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Investing in What You Know Has Changed (Episode 41)

Investing in What You Know Has Changed (Episode 41)

Details Transcript Guests

What investors can learn from studying the past, as well as offering some ideas about asset classes with future potential.

Kate Stalter
Host

00:04

Welcome to The MarketBeat Podcast. I'm your host, Kate Stalter. And in this show, we cut through the noise and give you real market insights from professional investors, traders, asset managers, and analysts, our guests put the market developments in context and give you actionable information to make you a more successful trader or investor let's get started.

Kate Stalter
Host

00:32

Most of us these days don't really remember those periods of high inflation, or if we do, many of us were too young to have given it any thought at the time, but we're all paying attention this time. Aren't we now it matters to us today. My guest Mike Davis, who specializes in emerging market investing as well as helping immigrants and women achieve financial success is here to discuss how other economies have weathered inflation in the past and what kind of investments and asset classes we might consider at this time. Mike also gives us a good reminder to view your asset classes in terms of your time horizon risk appetite. And to be sure you understand the various instruments that you may purchase. He also shares his views on dollar cost averaging names that you know, and if you think you've heard it before you haven't, there's a bit more to it than the old Peter Lynch advice, then I'm sure you are familiar with, we'll talk about this as a 21st century version of that in today's show, you'll get some tips for buying stocks, with conviction for the long haul. And that does come down to understanding the company and the business model. You'll get some great ideas for strategizing through this particular time in the market and getting through it. So you can live to invest another day. Here's my interview with Mike Davis of olive tree Ridge.

Kate Stalter
Host

02:03

All right. So Mike, you know, as well as I do that, the things that investors are concerned about in addition, of course, to the bear market, interest rates, inflation just a lot in the market and the economy that's on everybody's minds, but you believe that today's investors can learn from history when it comes to what's going on right now. So yeah, give us some examples,

Mike Davis
Guest

02:25

You know, absolutely. History's a great teacher and you know, I think it would benefit anyone to review the tape. Right? Go back to the tape, see, you know, are there others that we can learn from who's been here before and what did they do when faced with similar circumstance? Right. And, you know, I look at, if we take, for example, inflation, right? And in the sector of the market that I'm particularly focused on, which is emerging markets, you know, you look at Africa, for example, Nigeria, Kenya, they've all been there, right? They've been there. They've been there several times, right? If you look all the way back to 2007, 2008, us retail investors in particular, really like the reference 2007, 2008, as you know, an a very remarkable moment of time. Well, if you look at Nigeria, for example, they experienced 2007, 2008, similarly in 2011, all the way to 2016 and again, hyperinflation. Right? So what did they do? Right. You're talking about 180 million people. What did the retail investors there? Do you know, if you look at Kenya, for example, 2011 through 2013, right? The policy rates going up, the CPI index there insane, right? From 2010 into 2011, and then it curved back down 2011 and 12 CPI index in Kenya was outta control. And what did they do? And I think that, you know, reflecting on that, doing some historical analysis will give you some ideas on what folks can do right on,

Kate Stalter
Host

04:18

Well, let me ask you this, Mike, because you know, we're talking about some developing economies there, economies that did not carry the same global influence, obviously as the us. And of course, right now we're looking at the same problems worldwide. What we're seeing right now is not limited to the us it's happening everywhere, but what can we extrapolate from a small developing economy into the us economy? For example.

Mike Davis
Guest

04:44

Yeah. , you're spot on actually, right? It's like the lessons are not 100% directly applicable. You need to take into account things like FX, right? The us dollar right now, green back is the strongest it's ever been. And so when you look at these emerging markets, you do need to take into account what is the base currency in which you are investing, right. If you are investing us dollar, right, then you need to again, consider the impact of what currency you're using to, to maybe execute those strategies. And then to your other point, uh, these, uh, economies, they vary in terms of their global impact. Right. And percentage of the world. Right. But certain trades and certain strategies, I think do have, um, a global impact similar to that, of the us. So you look at like, for example, commodity pricing, right? Like grain, right. Ukrainian grain, like they feed half of the world. Right. And so, you know, while yes. Is the Ukrainian economy as a whole, the same impact as the us economy. No, but grain as a commodity. Yeah. I would be paying attention. Right. So it's not as simple as I am maybe stating it right there is you gotta double click and triple click into these

Kate Stalter
Host

06:06

. I like how you put that, you know, it's funny because not funny. Haha. Just funny. Weird. Yeah. Yeah. Right, right. More like it, it is the thing that I've been thinking of lately is something that I studied in college, which was the lead up to world war II and the Holocaust in Germany, the Weimar Republic and all the wheelbarrows full of Deutschemark that were no good at the time. And I realized were not in that kind of situation. But I think when people start to think about the impact of runaway inflation, maybe some of these really scary scenarios come to mind, don't they?

