Getting Tactical With Rob Isbitts (Episode 1)

Well, thank you, Kate. Great to be with you in the new year. And, you know, I would wish you and your colleagues at MarketBeat luck with this new, exciting podcast, except you won't need luck because there's so much skill and talent over there. And I, I really am flattered to be the first guest. So thank you for having beyond, so I'm not one of those investors that likes to divide everything neatly into years, but, uh, calendar years, but let's face it. Everybody else does. So, uh, when you look back at 21 and turn the page 2022, there are a few things at the top of my mind. One is not so much a bubble in the stock market. Although I do think that we're pretty far along with that, but the bubble to me, when it comes to equities is in the S and P 500, how it's constructed, how top heavy it is and where it's gonna go from there.

And I think that's one big story for, for this year. And, uh, that is why I tend to focus on dividing the world up into many, many, many different pieces, uh, and not being too S and P focused. I would say the second, uh, bubble that I'm concerned about. And frankly, I think that to many investors, especially those that are retired or approaching retirement, or even thinking about retirement, no matter what age they are, uh, that is the corporate bond situation. The fed has backstop corporate bonds. If you look at the corporate bond indexes, uh, half or slightly more than half of them are in triple B rated bonds, which means they're kind of barely hanging on. And a lot of 'em probably should be junk. And I think that's a bubble that is more likely to pop this year than maybe any other one.

And I would say it's, it's probably the thing that investors are most unaware of, uh, until it all of a sudden happens. And then I think I would say the, the, the other couple of things, and I would say, I've mentioned these just briefly. Uh, I inflation is certainly a threat, but I think it's the threat more than the actual inflation. It's the threat that will freak people out. It's the threat that will move prices. And I've been a technician since my dad taught me when I was 16 years old, that was only 41 years ago. So, you know, when I look at the charts, I see, okay, it's, it's more about how people react to inflation, uh, than, than whether or not the actual numbers are, are, are posted, is the fear. And then I think the last thing, uh, kind of in headline form, I would call it a retail investor bubble.

And I don't mean for a second that retail investors aren't bright because they are, and they're brighter. I think, as a group than they ever have been. Uh, I think where the bubble in retail investor behavior is vulnerable is that a lot of folks know how to play offense, but don't necessarily know how to play defense. And that's frankly not really their fall, uh, you know, they don't know what they don't know. They're very coachable, but there's nobody coaching them because as I'm sure, you know, everything is about sort of tips and tricks and Instagram and TikTok, and everybody's giving advice, it's kind of hard to sort out, you know, it kind of reminds me of the, uh, there's a famous scene in, in my favorite movie bull Durham, where they all meet at the pitchers mound and the coach wants to talk about baseball, but instead all the guys talk about, well, this one has a curse on his glove and this one, we don't know what to get him for his, uh, uh, for his wedding coming up and all this stuff. And so one of the guys just says, you know, we're dealing with a lot of stuff here. And to me, that kind of summarizes where the retail investor is. And I just don't think that they're getting enough constructive, disciplined experience guidance, which frankly is why I was thrilled to be the first guest on The MarketBeat Podcast, cuz I really like what you folks are doing in that direction.

Yeah. Candlesticks make a nice gift right line from there. maybe find out where she's registered, get her a play setting anyway.

Well, I don't know if it has changed. I think it needs to, you know, I would think of it this way. You know, there's a lot of talk in different circles about climate change. Okay. I think where undeniably the climate is changing is in the investment markets, the investment climate, and when it comes to the S and P okay, let's, let's keep this in mind. Just this century, we've seen a 10 year annualized return, close to 20% in the S and P and we've seen a 10 year annualized return of more than 3% loss per year. So you can turn a hundred grand into several hundred thousand, or you could have turned it into 70. And I think you have to look at it and say, okay, even if I'm a day trader or a swing trader, I, I have to have some outlook beyond that.

I'm not just investing to, to, to feed myself tomorrow and you have to understand the arena and the environment you're in and let's face it. We are at the top end of that historical range. Now, again, I think that's an S and P problem. Okay. And, and I think the way that people react to it is less indexing for the long term. Okay. Less of the 60, 40 garbage. And it's much more about, I think a couple things. One is learning how to play defense. And the second is tactical management and my tactical, I don't necessar. I mean, look, people define it. However they like, right. You know, I'm in the publishing business. So my, my job is to tell people what I think as opposed to what they should do personally. But I do get a sense that one of the ways the markets have changed in a very important manner case is that you can invest in days or weeks or months.

