SKEPTIC’S GUIDE TO INVESTING
Straight Talk for All, Nonsense for None
About - Our podcast looks to help improve investing IQ. We share 15-30 minutes on finance, market and investment ideas. We bring experience and empathy to the complex process of financial wellness. Every journey is unique, so we look for ways our insights can help listeners. Also, we want to have fun😎
Your Hosts - Meet Steve Davenport, CFA and Clem Miller, CFA as they discus the latest in news, markets and investments. They each bring over 25 years in the investment industry to their discussions. Steve brings a domestic stock and quantitative emphasis, Clem has a more fundamental and international perspective. They hope to bring experience, honesty and humility to these podcasts. There are a lot of acronyms and financial terms which confuse more than they help. There are many entertainers versus analysts promoting get rich quick ideas. Let’s cut through the nonsense with straight talk!
Disclaimer - These podcasts are not intended as investment advice. Individuals please consult your own investment, tax and legal advisors. They provide these insights for educational purposes only.
SKEPTIC’S GUIDE TO INVESTING
Protecting Your Portfolio: Strategies for Economic Uncertainty
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Unlock the secrets to safeguarding your investments amidst uncertain economic times with our latest episode, featuring an engaging discussion with financial expert Steve Davenport. Together, we dive into effective strategies for protecting your portfolio from potential downturns, emphasizing the critical role of conservative asset allocation. Learn how to balance growth, income, and stability, while navigating the challenges posed by economic factors like debt ceiling issues and geopolitical tensions. This episode equips you with insights to maintain a resilient investment portfolio tailored to your unique needs.
Explore the intricate dynamics of diversification and risk management within our portfolios. We examine the role of median beta values, alongside the strategic inclusion of high-growth stocks like NVIDIA, to balance risk and potential returns. Discover how hedging strategies—such as put options and collars—can be essential tools for those approaching retirement, aiming for simplicity, or managing market volatility. We offer insightful examples and practical advice to help you make informed decisions on your financial journey.
As we conclude, we invite listeners to embrace a healthy dose of skepticism while remaining open to improvement. Reflecting on the value of this discussion, we express our excitement for the future, with plans to introduce new voices like James Thorne and Steve Gattuso. We extend our heartfelt gratitude to our audience, looking forward to a year filled with promise and continued exploration of strategies to navigate the ever-changing investment landscape. Join us on this journey to financial resilience and peace of mind.
Straight Talk for All - Nonsense for None
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Good morning everybody and welcome to Skeptic's Guide to Investing. I'm Clem Miller and I'm here with Steve Davenport, and today we're talking about downside protection in portfolios. In a way, this is a companion to our other podcast episode that we did today, which has to do with how to give a little oomph to your portfolios. Well, now we're talking about how to protect the downside on those portfolios, and I would just say that I think this is a timely discussion, because we did see some downside in the month of December and I think there's a lot of concern among many investors about what could happen in 2025.
Clem Miller:On the economic and financial front, you've got you know the whole debt ceiling, potential debt ceiling crisis. You've got the issues around potential tariffs. You've got you know potential mass deportations out of some critical industries like construction and agriculture. So you know, you've got some issues that could prove, you know, rather negative for the US economy. And, of course, you've got you know other issues too, such as, you know, geopolitical issues. You know Russia, ukraine, china, even Greenland, Steve, that's right, I didn't think about Greenland.
Clem Miller:So I think, you know, I think this discussion will be really about how to protect portfolios. I know, for me it's about the, it's really about the 80% of the portfolio, that's. That's really, uh, that where I really try to be quite conservative. Um, but Steve, why don't you know, why don't you tell me how? How do you protect your portfolios, uh, against the downside?