Mike Davis
Guest

06:45

Oh yeah. You know, you think about like Venezuela, right? Venezuela had, I mean it's a confluence of issues, right? You have Verizon inflation, you have currency devaluation, right? They, you have counterfeit issues with their actual currency so much so that the combination of those things, by the time they, the secret service here in the us helped them with reprint of their currency. By the time they would load it onto plane and land in Venezuela, it was worth less than what the currency, uh, suggested the face value of the currency. Right. And that is again, like ask Venezuelan, what did they do? Right. Ask Brazilians, what did they do? You know, 2009, you know, in Brazil, right. People were buying refrigerators, they were buying hard consumer good like appliances. Right. And I mean, it's, I'm an immigrant to this country. My parents are originally from Iran. Right. And so you, uh, you know, you think about like, what did people in the old country do back in the day, right. And you start seeing things that look more like bartering looking at ways to exchange value, you know, kind of divorce from currency

Kate Stalter
Host

07:59

And Americans are not used to this kind of thing. So I guess I'm still kind of looking for, if you're an investor, you know, you've got your nest egg, you like to retire soon. And I know that this probably puts the kibosh on some people's retirement plans, Mike, at least in the foreseeable future, what are some practical applications than other than running out and buying appliances? What should people be doing?

Mike Davis
Guest

08:22

Yeah. There's only so many refrigerators one can purchase, but you know, I think that looking at there's kind of maybe three considerations in terms of access to these strategies or ease of implementing different strategies is one, right? What is your patience level? Right. So, you know, think of it in terms of time horizon, right. If you're talking about retirement, retirement Nasta right. And depending on your age, that timeframe is gonna vary. Again, I would look at some asset classes require longer horizon something in real estate, for example, right. There's others, you know, crypto, right. That you don't need that long about horizon. Right. But I'm, I'm not suggesting a crypto trade.

Kate Stalter
Host

09:09

no, it's an example. right.

Mike Davis
Guest

09:13

Or a crypto strategy is just an example. You know, the liquidity in these markets are different. So it, it would really depend on, you know, so one is time horizon. The second is, you know, sort of risk appetite, right? The, you know, if you look at the us retail investor and the options available to them, right. Treasuries, treasure strips, right. Things like that. They're very interesting. But the emerging market equivalent of those is gonna require some studying, right? It's gonna require some understanding of local markets. What is available, you know, both kind of on the face and then synthetically, you could create some strategies. And so that brings me to my third point is know how right? How facile are you with these different instruments? Right. You know, I'll give you one extreme example is calls puts options. They're not for everyone training futures and FX, not for everyone. Right. So stay in your lane, make sure that you're comfortable. And then depending on what that, um, aperture looks like, then explore what the options are. Then they, they vary greatly.

Kate Stalter
Host

10:28

Yeah. I always get nervous. And I've seen this repeatedly throughout my career, different iterations of financial services. But I do see people that I believe try to overcomplicate their strategies. And I have seen people getting into investments that they don't understand because they were sold that investment. And I think, I mean, I'm hearing you say that too, like do your due diligence understand what you're buying? How can people do that though? Because you know, frankly, there's a lot of conflicting information out there. Isn't there

Mike Davis
Guest

11:04

Not just as it pertains to finance.

Kate Stalter
Host

11:06

Right? Yeah. True. Yeah. Yeah.

Mike Davis
Guest

11:08

Right. You know, I think back to years ago, but this is before I was married and you know, I was not involved in finance the way I am now. I just had a kind of, you know, tangential appreciation for it. I was really into tech and was very much right. Computer programmer turned CTO at that time in my life. And so when I came to my own investment strategies, I did not have Bloomberg. I did not have an idea of like what day trading was. I knew some folks that were day traders, but I, myself, I knew nothing about it. And so I stayed far, far away from it and I kept my strategy, very simple. And the strategy that I use and still recommend to those who are just starting is dollar cost, average, the things that, you know, right. The names that, you know, publicly traded markets.