I think the biggest problem for people this stage of the market cycle in stocks and bonds is assuming that they can just plant seeds in something, a stock and ETF. What have you, and expect that they can look up 3, 5, 10 years from now like rip van Winkel and expect that they've had appreciation. I think a lot of it is sort of the nuance in between. And that's why I think tactical management really understanding more about it should be every investor's priority. And look, that means giving yourself a very wide, diverse set of investments that you can consider within the public markets. Okay. To me, it's ETFs, I follow 300 of them. And knowing that it's easier today, I believe to make five, seven, 10% in a matter of weeks or months than it is to make 50% over three years, like back in the good old days.

Yeah. I think that's a great point. And what I would say to that is just, like I said, you know, we were talking about climate change, but I'm talking about investment climate change. I'll, I'll go sort of in the same direction. I think the biggest issue, or maybe the biggest hurdle for a lot of investors now, now that they've been sort of indoctrinated into how this works, but only a fraction of it, cuz we haven't really had a whole lot of market trouble, uh, since 2009, other than a couple of blips, here's the thing sustainability. And I'm talking about sustainability of the ability for something you buy to go up and up and up and up. Uh, and that's why I say tactical investing to me, you might end up owning security X, Y, Z, over the next three years. But I think you have a much better chance to maybe own it four or five or six different times over those three years, maybe in total, you own it for 12 months, 14 months, 18 months, whatever.

Okay. But things tend to trend up and down so much more. And there's a, I think a very easy explanation for it as somebody who studied markets pretty intensely going way, way, way, way back. I, I think this is what happens toward the end of a bull market cycle. It just gets harder and harder to, to push it forward. It's kind of like an, an NFL team. It's a little easier to move the ball down field, but now if you're at like the three yard line, well there's not a whole lot of room left in the field. And so it takes a lot of your playbook away. I think that's kind of analogous to where a lot of investors are right now. And so a little more ding and dunking, um, you know, IE, tactical management. Uh, I, I, I, I think is, uh, is, is, is the path to success, uh, probably for the next several years at a minimum and let's face it bonds, aren't helping you either. And that's a whole nother story.

They should be looking at the bond market as, especially I'm gonna speak in the ETF form here. Okay. I'm, I'm assuming that most folks aren't buying bonds, clipping the coupons and, and, and letting them, you know, mature years from now. Okay. The markets have changed a little bit. I mean, I know there's still people who do that, but, uh, you know, look, so the first thing, and I'll, I'll, I'll, I'll take a shot at wall street here in general. Okay. You know, if you have money in a bond fund and it's not for tactical purposes, or you have money in a bond manager, a bond strategy, et cetera, and you're paying a fee for that. Well, you're already one year into not returning even what you pay in fees. And the outlook is no better. It's not clearing up anytime soon. Right. I mean, bonds were down last year.

I think the two year, even the two year treasury, I think lost money for the first time, like ever last year. And, and that's in the treasury market. Okay. It's worse in the credit market where, you know, the fed is kind of backstop, uh, a lot of parts of the bond market, uh, particularly, uh, the corporate and the high yield. And at some point the safety net is gonna go away. I have no idea when I just know when it does, it's going to be a blank show, so to speak because we saw exactly what happened. We had a dress rehearsal last year, uh, actually it's 2022 now Rob. So, uh, in 20, 22 years ago, we had it. Okay. If you look at what happened to L Q D the corporate bond ETF, when the stock market fell off, it was just a slightly smaller version of a crash.

And what that tells me is that was a warning sign. So when it comes to how you use bonds, kind of turning this in. Okay. So, so what do we do to exploit it? That's what I always ask myself as an investor. Okay. You, you can't control what the issues in the climate is. You can control what the, what your response is to it. What's your strategy and what are your tactics? So when it comes to bonds, uh, and let's say bond ETFs, okay. So whether it's, uh, TLT, uh, to buy the long bond or TBF to short the long treasury bond, you can do the same type of thing in the corporate world. There's a variety of bond ETFs. And I don't tell anybody which ones to buy or sell, but I will say this, they are all tactical weapons that you can use.

