Is The Market Near a Bottom, Does it Matter? (Episode 35)

Well, it's kind of interesting Kate because they kind of flip flop all the time. You know, they always say when individual investors all dive into the market, it's time to leave for the professional investors. And we saw a lot of that up until the last few months. And now the sentiment, the individual investor sentiment, however, has turned a little bit more bears. It's definitely more bears than what the institutional investor sentiment is. Cuz now I'm starting to see the professionals getting back into the market and, and you know, if you watch any of the new shows like CNBC, you'll hear them all talking about, oh, now's the time to buy? Well, I mean, I don't know if there's a bottom as inherent in the next few days or months, no one could really call a bottom, but you know, it's always smart in my opinion, to be in the market.

I wrote an article about that in the magazine. I think it was last month in talking about the statistics, looking at, if you try to time the market, how bad you generally are, even the professionals are generally pretty bad about that. And as you know, at Cabot, we don't really time the market, but we do look at trends and the trend definitely looks like the market is starting to find its bottom. Again. I would never sell all of my stocks. I would never cash in my 401k or my IRA because that's just crazy. I had friends do that back in the recession and they didn't do it when I knew about it. They told me about it later. And I said, are you crazy? I mean, the market goes up. It goes down. It goes back up again. So sentiment right now looks pretty interesting. It's still low for the bulls. There are more bears than there are bulls out there on both the individual investor and the institutional investor side. But it seems like, you know, as of today it looks like it's getting a little bit better.

No, it isn't. I mean, even for those of us that have done this for a living for, I won't tell you how many decades. Yeah. It's pretty impossible. I, I remember back in 1987, that might have been before your time in the market, Kate, but Elaine Garza rally who worked for Lehman brothers at the time, made a huge name for herself by calling the October, 1987 downturn. And that was basically her last big rah. I mean, not, I think she's still in the business still managing money and I'm not, uh, saying anything bad about her. It's just that it can happen occasionally, you know, a stop clock is right twice a day. So I would just never put my faith in anyone who said that they could time. The market years ago, I was asked to join a company that I ultimately decided not to. And they were teaching seminars for $5,000 a pop and it was all a little green and red arrow system. So here's when you buy and here's when you sell, I'm like, oh, that makes no sense to me whatsoever. so no it's not

Yeah. And you know, the important thing, as I said before is to remain in the market. It doesn't mean you have to remain in the same exact stocks. I mean, I always believe in taking money off the table, when you start making a profit, put that money in your pocket. Yeah. You may have to pay capital gains on it, but it's better to have the money in your pocket. And then look for another opportunity. I mean, this time that we've been in the last few months with high inflation rising interest rates means that we need to look at maybe alternative things that are not in our portfolio right now. Maybe something, a little steadier or a little more conservative, a little more value oriented,

It really is. And I recall back on the tech rack, I mean, I was really running around the country all the time. Then speaking at all the various money shows and different investment exposed. And during 1998 and 99, I mean, you could just throw an arrow in any company that had any sort of technology was going up 40%, 60%, a hundred percent overnight. And I would do my presentations at these exposed. And I would say, how many people own XYZ stock? You know, the entire room had owned this stock that no one knew anything about had never made a profit in this lifetime. Couldn't explain it to the grandmother if they tried. And then of course the bottom fell out and everybody lost most of that money during that time. I just couldn't figure out what a lot of those tech stocks did. And I would, at that time in my newsletter, I was traveling around the country and visiting all of the companies that I wrote up in my newsletter.

And I would always say to them, forget the jargon in 25 words or less, tell me in plain English, what it is that you do, you make, who do you sell it to? Blah, blah, blah. And if I could get that, then I could understand the stock. If I couldn't, I couldn't understand it and I wouldn't recommend it, but, and I put some of those stocks in my portfolios and they ultimately got bought by bigger companies and we did very well, but at the same time I was loading up on dividend stocks and real estate investment trust.