Mike Davis
Guest

12:04

Right. I mean, listen, and again, I'm gonna stop short of making recommendations. But what I did was I knew three companies, right? Facebook, Amazon, Netflix, and I bought the same dollar amount. Every single one. Wasn't an exciting strategy. I didn't write home about it. Right. There's no blog posts about like, Hey, look at what happened. This isn't certainly not a game stop situation. I wasn't like, I did not even understand what the phrase short squeeze meant, but I just stuck to my own lane. And you know, that strategy actually paid for my wedding. Right. And it was awesome. Right. It was awesome. Right. It was kind of like found money because I had said it on this like auto invest. Right. Really just kind of very simple to execute strategy. It worked and my time horizon was long. Right. Again, now I'm saving for college for my three kids and yeah. Like time horizon on those investments. And that strategy is much different than say some of the funds that I'm robbing,

Kate Stalter
Host

13:14

Not sure what stocks to buy and which to sell. Well, no worries. Market beat. Has you covered get the latest buy and sell ratings from wall Street's top performing most accurate and most respected research analyst. That's just one part of what you will receive as a MarketBeat all access subscriber. You'll also get MarketBeats, new trending stock lists, which monitor social media chatter in real time to help you identify the next game stop or AMC before you hear about it on the news market, beat all access also features realtime news market events and performance data for your stocks, with the MarketBeat portfolio monitoring tool. And you can take a completely risk free trial for just $1. If you head over to the link we will put in the show notes, you'll get best in class stock research tools, performance ratings for wall street analysts, real time newsfeed, executive support team access, all of this add free for just $1 for the first month sign up today. The link is in the show notes. Yeah. A couple things come to mind, which is, first of all, I think people get impatient if they don't get a quick payoff in this day and age. And the other thing is too, you just reminded me of Peter Lynch by what you know, and I have never advocated that strategy. And I, you're not saying exactly that, but maybe is there something to it? I always get a little nervous about that one, but what's your thought on that,

Mike Davis
Guest

14:51

Mike? Well, hopefully what, you know, hopefully the universe of what, you know, expands over time, right? There's this is not a podcast on lifelong learning and the virtues of lifelong learning, but you know, I really, I go back to Amazon as an exam. I really appreciated Amazon, right? Like the cleverness in which they take, you know, sort of the, what I, what I now call here internally, I call it the Eskimo bone strategy, right? They use every single piece of the whale that they hunt and they put it to use not a single component of that whale waste, Amazon, same thing. Right. They, you know, the cloud infrastructure that they, you know, that now represents a very large portion of their revenues, right. That it was homegrown. They needed it for their own e-commerce, you know, business. And then they said, Hey, what about if we made this available to others?

Mike Davis
Guest

15:48

And so digging into that and like the refinements that they made over time to that cloud offering, I was tracking that. And I, the reason I was tracking that is actually of sheer enjoyment and interest right now, my interests, like, you know, slightly elsewhere, I focus on bridging the gender wealth gap for women and for immigrants. And I'm, you know, really got a, my magnifying glass on the, uh, emerging markets. But similarly, like, you know, it's in not so much maybe invest in what, you know, it's invest in what you're interested in because the pursuit of knowledge and news and being able to discern like, am I reading something that is fact, or am I reading something that is opinion? And then can I form my own opinion, right. That I, I love the point you were making earlier about patience. Right. It's you know, has nothing to do with the current price of a particular name.

Mike Davis
Guest

16:44

Right. It's do I still have conviction in that name? Right. Do I believe Amazon still knows what they're doing? And so I'm gonna continue to buy that dollar cost averaging strategy. Those were the three names I bought for years, you know, and it worked out, obviously the history, you can go back and look at that, but, you know, but it, that worked out. But let me give you a different example, right? The, uh, oh example, right? I know nothing about Bitcoin, right? Like yes, some people have made a bunch of money. I understand that some people have also lost a lot of money, but I don't know anything about, I do not have conviction in my level of knowledge of Bitcoin for me to be in crypto. Right. And because of that, like, I don't have any funds in crypto. I don't personally invest in crypto. I'm not out there talking to potential LPs and investors or portfolio companies about crypto. I, what am I gonna add? Right. And so that's, uh, I would encourage others to do that, right. Just again, like less is more, you don't have to have a day trading strategy. If you are not a day trader, there are other ways to invest

