's betting on a market crash. No, he's not. You know, he's holding a lot of cash because he can't get it deployed into companies that have value. because in order for him to buy a company, it's got to be a big company, right? So, but the problem is, is big companies, if he was going to go out and buy a company, he'd have to go out and buy, you know, an ExxonMobil or that's probably too big. I don't know, $394 billion, he could probably buy ExxonMobil. But, you know, he has to buy a company of real size. And the problem is all those companies are overvalued. So he can't get that capital put to work. So he's not really betting on a crash. He has said, though, that that gives him opportunity to have that cash, gives him opportunity to buy stuff when there's a discount or take advantage of a market correction. But the real issue is that he just can't buy companies of size enough to really move the needle in the portfolio But I just ran the analysis if he had just taken that money and just went bought stocks in the markets like he owned Apple right Go buy some Google go buy some Microsoft whatever The return structure it cost about billion to investors by not getting that capital invested over the last three years. And in the end, this is why, but investors are looking at warm-up. And it's like, oh, you don't get it. The markets are going up. You know, you're like dead old Pontiac. Nobody wants to drive it. But eventually he's going to be right. He's going to be right in a big way. And everybody that was saying that he was wrong and lost his touch, he was out of touch, whatever. And this is why Greg Abel's got a huge challenge in front of him. I thought it was very interesting at the Berkshire Hathaway meeting, only about 50% of the normal attendees actually showed up. Yeah. Because this is the first year that Warren Buffett didn't present. So it just kind of shows you that cult of personality between Buffett and Munger. They were, you know, people went to see these people, which is interesting. They went to hear these two guys talk about the core fundamental principles of investing. And then they all went home and speculated in the markets. Yeah. Well, and I could listen to them. I mean, Munger, you know, God bless his soul. I mean, I could listen to that guy and Buffett, you know, just all day. And just the one-liners that Munger would have were just fantastic. So I think most folks came for that. Yeah. But then you're right, then they left and they were like, ah, and then they went back and they started speculating. Sure, they owned Berkshire Hathaway, but then they owned every other stock in the index, right? Right. But again, there's this inherent nature that as investors, or as individuals, I shouldn't say as investors, but as individuals, we want to believe that fundamentals matter. And we want to believe that investing the right way matters. and these rules of the great investors of our time, and I've got an article coming up on this as well, just kind of a desk trader's guide of investing principles from the great investors of history. You know, they were all, you know, set stops, manage your portfolio, manage your risk, don't gamble, those type of things. But despite the fact that we want to invest that way, we get lured into this other side. We do. I think it's just human nature. little bit where that's just how we're wired. And what I would say is if, if you, if folks really have the itch, I say to, I call it the itch to really speculate or have that, have that little bit of that gambling streak, right? You know, it's almost like you could have, you know, your own within your own portfolio, your own church and casino, right? You could kind of separate assets where, Hey, here's the bulk of your assets where you're truly investing for the long term, but Maybe you take 5-ish percent, maybe, carve it off to the side, and that's where you can maybe be a little bit more speculative, right? So that way, if for some reason, if this doesn't work out as intended, you still have this to fall back on, right? And see, that philosophy has been around for 30 years, right? Like, take your gambling money. Take money you would use in Vegas and go put that into an account and go trade with that. What people don't realize, though, is that because the vast majority of the time, very large percentage of the time, that Las Vegas money gets reduced in value a lot. And if they had just taken that $50,000 or $100,000 and invested it into an S&P index and left it alone, that money would have compounded dramatically, and that $50,000 would be worth a couple hundred thousand by the time that they retire, depending on their time frame. But the compounding of returns over time, ups and downs, even with bear markets, you did much better just leaving it alone versus speculating with it. Yeah, well, what's the fun in that? Well, I understand that. I want my return right now. I get that. I want it right now. I want to invest that $50,000, and by tomorrow, it needs to be doubled or more. I know. And if it isn't, what am I doing wrong? Exactly. That's the perception I see with a lot of that speculation, too. Well, it is. But it's a very instant gratification society, whereas I see, and Chad, I love you. You were talking about, you were asking