Okay. I will tell you that in the last couple of years, uh, in portfolios that I run, uh, we have made money on rates going down, bond prices going up, and we have made money the other way. And it's just a matter of, I mean, it's treat, 'em like treat like equities, but just a different form of equities. They're all daily liquid vehicles in ETF form. They're very easy to see through and understand what's in 'em at least if, if, if you, you do the kind of research that we do, uh, and, and avoid the opaque stuff. Uh, and, and, you know, look, I mean, I, I counted it up the other day, Kate, uh, and this kind of goes to your point of, of sort of bonds, but then, you know, I'll, I'll incorporate beyond bonds. Okay. Uh, which is kind of a theme around our place, you know, beyond bonds.

I believe that we track, I counted it up. It was 170 different market segments and mini segments, industries, sectors, themes, parts of countries, individual countries, all types of bonds, long, short, long with a disaster or tail risk hedge. There is so many, there's so many options out there, and I'm not talking about options. That's a whole nother story. Okay. You know, whether it's opportunity, but just in the ETF world, there are so many tactical tools that you can use. And I'm not telling people, not take individual stock risk at this point. Uh, I'm just saying that it comes with a lot more baggage than it used to, uh, in the name of quarterly earnings blow ups. And if you own some of the sexy stocks from last year, uh, or the year before you probably already seen that. So at the end of the day, they're all, they're all sort of different tactical weapons. And you, I think what investors should do this year is they should focus on expanding their breadth, uh, their universe of available opportunities, kind of like, Hey, I don't want to have one quarterback on my team. I need a couple on the roster and I need three or four others, uh, on the practice squad, because I don't really know who's gonna be my guy, uh, at any particular point in the future flexibility.

You just let me know when you want to do an entire podcast episode, only speaking in football analogies and I'm there I've, I've been, I've been writing sports analogies, especially football, uh, for a long time

Well, I did mention briefly before that my late father taught me to chart stocks 41 years ago. Uh, you know, by hand on graph paper and I continue to believe, and I, I think a lot more people are thinking this now, just based on how a lot of the trading operations are set up and, and, and a lot of the retail, uh, uh, trading focus, uh, technicals, especially if you can develop an edge and treat it with as much humility and maybe less arrogance. I think that that is the key signal that you need. I think gone are the days where you look at an investment, whether it's a bond and say, oh, I like that because it's a quality business and I can get, uh, this, uh, interest rate and, and, you know, we're playing the spreads and all that stuff. I mean, I think that a lot of that has been minimized in the same way that I, I think, uh, you know, it used to be you and I remember far enough back to when you bought a, a sock because you like the business.

Well, there's only so much you can pay for that business. Right. Mm-hmm , and, and, and we are way past the point where most businesses are fairly valued. So what you have to do instead in getting back to the bond market, I, I think, look when it comes to yield, forget about it. Okay. There is no yield. Okay. The new, the new yield, the new income investment is consistent, repeatable, small standard deviation, if you will, uh, total return mm-hmm and that's frankly, I mean, look, that's kind of always been my gig going back probably 20 years. Uh, and it had a lot to do with the type of clients that I had. Uh, they had already climbed them out of wealth and they were not looking to, uh, you know, pile onto what they had or at least not, not, uh, in a way that would, uh, bring on a lot of risk.

And so my number one investment rule has always been ABL, avoid the big loss. And so when it comes to today's bond market, rising interest rates are both a threat and an opportunity. Kate. So let's say rates skyrocket, and somebody says, okay, well, rates are gonna go through the roof. Rob, what do you do? You have to avoid bonds, right? No. Sure. Through an inverse ETF, same thing with the stock market. You know, I used to say to people, and matter of fact, I'll give you this question. If you don't mind me throwing this back at you. Okay. When, when everything in the stock market is going down, what's the only thing that goes up. Well, traditionally it's been bonds. Traditionally. It has been bonds. That game is likely over. Some people will say volatility goes up. Okay. Yes. And that's, and you can be long volatility through ETFs and you can make money that way.

But the other thing that goes up when any market goes down is a security that was created specifically with the mandate to deliver the opposite of what that market does. So when spy is crashing, sh which is basically the opposite of spy, you know, different rules because of the, the math that's involved, but you know, no leverage single short and again, not a recommendation, but I'm saying like, there is no impossible situation. And in fact, I think 2022, and probably 23, 24, very similar to the three years where the.com bubble crashed 2000 oh 1 0 2 and early oh three, until about March, there is a massive amount of opportunity, but it's going to come, not from hoping the market goes up and then adding beta to it. As we say, you know, Hey, wait a minute. I can double or triple leverage the NASDAQ, or I can buy, uh, you know, this fund, uh, that's run by a star manager that kind of came outta nowhere and, and, and just lever up, you know, that way, no, it's gonna come from just the, market's always telling us a story.