Steve Davenport:Well, I mean, I'd start off by first being humble here, because I think there are no right answers. There are only choices for individual situations. We have this responsibility as managers for clients to try to understand how do we play off their need for income, their need for growth to keep up with inflation, their need to be in names that they can believe in and hold when situations like COVID or any of the other major disruptions occur in markets. How do you make sure that the portfolio is one that will get you through those hard times and the clients will feel comfortable in them through those hard times so that they can wait it out and see a rebound and bring it back up? I realize that every client is different. Every client has their own needs and wants in terms of what they expect from their investments, but I think it's good to go back to the beginning and say what is your asset allocation? Have you been comfortable with that? We've had a run here two straight years of over 20% returns. Therefore, we would probably say your equity allocation is probably above what you're used to. Therefore, you can wait until that equity allocation goes down, as some of these overpriced names correct, or you can try to be a little more proactive and say I want to try to reduce my risk so that I can get to a place that I still feel comfortable and then I will be able to ride out any downturn. So what we try to do is to say, hey, are there, and that's what our other podcast did. It said beyond these MAG-7, because really, when you look at it, the returns of the indexes was made up by. 80% of that return came from those seven names. So we weren't in all seven names because we didn't believe they were the right investments. And some of that is unfortunate in terms of if you're hungry for return and you're not hungry for results, you sometimes keep names that are at a multiple or at a peg ratio that you're uncomfortable with, because you want to ride the roller coaster. And what we're trying to do is say to people hey, you can smooth out that ride by thinking about how to manage risk.
Steve Davenport:So I'm going to go back to the beginning and say look, if your allocation is in a taxable or a non-taxable account, you're going to approach it differently. In a non-taxable or a retirement account, like a 401k or like an IRA, you would probably say it's easy to reduce my beta, reduce my risk and say, okay, this portfolio has gone from 70-30 to now it's almost 90% equities and 10% bonds. I can sell in that non-taxable account and bring it back to where it is should be at that 70 or 75% with no impact in terms of you having to pay taxes. That's the great thing about your retirement assets is that you can reallocate and reduce risk when you need to get back to what I would call a more standard approach. That's easy.
Steve Davenport:Taxable money is a little harder because selling each of those names where you have I don't know some outrageous returns and gains in the NVIDIAs and the Broadcoms right, so it's all gain and therefore selling those names will involve a certain tax bite, and so I think it's a much harder decision to do some selling. But I think it also you know you can think about where we are with our budget deficits and where we are with a new administration. A new administration and they have been touting the fact that your taxes will go down and they will maintain the tax rates that they put in place previously. But you can also look and say they weren't able to raise the debt ceiling, they still haven't been and there isn't a real majority. That's manageable in terms of some of these issues. So my worry is that tax rates don't go down but actually go up because they're not able to. You know what happens if the government is not able to extend the tax cuts Taxes go up. As taxes go up, it becomes even harder for you to sell some of those taxable gains you have in your accounts. Therefore, I'm going to say it might be the year that you consider taking some of those taxable gains because you can't be sure that you know that the tax rates are going to be extended.
Steve Davenport:So, at the beginning, what's your allocation? Is it in taxable, is it in non-taxable? And how can I adjust things so that I have as little impact as possible in terms of assets that continue to grow and continue to do things for me so that I can live my life and have the portfolio aligned with those beliefs? So that's the high level. And then the area that I specialize in is using equity options to try to manage that risk. And so for taxable investors with a large single position or a large exposure in an index portfolio, there are ways to use equity options such that you can hedge yourself and hedge some of that risk of a large decline away, so that you could see those hedges go up in value as your portfolio goes down in value? What do you think, clem, in terms of starting at the beginning and how to find ways to make your portfolio better balanced or rebalanced?
Clem Miller:Okay, so, Steve, I have a long-only portfolio. There are certain indicators that I look at within the portfolio in terms of my stock selection and weights, which aim to try to preclude or minimize downside in the portfolio. So I'd like to go through some of those and then talk about some of the names that I have in this portfolio that achieve that. So, as I do this have some of those names grown more than you expected. Oh, yeah, definitely. And have you already trimmed them or-? Yeah, I have trimmed them, I'll give you one example.
Clem Miller:You're taxable and you're not taxable'm. I'm doing all this in retirement accounts, so, so, so, so, like the one that's grown a lot, um, like I don't know, maybe surprisingly, maybe not progressive insurance Um, it's done very, very well. Um, it's been a major contributor Well, not major, that's an exaggeration, but a good, solid contributor to the returns in my portfolio. But let's, I'll go into some of the names, but let me talk about kind of the median indicators of the stocks in my portfolio. So, in terms of beta and you know beta, you beta.