Kate Stalter
Host

17:53

Very, very good point, many ways to invest actually. And that kind of leads me right into the next question. I wanted to ask you, Mike, with investors, looking at their portfolios right now, some people are panicked. Some people are just saying, Hey, it always comes back. We know that, but a lot are wondering what is the right strategy to slay the bear? And I know there are some proponents of going into cash, which strikes me as outdated for a number of reasons. It completely ignores capital gains. But in any event, what's your take on the right strategy to get through a bear market.

Mike Davis
Guest

18:30

Yeah. Ignores capital gates. It also ignores the effect of inflation, you know, but you know, I think that, there's, it's a very interesting question because you're going to want to understand, like, you know, one very clear example that I used to illustrate this point is, think about being a lender in a high inflation environment, right? Your outstanding principle, your unpaid principle balance is gonna get inflated away. Right. And so, you know, the cursory look at that. If you just take that point, you would say, perhaps I should not be in bonds, perhaps I should not be, uh, lending. Right. And you know, maybe, maybe that's true, but it's not a single factor trade. Right? Like what are the complexities of that? Right. And so, you know, going back to, if you have a long view, right. And if you believe that the markets are going to correct over time, over the long run, like then what do I know to be true?

Mike Davis
Guest

19:34

Like I know that like, regardless of what gas prices are today, like gas consumption is not going away. Energy consumption is not going away. Some people are making the EV the counterargument of the popularity of EV's increasing. Sure. But how does your building get heated? Right. And so, like, you know, the thing I would say is use common sense here, right? Like grain people are gonna need grain 20 years from now. They're gonna need grain 10 years from now. Sure. Is it a bear market right now? I would say commodities. I like commodities a lot. I think that emerging markets also represent value. Right. So, you know, like, I, my focus is emerging markets, but, you know, I would also shop for value. Like there was a brief period of time where Robinhood was trading below what their cash balance, their market cap was less than their cash balance. And I'm like, are you, are you kidding me? Right. Again, I don't know enough about Robinhood to be in that, but you know, that to me is curious, yes,

Kate Stalter
Host

20:37

It is.

Mike Davis
Guest

20:38

How many other companies are there, like where that is the case. Right. And what's, again, if I had conviction, if I understood these different businesses, I would be looking at them more carefully. I happen to understand emerging markets more than I do.

Kate Stalter
Host

20:53

I like what you said about use some common sense, and that means not buying into some crazy story you might see on the interwebs. And just think that, Hey, this thing is just gonna go up, up, up, use some common sense. That's some great advice from Mike there. Folks. Hey Mike, I'm looking at the time, we've got a few more minutes here and I did wanna ask you something about some of the broad asset classes that you do find interesting right now and how the average individual investor can approach these.

Mike Davis
Guest

21:25

Yeah. So right now I think housing is pretty interesting, right? Housing for the first time the affordability index dropped below 100. Right? And so like, that is significant. What that means is that the median household income, the median household here cannot afford to buy a home using traditional loan products. So, I mean, just that right there, we could have maybe three, four episodes here on the significance of that statement. But if I'm looking at that it then, you know, kind of begs the question of, so what are people doing again, like the common sense says, says what it means that refis are gonna go down, right? It means that the likelihood that a median, again, median earning household in the us is gonna be refinancing is gonna go down, right. There's gonna be some pressure on, or there's gonna be some consideration around pent up equity in these long term assets.

Mike Davis
Guest

22:27

A lot of folks that's their only, or primary, you know, kind of net worth bucket right. Is their own home. But I would look at like the distress that it's gonna be coming as a result of, you know, the affordability index. You, you look at rising interest, rates that again, like, why are rates going up? Because that's a way to slow down inflation. Yes. That is well understood. That's econ 1 0 1, but what again, what does that mean? That means that, um, you know, new home purchases are gonna get very interesting. That means that, you know, younger population, the new couple within growing family, they're going to need to get very creative

Kate Stalter
Host

23:11

Or rent

Mike Davis
Guest

23:12

Or rent, right? Like where you look at historical cap rates, what does that mean? That means that if you are not so interested so much in purchasing your first home, but you're looking at real estate as an investment category, like, what does that mean for cap rates? Right. I think that's where things are gonna get very interesting. You take that same thinking and now shift it over to emerging markets and things just get a whole lot more interesting. They, they do get more complex, right? You're gonna need to understand the, the regulatory, legal, um, environment in these different geographies. But yeah, like that is one asset class I would be paying attention to.