me, okay, what are John Penn's top five stocks if I was going to gamble? I can't even mention any because I don't gamble. I just don't. Nothing comes to mind on that. And maybe I'm- IonQ, Rocket Labs. No. These are Lances. You should have asked Lance. Yeah, I just remodeled our growth-focused thematic portfolio. And yesterday, I just remodeled it into five major sectors. I'm going to retitle the portfolio the future growth portfolio. But it's just a growth-focused portfolio. If you go to simplevisor.com, we have thematic portfolios that you can follow. And I just remodeled the growth-focused portfolio into five sectors. Okay. So it's 25 stocks held across five sectors. And it's photonics, robotics, space, AI, and... I missed one. Quantum computing. Okay. I was going to say, now I've got to look. No, no, no. But quantum computing, that was the fifth one. So, anyway, I selected five stocks for each of those. And so we'll see how it works out. But that is your gambling portfolio. I mean, there's no fundamentals to most of these companies. It is all speculation, but it's a future growth portfolio. So these are the companies that will likely succeed at some point. And then there's going to have to be some changes to the portfolio. So when Anthropic comes out, we'll have to swap out a position for Anthropic. When SpaceX comes out, we'll swap out a position like Lunar for SpaceX. So as some of these new companies in these sectors come to fruition, they'll get added to the portfolio as well. Yeah, so that type of approach, though, or that little bit more of a speculative approach, I guess you could say, that wouldn't be incorporated into kind of like the main actively managed strategies. That would be something that maybe somebody would need to... No, that's your gambling money, right? You would need to carve that out. Yeah, yeah, yeah. It's a little separate, almost like I call it a little satellite portfolio off to the side. See, that portfolio either has the opportunity, and this is the whole point about speculation. That portfolio will either make a ton of money or it will lose almost all of it. And it's almost a binary outcome. And going into it, you have to realize that it is very binary in nature. Before you invest any money in it, you have to realize that before you even put capital in there. That's right. And again, because you're betting on, you know, this is that these five areas are going to be the future and everything is going to move in that direction. Right. So I just wrote this article on Friday. If you've been to the website yet, it's kind of went viral. But it was talking about robot, you know, the robots are coming and who gets rich and who doesn't. Right. And so I go through this whole analysis on robots. And it was based off an interview with Figure, which is a company that is making robots. and the stuff that those robots are doing. But that's another company when they come public that'll get swapped out in the portfolio. But if that future doesn't come to fruition, as we expect, something happens. And all of a sudden, and I'm not saying it is, but just it's all of a sudden that we pass laws that say, no, we can't have robots replace every job in the country. Or we've got to put a cap on AI technology, whatever it is. That portfolio is going to get slaughtered. And so you just got to realize that risk going into it, that this is a very binary outcome. This is a very speculative portfolio that has a very high potential to lose money. It also has a potential to make a lot of money if everything works out as we expect, but it has a very high potential to lose money. Yeah. So what are your thoughts? So a lot of folks that I visit with who maybe aren't clients right now, but maybe they're out there kind of looking for firms that are maybe a good, they're trying a good fit for them. And there's still a lot of folks that are just, you have a high amount of cash. They're looking for the right time to put money to work. They'll never find it. Right. And the feedback that I get is, look at the valuations of the market, look at P-E ratios. Markets are just overly expensive. What is your message to them to say, well, are you going to wait for the perfect time to invest? Is there going to be a perfect time to invest? Like that argument of, well, markets are really expensive. I mean, what's your reaction to that? Well, so markets are expensive. Yeah. But valuations are the worst measure to manage a portfolio with. Because all valuations tell you is what your long-term returns are going to be over the next decade to two decades. Yeah. And all that means is, if I say, I'm going to invest in the markets today, markets have high valuations. What does that mean? Well, that means that over the next decade, return is going to be closer to zero than 10%. That's all valuations tell you, that over the next 10 years or next 20 years, that your total return is going to be closer to zero than not. That's what high valuations tell you. What they don't tell you is that you can have two more years of 20% plus return years, have a 30, 40% correction one year, or maybe corrections over a couple of years that's 20, 30, 40%. Then you have another big rally in the market, and then you have another correction. And at the end of 10 