Clem Miller:For those who may not know, beta is the sensitivity to the overall market. For example, a lot of the Mag7 stocks, or I think all of the Mag7 stocks, have pretty significant betas. In other words, they'll do better than the market when the market goes up, but when the market goes down, which is of course our fear, they'll do quite a bit worse than the market. And that's true for anything that's really, you know, very, or most things that are really very high growth stocks. So what is my beta in my portfolio? Median beta is 0.95. Stocks so what is my beta in my portfolio? Median beta is 0.95. So just slightly worse, well, slightly better, let me call it that way slightly lower than the 1.0. And that even reflects the fact that I have a number of as we talked about in the other portfolio a number of spicy stocks in the portfolio that have betas of really above two. But when you take the median in my portfolio, it's still below one 0.95.
Steve Davenport:What's the average?
Clem Miller:Yeah, so it's just a little bit below the 1.0. So I've kept that a little bit lower. Now, within that, I mentioned that there's some spicy stocks that pull up the beta, but 10 of the 60 holdings in my portfolio have a beta of under 50. Wow, beta of under 50. So those are stocks that actually don't have much reaction to what's going on in the overall market and are really my downside protection as far as beta is concerned.
Steve Davenport:So do those names, have some good income uh, some of them have great income.
Clem Miller:Um, let me, I'm going to read you several of these names. So, in terms of um, so let me go through some of these. So, philip morris has a beta of 0.16. Progressive Insurance 0.22. Pilgrim's Pride there's a small cap name for you, right? Yeah, 0.26. Interestingly, one of the spicy stocks we talked about in our last segment has a beta of only 0.32. That's AGX. Argon. Primo Brands 0.36. Allstate 0.42. T-mobile 0.44. Ingredion 0.48. Traveler 0.50. And Berkshire Hathaway 0.44. Ingredion 0.48. Traveler 0.50. And Berkshire Hathaway 0.50. And I got a number of other ones that are obviously below the 0.95 median, but those are the stocks in my portfolio that keep the beta down.
Steve Davenport:Do you ever calculate the average instead of the median, the weighted average?
Clem Miller:Yeah, the weighted average. Well, the median and the average are the same, unless you weight them. So no, I have not done that. It would be a little higher though, because I have slightly higher weights in, you know, like Microsoft and NVIDIA and so on, so it would be slightly higher, but not, I don't think, a lot higher, because I tend to have I'm not equal weighted like you are, but you know I tend to be a bit flatter, so you know I might have, for example, twice as much in Google as I have in Philip Morris. So it's still, you know, it's still not overly weighted towards Mag7 type stocks. And so there's that. How much did the Mag7?
Steve Davenport:make up of your portfolio.
Clem Miller:Well, you know, since I don't really think in terms of Mag7.
Steve Davenport:Let's just say you joined CNBC for the day. Are you a?
Clem Miller:Mag 7 guy? No, absolutely not. I don't have Tesla in the portfolio, for example, right, and I have relatively modest allocations to really all of the others. The largest allocation I have would be to NVIDIA.
Steve Davenport:You know, the largest allocation.
Clem Miller:I have would be to NVIDIA. But you know, guess that I might have about somewhere between 10% and 15% in those stocks.
Steve Davenport:Really.
Clem Miller:Yep, okay, so not much actually.
Clem Miller:No that's not much at all 15% in the MAG-7. So that's beta. I also look at, as I've talked about in numerous calls, short interest, because I think short interest tells us how the market views the prospects of downside movement in individual stocks. And my median short interest ratio in the portfolio is 1.3%. And I have 12 stocks out of the 60 in my portfolio which have actually under 1% short interest. Nice, just to scale this a little bit.
Clem Miller:When you look into what is considered a dangerous or semi-dangerous level of short interest, really you have to get up above 5% or even 10% before people consider a short interest ratio as dangerous. And I have a median of 1.3%, so there's not a lot of negative sentiment in the stocks in my portfolio. Now I know you look a lot at peg ratios and for those of you who don't know what a peg ratio is, that's the, and I look at forward peg. So that would be the forward PE ratio divided by expected growth over the next few years. That is for me it's 1.8 times PEG. I think this idea of one times PEG is ridiculous.