Yes, exactly. It can. And you know, the old days when I first got in the business, it was, you had the fundamental analyst, which is what I am and always will be with a little technical thrown in. And you had the technical analyst and the two never met and the technical analysts are all back. Then, you know, trade on these, look at the bar charts, look all of the, uh, head and shoulders charts and all that stuff that I never really took the time to learn that. I know you do understand that when the fundamental analysts were just look at the company stupid, you can buy this company and hold it forever. Well, that's no longer true. I mean, years ago, a people used to hold like, remember, pan am the airline. That was a great stock for years. And people bought it. Then their kids inherited it. Then their grandkids inherited it, but there's hardly a stock alive that you can do that with anymore. You know, you really have to look at the fundamentals of the company and you have to look at the technicals because you have to know when's a good time to buy and when's a good time to get out. You just cannot any longer put those stocks in your portfolio and forget about them,

It is. Yeah. And individual investors, just, you know, as I said before, they have the habit of getting in the market at exactly the wrong time. I remember I was taking a limo from the airport to one of the hotels in Las Vegas for a money show. This was back in 2008. And the limo driver was talking to me about flipping houses. And I thought, oh boy, it's time to get outta the housing market. you know, it's just like, you're in a cab in New York and the cab driver's talking about buying stocks. You're like yep. Time to get out. But yeah, you've gotta look at the fundamental factors cuz honestly, no matter how good the technicals are, if the company is lousy, you shouldn't buy it unless you're day trading or something, which I don't recommend. But you know, you have to look at, I look at a lot of factors, but you know, you can boil 'em down.

In fact, the Bible of securities analysis that was written by Graham and DOD back in the 1930s is still very, very relevant today. And I remember him saying, and Warren Buffett, who was a student of Graham and Ashley Graham was his teacher at Columbia. He always said, there's really five things you need to know about a company. And you can analyze almost any company with those five things. However that each co industry also has additional things you may need to look at. But I mean, basically if you look at cash flow company, are they making money from what they're doing? I mean, if they make bicycles, they shouldn't really be making that much money off their real estate investments. Most of their money should come outta making bicycles, you know? And that's your basically your operating income line on your cash flow statement. Uh, you look at debt and I explained to people that it's the same thing as your personal debt years ago, I was in banking and a young man came in and he owed $88,000 on credit cards.

He was probably in his twenties and he made 44,000 a year and he was looking for some kind of a consolidation loan. I couldn't help him. He had no equity, but it's just the same with the company's balance sheet. You look at their debt and then look in their notes to financial statements to see, you know, what their interest rate is. Is it variable? How much are their payments for leases and loans? Are they making enough money to cover? 'em it's that simple, you know, and then they should have additional money so they can build their company. But you know, those are two of the most important things. And of course the valuation of the company, whether you're looking at the PE ratio or the priced to growth ratio, you want a company that is valued at a reasonable level. And in the old days, anything with a PE under 10 was considered cheap, over 20 was considered expensive.

And then the middle was where you bought, well, that's out the window now because you know, even though I love value based companies, I have certainly bought a lot of companies with PEs of 65 or higher it's changed. You're right? Yes. If they are trading and you know, if they have the bones, basically, I also like to look at ownership of the stock is how much is institutionally owned? How much is individually owned? And that varies so much by industry. I mean, if you look at utilities, you have 1% insider ownership, which is tiny, but is not really tiny because they have millions and billions of shares outstanding. But if you're looking at a regional bank, you're gonna be more interested in how much do the executives of the bank hold and how much do the founding family hold. And if you're looking at a stock that has 98% institutional ownership, you're gonna know that you're gonna have a lot of volatility in it because it's the herd mentality.