years, you look back and go, well, if I just bought and hold this over this timeframe, my return's to zero. And this is going to be the big outcome for a lot of investors that are just like, oh, I don't want to invest today because there's valuations are too high. Well, yeah, if you're going to buy an S&P index fund, you're probably not going to make a lot of money over the next decade because of where valuations are on a buy and hold basis. So buy and hold has been a big theory over the last 15 years because we've been in a rip and bull market. But when you get to the secular bear market period, which will eventually come, as we always rotate from secular bull to secular bear, that buy and hold strategy kind of goes out the window because you make no money just buying and holding. And that's where being a more active portfolio manager, right? You know, selecting the right companies, managing your risk, those type of things will pay off in that environment because there's going to be some ripping years. Within that 10 or 20 year period of zero returns, like we had from 2000 to 2013 on an inflation adjusted basis, that 13, 15 year period, your return was zero. But you had two really big bull markets during that cycle to make money with. And so being an investor, managing your risk, putting money to work, that's going to be very important. But if you're sitting there going, I'm going to wait for the perfect time, you're never going to get it. And here's why. Valuations are too high. I don't want to invest. The market's finally correct. Well, markets are going to go down forever. I don't want to invest because I don't want to lose money. Then the markets rally back up. Well, I don't want to invest because the market's going to crash again because it just came back too quickly. And the markets keep going up. And you go, well, I'm going to wait for the next correction. that next big correction or sizable correction doesn't come for five six years and then at that point well i've already missed it so i can't get in now i've got to wait for the next big downturn which won't come for another 10 years and so you never get invested and now you're 70. and now you're 70. right right but that's what happens and you've lost at that point and look 70 is very young i work with a lot of folks they're 70 years young and they're more active than i am i am 61 this month and it is not young yes it is i am i am old as dirt you You are not old as dirt. Yeah, I know. I'm actually older than dirt. I invented dirt. You could probably out bench press half the people down there or way over the absolute. No, don't listen to this. Come on. I'm just talking about age. I'm talking about raw age. Right. Just don't listen to that. But but my point was the point in my life is like get off my lawn Get out there Pick up after your dog too while you at it Anyway so sorry here I go I going to derail this again But then by then, you've also lost kind of your most valuable asset. And that's your time. Yep. Right? That's the one thing that I've written about a lot before and that I think is the most important overlooked thing that we don't talk about in the financial markets is everybody talks about, oh, you should just buy an index and hold it over time and just dollar cost average and you'll be fine. And that's true. You will, right? You'll be okay if you have 30, 40 years ahead of you. Just buy an S&P index and just dollar cost average into it. You don't have to get fancy with it. You'll get average returns over time and you'll be fine. The problem is the time, right? And if you get caught, and I saw a lot of people get caught in 1999 in particular, I had, there was a lot of people that were right at retirement in 1999. Same thing in 2007. They were right on the cusp of retirement and boom, 50% of their money's gone. And then you can't retire anymore. Right. And the, you know, what the one thing that you need to protect more than anything else, right? You need to protect your capital. If you lose your capital, you're out of the game, right? It's like, you know, if you go to Vegas and you lose all your money, you're done, Right. Same thing in the investing market. So you've got to protect the capital, but you've got to really pay attention to time, because if you spend, if you if you take a lot of risk in the markets and you have a big drawdown in the market and then you have to spend four or five years getting back to even. And this is where the financial media does you the biggest disservice. They tell you this. Oh, well, yeah, the markets were down 50%. And five years later, you were back to even. So no big deal. Well, here's what they don't tell you. You go back to your financial plan. And your financial plan says you needed 6% return every year to get to your goal. So yes, you lost 50%. 