The charts help us see what the story is. And if you break the market into enough pieces, there is always something going up. And if absolutely everything is going down, that only means that the inverses are going up. So there is never a time where you can't be trying to exploit what the market is giving us. And, uh, yeah, I, I, I think the sunny days were over a while ago, a market narrowed a lot last year. And, uh, I think this year's becoming a little bit more of a headline and let's face it at the end of the day, you know, emotions, uh, charts, tell the story and, uh, you know, fundamentals, I don't know what are, what are fundamentals anymore? So I, I think I'm giving you a very optimistic forecast for investors, especially the retail investor, but they do have to solve the knowledge gap that I think is pervasive because they've been getting tips and tricks, Instagram, TikTok, everybody in their brother. And that's, again, why I'm glad that, uh, that we're talking, uh, in support of a, uh, of, of a site that is, uh, an agent of change.

Yeah, well, you know, it's a moving target. right. When you're a, when you're a tactical manager is always a moving target, but, you know, look, I, I, I, don't just, frankly, I mean, I'm not a trader. Okay. Uh, I'm, I'm really a realist when it comes to investing. And so of all the sectors and themes and, and industries, uh, and styles that I, I cover in, uh, my research with my team, there are things that will, let's say, I mean, we look at everything in terms of what is not so much, how much can we make, but what's the risk of major loss that we are taking along the way. Cause you can make money with anything at any time, but where every security is different from the next is how much major loss. So I've been looking for places where, you know what, uh, I think there's less of an less of a possibility.

This thing's just gonna completely fall outta bed with the rest of the market. And that has led me to a few sectors. Uh, I think all of 'em are attentive this late in a bull market. But, uh, I, I think the 5g story because of dare I say the fundamental background, and I know they're going back and forth now with the airlines and everything, but, you know, 5g is coming. It's going to be, I, I think life changing to some degree. And I think the companies that are involved in that business probably are going to get a little more of a pass from investors. Meaning if the whole market falls, they will be among the most resilient, uh, the, uh, ETF that iTrack TF that I track, uh, that, uh, that follows that is well 5g F I V G. And, uh, let's face it even by the time it errors that recommendation is not a recommendation, but, uh, you know, things change mm-hmm . But when I look out a little bit further kind, weekly chart and beyond, uh, you know, I think some sustainability there I'd say is probably one of, uh, 20 different segments that I am looking at that kind of look similar, but obviously, uh, we, we had time for one and that's one we looked at.

Yeah. You look at it on a weekly and you know, I mean, as we're sitting here, it looks like the distance from the current price to the weekly trend line that I just drew as, as we were discussing, this is, I mean, it's certainly less than 10% and that's a better bargain than a lot of places you get, if you say, okay, well, it's, it's in a, it's in a trend channel. It's, uh, you know, it's, it's in a position where if something bad does happen, at least I'll be able to figure that out pretty quickly and let's face it. All we can ask for as investors is that the trade off between the reward potential and the potential for major loss, again, ABL avoid big loss is my thing. If you can get a good trade off in a market that is this old, uh, in terms of its bullishness mm-hmm and with sentiment, maybe starting to turn at the beginning of the year here.

Uh, yeah. I, I think you have to highlight it. I actually use one more sports analogy before we finish . Uh, one of the things we we do is, uh, I, I created a system which I called the depth chart, which is exactly what we were talking about before. Mm-hmm so what I would say is, you know, you don't have a lot of like screaming buys on a depth chart right now. It's kinda like saying, you know what, we got five quarterbacks and they're all kind of stinky, but one is less stinky than the rest. Right. And so that's the starter. And by the way, there's probably like 10 NFL teams finishing the season that way. Yeah. Including, including, including my New York giants, giants a dolphin stand, but anyway, um, so, you know, it's all relative, right? And so there needs to be a, a, you know, there's at this point, uh, you know, investors can't be too choosy or too perfect. Uh, there are things to invest in, but your timeframe just has to naturally be shorter than maybe it was a few years ago.

Sure. Well, it's sun garden, investment.com by the way, sun garden, easy to remember because I live in the sunshine state of Florida and I grew up in the garden state of New Jersey. And that's how we got sun garden.

Garden, sun garden, investment.com or, uh, I, you know, my email is just Rob Sunguard, investment.com.

Thank you, Kate. This was terrific. Look forward to doing again soon.