As you know, if one person, one analyst on wall street says let's sell the shares of X, Y, Z, everybody else does the same thing. So that's gonna cause your stock to go down. So, you know, somewhere between 30 and 65% is probably a good ratio to look at for institutional ownership. And I guess one of the last things I look at is how many analysts are following the company and who they are. And it's sort of the same with institutional ownership. It can make it very volatile. I always love to see one or two of the little regional boutique analysts that really know the company cuz they're located in that area. I like to see them following. I don't really care so much whether analysts say buy or sell because they almost always say bye . But what they're really good for is industry analysis. So if you are not interested in a company in particular industry, call your brokerage company and say, Hey, you got any analyst following this company. And then you'll get a lot of information. And

Yeah, well, you know, that's the kind of companies I used to travel to see so small and mid-cap companies and I would go visit three or four every month and yeah, because it's hard to get that information. But if you look at the local newspapers where they're, they're at, they'll follow those companies, they usually always have some sort of a business newspaper and you can get a lot of information. And the other thing is utilize that investor relations person. Yeah. Because they, a lot of times know more than almost anybody else at the company. I mean, they really dig into the numbers. They work very closely with the CFOs and you know, even if you own five shares still they'll talk to you. They will. Yeah. I would always say give them a call because those people, they do work really, really hard and they're not the hypesters, you know, the hypesters you wanna stay away from, but these are people that have a legitimate reason to promote their company's

well, I mean, that's the beauty of some of the smaller companies, because when I visited these companies, I almost always met with the CEO and the CFO or at least one of them. And it was fascinating because especially the CEO, oftentimes he was the founder of the company. The guys like has ants in his pants. He can't settle down, cuz he's so excited about his company and his product and it's contagious, you know? And you think, wow, this guy probably has some, he's really invested in his company. And those are the kind of people that you wanna see. And then other times I went to visit a company that made vitamins, it was a wellness company. So now I'm thinking, you know, okay, they're gonna give me the whole spiel. Like what do you eat? And what vitamins do you take? The secretary to the CFO comes out with a cigarette hanging out of her mouth.

I go in to see the CFO he's got ashtray's piled high and think, oh my God, now you knew I was coming. You should have hit those

Yeah, yeah. You know, it's, it's crazy stuff. One time I went to a company that made shoes and they wouldn't let me look at their warehouse. Ah, and I'm like, oh that's weird. That's really weird. Yeah.

No, no. Another time I went to visit Hormel, you know, back then they were mostly a port producer and those guys, I talk about excited about their business. Of course, by then they'd already been in the business a hundred years and they had made SCDs of money, but they wanted to know if I wanted to see the slaughter house. I'm like, no thanks.

No, no. I don't wanna see how they make spam.

Yeah. Well I've always thought about that, about writing a book about the people I've encountered, because I'm telling you, I've always had a deep seated interest in how people became successful and how they made their company successful. I was the kid that read all of the biographies in the librarian school, but I'll just tell you one more story, which I think is just fascinating. I went to see a company called CTOs. They make uniforms, you know, they're red, white and blue vans and they're outta Cincinnati. And uh, talking with the people there, you know, how'd you get started, blah blah. So how they got started was the owner, the founder of the company was a circus performer during the depression. He was an Acrobat. Well, there were, nobody could go to the circus during the depression. There was no money. He had a wife and small child. So in Cincinnati there were a lot of machine shops downtown and they would throw their greasy rags out at the end of the evening in the alley. He went and collected them and started laundering them. And that's how that company got started.

Really interesting. So, you know, back to cap stock of the month, I mean, we've got a few things in our portfolio we're pretty new at this and this is really sort of an introduction to the cap analyst and all of the newsletters that Cabot provides. And I actually excerpt from 13 different newsletters. So whether your interest is in growth ETFs, like you do Kate value, income options, crypto, you name it. I mean, we're gonna talk about it in the newsletter and you know, having analyzed companies for 30, I don't know how many years, 35 years or more. I think I have a good cat Burt seat to kind of decide, you know, what's kind of good for the current economy that we,

Yeah. We will breeze right past that.