50% during the markets. And then in five years later, you got it back. So now you're back to even five years later, which means that you now have lost 30% of the return that you needed. Actually more than that, it's like more like 35%, but 6% a year for five years compounded that you didn't get a return on. So every year that that 6% you didn't get was compounded by the 6% you didn't get the next year, so forth and so on. So now you are further behind your goal than you realize. So yes, you've caught back up to even, but you've now lost five years of the most critical commodity you have, which is time. We can't get that time back. Yeah, we can get capital back. We can put more capital to work and figure that out. We can't get that time back. And when you start looking at the spread that that puts into your financial outcome, it's huge. And that never goes away. That 30% never comes back. And it just keeps compounding over time. And that spread between where you should have been and where you are becomes bigger and bigger over time. Well, and I think so what you're getting to there is what a lot of folks who are at retirement or near retirement, whatever retirement is, whether that is, hey, I'm done, I'm going to stop working altogether, or hey, this is the point in my life where I just want to have the choice or the flexibility to do something else. It's that sequence of returns risk, right? Within the first couple of years of whatever that period of time looks like, full retirement or doing something different where folks say, hey, my dollars here, they're a critical mass. I just can't afford to be derailed, right? So it's that I think that sequence of return risk is one of the biggest challenges that I think folks wrestle with because they know they need to have their money working in the market to fight inflation, keep their purchasing power and support their ways of life. But at the same time, when you look at what's going on in the markets today and all the headlines and all the narratives and everything else, it's, well, should I be invested or not? It's like this all or none decision, right? Even Buffett, who's holding close to $400 billion of cash, he's not in all cash. He has money invested so he can participate. Yes, it's all the treasury bills. Right. Right. Making 4% or 5%, right? Yeah. So back to your original question is like, if you've got a bunch of cash, what should you do with it? Yeah. I would invest it. Not today. Not all of it today. But I would start, you know, let's say you've got $300,000 in cash, whatever, pick a number. Yeah. You know, divide it by 12 months and every month put one twelfth of it into the markets. Yeah. And just start investing. And at least you'll get it allocated to the markets. And then, you know, see, the hard part, and this is always the onboarding question, right? So when clients come over, they go, okay, how are you going to get me in the market? You know, markets are really expensive right now. How are we going to get into the markets? It's like we're going to get in. We're going to start by investing half your capital into our equity portfolio. We're going to buy your bonds because they're safe. Right. They mature. And then, you know, if we get a dip or an opportunity, then we'll put the rest of the capital to work. But we're going to get you invested pretty quickly. And the reason is, is that once the portfolio is allocated, it's an easy process at that point. Because all you have to do is just manage your risk, right? take some profits here, trim off your losses over here, and just start working that trimming and pruning process that we talk about all the time. You just manage the risk in the portfolio. The hardest part is getting the capital invested, right? And all that is, is that's just a psychological hurdle. That's just getting you over your fear of having money invested at risk. And that's what you're doing when you're putting money into the market, you're taking on risk. So once you can conquer that risk and just get the money allocated, then you can be very pragmatic about just managing the risk of the portfolio, increasing exposure, reducing exposure, more in bonds, less in bonds, more in cash, less in cash. And then you can handle these downturns and these things that occur. And this is why we're talking about now, hey, we think there's a risk of a correction in the summer, so we're going to take a little bit of money off the table, raise our cash level a bit. We've currently got about 15% cash in portfolios right now. We'll probably raise that close to 20. And then we'll just kind of navigate the summer. And then if there's an opportunity where the markets do sell off, I've got cash to go buy stuff with cheaper and reallocate the portfolio. Yeah, but what I'm hearing, the way as you're talking through that, it's not, hey, we're all in, we're all out. Right. But you're taking profits along the way, raising some cash, so that way if markets should pull back a little bit, you can try to get things at a better value. That's right. But I find, too, that a lot of, even, let's say, when we're starting to put cash to work, that onboarding process, Like, we'll get some initial exposure. So we know we may not get all of the upside, but we've got some money working in the market so folks can participate. But at the same time, we'll hold some cash back. So that way, if there is some weakness, we can redeploy at potentially better prices. But this is that money that we're putting to work for folks. This is above and beyond just what I call their base. Like where they have cash, maybe a portfolio T-bill set off to the side where they've got this base that they can pull from if necessary. so that if this money that's really for