Kate Stalter
Host

23:54

Well, what about getting into this via liquid vehicles? Like a re like if people who are saying, Hey, I'm not gonna be looking in emerging market for private equity opportunities right now. I just want to go to the brokerage, click a button and buy something. What, what do you say to that?

Mike Davis
Guest

24:11

That's a perfectly fine strategy. Like, I mean, I think that is, again, it checks all the boxes, right? You're staying in your lane. You're realizing that you don't want to spend your time doing this work. You'd rather, you know, just pay the fees on some ETF or some other structured product that is absolutely fine. And there are a lot of smart folks putting out some very interesting new products like war ETFs is another one, like, look at rush Ukraine situation. Right. It's I mean, it's again, like, I hate to just say it's insane, but there are opportunities. Right. And in the kind of way that the slant that I'm looking at it, right. We, I hate the phrase impact investing. What I'm looking at is how do I support women? How do I support immigrants in these regions? And it gets very interesting when you start thinking about like, are there structured products? Are there things that I could bring to the market, invent new products for these markets that could help the situation and produce the yield that my investors would like to see? And the answer is resoundingly. Yes, absolutely. So, yeah. I mean the other way to do it, if you don't wanna be setting up your own private equity investments or your own emerging market investments, right. I would certainly outsource it. Right. Like now is the time to be calling a friendly neighborhood investment manager. Right,

Kate Stalter
Host

25:32

Right. Cause it's true. Cuz they do have a knowledge about products. That is what they do. And I know to some people, products is a dirty word. I understand the context in which you are using it in terms of an ETF is a product, a mutual fund is a product. And people don't even think twice about investing in those. So audience, I don't want you to recoil at the word product. It is just something that's an industry term. And I know what people are, they're talking about like getting sold in annuity. They don't need, I know what people mean when they say that and they're right. You know?

Mike Davis
Guest

26:03

Yeah. Thank you for that clarification. That is not what we mean here. That's not certainly my intent here, but yeah, that's right.

Kate Stalter
Host

26:10

So Mike, let's wrap up here. This has been a fantastic conversation. You mentioned that you enjoy helping immigrants, women talk about how the listeners can get in touch with you, how they can learn more about what you're doing or if they're interested in potentially working with you.

Mike Davis
Guest

26:28

Well, I would say just drop me a note. It's super straightforward. Mike olive tree ridge.com or hit me up on LinkedIn. Right. And uh, or Bloomberg I'm on Bloomberg also MP Davis. But yeah, that would be the way I would say let's just start a conversation. There's nothing for sale here. I don't have any products, right? No. I just spend my time looking at emerging markets. And if that is something that I can do that is helpful to others or your listeners, I'm, I'd be happy to share.

Kate Stalter
Host

26:56

That's awesome. Hey Mike, thank you so much. Really enjoyed our conversation today.

Mike Davis
Guest

27:00

Yeah, you got it. Thank you for having

Kate Stalter
Host

27:05

Thanks again for listening to The MarketBeat Podcast, do not forget to subscribe on Apple Podcasts, Spotify, Stitcher, Google, anywhere else, you get your Podcasts. And you'll also find us on MarketBeat.com. If you enjoy the content here, please give us a five star review. So others can also find all the great interviews and market insights that we bring to you each week. Also, did you know that MarketBeat has a YouTube channel? We sure do. The Podcasts are there as well as tips for getting the most out of MarketBeat and becoming as always a better investor or trader.

Mike Davis, Guest

Founding Partner, Olive Tree Ridge

Kate Stalter

Kate Stalter, Host

MarketBeat Contributor, MarketBeat

Kate Stalter is a Series 65-licensed asset manager, with more than two decades of experience in various areas of financial services. As an investment advisor and financial planner, Kate personally manages client portfolios, with a focus on successful retirement, including asset allocation, income generation and tax strategies. Kate also serves as a capital-markets contributor at Forbes.com, and is an expert columnist for the investment advisory channel at U.S. News & World Report.

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