So yeah. Well, and I don't know anything about it. I mean, other than what I see on the news, but I will say this, I wish I had bought it four years ago. sure. So let me just tell you about the, we've only got three in the portfolio right now, I'm in the process of writing the next issue, which will be an income stock is a little teaser. But right now we have one growth stock that I actually put in there in April, it's called GitLab GT L B. And that came out of Tyler London's capital early opportunities, but it's a, it's a kind of a hard company to understand it is leader in the dev ops. So what it is, you know, everybody's always making all of these applications for and writing programs for pretty much every application you can think of and this kind of collaborates them together so that people remember how they used to be open sourced and closed sourced with software and Microsoft wouldn't write software that apple could use, well, that's kind of gone by the wayside.

So this is kind of doing the same sort of thing in the development of applications and operations. It allows developers a different software to collaborate together. So it's pretty cool. And you know, we're up about 5% on it, which I guess is pretty good since, since April the market's mostly gone down, but a G TLB is the symbol of that. The one I wrote about last month is MI homes with a symbol of M O and you probably think I'm totally insane to recommend a home builder. It's the 13th largest builder in the us. And they're in 16 different markets. They've managed to expand their markets over the last few years. They're actually making money and their markets are very diversified. So I think that even though home prices are starting to retract, some sales are gonna go down this year. I know that that's going to happen just because of the way that the market is. And especially if we do hit a recession, but I think they'll be able to weather it. They've weathered it since I think 1996. So they're really in pretty good shape.

Right. Yeah. And many of 'em have spread out into financing, the homes, you know, handling title, insurance, that kind of thing. So that you are somewhat diversified. Cuz believe me, I, I own a real estate company and I've been in the real estate business for almost 20 years. I've seen every cycle so far. I mean a lot of the people new in the business now I've never seen this kind of cycle, cuz it's been so great for the last really six to nine months, but it's changing now, but you still manage to survive. You know, you do things different in your business, you have sales and those kind of things. And they will definitely slow down in development that has to happen interest rates. Of course, as they're going up and inflation goes up, people still think that, oh, that's going to kill the housing market.

Let me just say this. The first home I bought was at a 14% interest rate. People still buy homes when interest rates are higher, you just maybe can't buy as much of a home as you wanted to. You know, maybe it's not in the prime location, but you can still buy a home. And, and what happens in times like this is you get all these little programs popping up that the government advocates, you know, if you're a veteran, you can do a VA loan. You can do an FHA loan if you're lower income. Although the income now is like is pretty darn high and you can buy houses with FHA that are much higher than what you could in the past. And I know in our local area in Tennessee, you've got th D a and U S D a and they also will help people with down payments and that kind of thing so that market's not gonna drive. So I'm still a big fan of that company. And the last one in our portfolio right now is JD, which was a ETF that you recommended Kate,

Mm-hmm yeah. And it's the Invesco Dow Jones, industrial average dividend ETF. It currently has a 3.1% yield. Most of its sectors, the biggest part of its sectors are in healthcare technology and finance. And some of the companies that hold are IBM Dow or Verizon Chevron, Cisco. So it's a real solid company, a real solid ETF. And I think that in this particular time that we're in, those are really the great things that we wanna look at. We wanna look at stocks and ETFs and even mutual funds. If you're a fund buyer that has some solid fundamentals into 'em that, you know, you can go to sleep tonight knowing that you hold this rather than having to worry about, oh, should I get up at five to make sure I can trade this thing because that's not the kind of stock that I like to invest in.

Well, the Cabot stock of the month is on our Cabo wealth website. In addition to that, we have the financial magazine, the Cabot stock of the month magazine. And I do a lot of different things on there. They're mostly related to investing to, but I've talked a lot about inflation in the last couple of months. And I gave tips in June about how consumers could actually help combat inflation. So there's, I don't know, there's probably two and a half years worth of magazines on our website and they offer anything from estate planning to handling your 401k, your IRA. So pretty much anything financial you can think of.

Thank you Kate. Appreciate it.