the longer term that we are investing for the longer term, if this gets a little bit more volatile, they've got this base over here, so that gives this time to recover. And I think sometimes folks leave themselves a little bit too thin on the base. Like they don't maybe set enough cash aside or they don't have enough cash. Maybe it's a Tebow ladder or a CD ladder set off to the side. because over here in the portfolio, if you overcommit and the market should pull down, you don't want to be forced to raise cash for your living expenses in an inopportune time. And that's, of course, when it's always going to happen, right? That's what will happen. Emergencies always happen during market drawdowns. Absolutely. And then you exacerbate the drawdown by taking money out during the drawdown. That's right. Yeah. And so, no, that's why, you know, it's just a function. You're absolutely right, is that you should have a pile, you know, an emergency fund, whatever you want to call it, that is there for six months or for a year of expenses. So that in the event of a market drawdown, if we go through another 2007, you don't want to be taking money out of your portfolio during that drawdown. You want to have that cash also there to invest in opportunistically as well. When you get this, you know, you get the Warren Buffett moment, right, where he can go in and bail out Goldman Sachs at really, really good deals. You can do that in the markets too, because there'll be really beaten up companies that kind of baby, the baby got thrown out with the bathwater during a correction. There's going to be some great companies selling at really big discounts where you can make a lot of money in the future. And those are the opportunities. But that's the whole point about this speculating versus investing is that a lot of people are going, okay, I'm going to chase the markets higher and then the markets break and everything falls apart. And they're losing a bunch of money. So they finally sell. And then when they're selling, though, exactly at the point, they should be buying. Should be buying. But because they never raised cash to start with, they've got nothing to buy with. And now their emotional psychology has taken over and they don't buy the opportunities when they come. And this is why you should venture, you know, try to limit your speculation in the markets to a large degree. Focus back on the investing. And that doesn't mean you have to be when I'm talking about investing. I'm not talking about being strictly adherent to fundamentals is like, you know, we have companies in our portfolio. The fundamentals are good. They're not fantastic. Right. They're expensive in some cases, but, you know, there's some momentum behind the market. So we want to play that game. But those are the first candidates to get sold when markets start to change dynamics. Yeah. Right. And so it's OK to invest and to take on a little bit more risk in the portfolio, but make sure it's controlled risk and that you have the ability to control that risk and then have a buffer sitting there for opportunities. And again, our portfolio's got about 15% cash in it. Some of that belongs to the bond portfolio, but it's there for opportunities. So if something really shows up, it's like, I want to own some more of that, whatever it is, like bonds are getting really, really oversold here. So when we get this resolution done at some point with Iran, we're going to have a very big run in bonds. So I'm looking for an opportunity to lengthen some duration in our bond portfolio as well at some point, but I've got the cash to do that. And right now, it's just acting as a safety buffer. And you're being patient. Yeah, just being patient. Yeah, which sometimes is the hardest thing to do. Yeah, when the whole market's leaving you behind, it's like, oh, geez, I've got to be in. I'm missing out. Don't worry about that stuff. Yeah, so it's okay if you kind of look out of favor a little bit if you're just being patient and really following your strategy and you're looking for the right opportunity to put capital to work, right? That's right. You just have to be willing to have that emotional bandwidth and be disciplined, right? So I appreciate that. That's right. Anything else before we wrap up? That's it. All right. Thank you all for joining us today. Be sure and like and subscribe to the channel. Those articles that I talked about, the robot economy as well as our market correction risk for the summer, those are on the website now, realinvestmentadvice.com. They're also on Substack at Lance Roberts, so you can get them in either place. If you subscribe to Substack at Lance Roberts, you will get notified every time I publish an article. So you'll get an email on it so you'll know it's there for you. And, of course, we've published our daily market commentary. You'll get that as well. videos that we produce, they go there as well. So lots of information to substack also for you right there. It's also free. Don't worry about it. So just got to subscribe, put your email address in. It's all there for you. Be sure to like and subscribe to the channel. We certainly appreciate it very much. And we'll see you back here tomorrow for live Q&A with Danny Ratliff. We'll see you then. head canyon