Steve Davenport:I think that every value investor and every growth investor has different goals and different ideas. So I think the fact that you're using a peg, at least as a guideline, is a step in the right direction. Now, once you get past that, I think that everything else becomes personalization, and I think that it's good to have these things on your radar and you're looking at them, because that at least shows that there's a degree at which you will be influenced by names that become, let's just say, out of the range of what you accept.
Clem Miller:So, steve, looking at my stocks that have low pegs, allstate has a forward peg 0.07. Wow, skywest, it's a small airline carrier that services small towns, small cities. You know services, you know small towns, uh, small cities, uh, that the big carriers won't service. Skywest 0.11. Uh, interestingly, we talked about a spicy stock called kindrel. It has a peg of only 0.14. Uh, pilgrims pride 0.18. Progressive insurance 0.37. Travelers 0.18. Progressive Insurance 0.37. Travelers 0.71. Celestica, that Canadian spicy stock 0.86. Us Foods 1.09. T-mobile 1.14. And Ingredion 1.18. Even NVIDIA has only a 1.19 forward peg. So those are my pegs. I didn't tell you my low short interest stocks, so I'll tell you some of those. So Walmart 0.5. Mastercard 0.61. Oracle 0.61. Oracle 0.73. Philip Morris 0.73. Amazon 0.79. Microsoft 0.81. Boston Scientific 0.84. Progressive Insurance 0.85. Allstate 0.87. Google 0.87. Google 0.90. Parker Hannafin 1.01. Blackrock 1.02.
Steve Davenport:So those are my short interest stocks and I think that when you look at those ratios, though, we have to always have a little bit of caution, right, because those numbers are all based on where the stock is now and where you think it's growing to. And if we take a step back and look at diversification as a tool, it's only a tool. It's not perfect, right? We know that there's a situation where, when the market's correct, it becomes all about the macro risk, right, and not about the individual, and so your focus on the individual is trying to find the best companies, and I think you've done a lot in that aspect. But there is a general market environment, which is where I spend a lot of my time in the macro space, saying are there macro events that are going to occur, like inflation staying higher and the Fed not lowering rates, that are going to negatively impact all of my stocks? And, as we know from some of the research, the correlations go to one when we have a 20% downturn, right? So I'm you know.
Clem Miller:Yeah, except I would say that there are certain stocks. Okay, yeah, correlation, well, correlations among asset classes as well as stocks increase. But you know, what can you say about? You know, philip Morris, progressive pilgrims, pride, which is food, primo brands, which is water, right, all state you know how much.
Steve Davenport:How much do you have in technology, colin?
Clem Miller:You know, I don't look at it. See you, and I look at things a little differently right. That's why we're on the show together, Colin, because there's different ways to look at it, I would argue that sectors, the gig sectors, aren't as useful as perhaps they used to be. So you know, amazon. Let's take Amazon, technology, stock or not. It's not a technology stock. It's lumped with cars. It's lumped with cars. It's lumped with cars and consumer discretionary I'm just saying in general, clem.
Steve Davenport:If we look at the overpriced or the highly priced areas of the market right now, there's been a movement towards a lot of technology in the AI space that has made that piece of the market a little more pricey.
Clem Miller:All.
Steve Davenport:I'm saying is you can talk about Pilgrim Pride and you can talk about Philip Morris, but if they represent 1% or 2% of your portfolio and technology represents 40%, if a downturn occurs, it's probably going to be technology-led. If a downturn occurs, it's probably going to be technology-led, and that's my you know. That's a perfect lead-in to my you know. So, steve, before you jump ahead.
Clem Miller:You just semi-accused me of having maybe small allocations to these things, so let me just go down my list. I got Allstate. Down my list. I got uh, I got all state. I've got uh. I've got um armstrong world industries. I've got american express I've got uh. I've got black rock uh, I've got uh you have 60 names.
Steve Davenport:Clement, I'm not arguing the ground.
Clem Miller:Industries, boston scientific uh, I've got costco, I still have in the portfolio. I'm not arguing that. Brown Industries, boston Scientific I've got Costco, I still have in the portfolio, although I obviously I question that at times. Dorman, which is an automotive You're not going to list every name, are you? Yeah, no, I got gold in the portfolio too, but in any case, I just wanted to point out that I have a lot of.
Steve Davenport:You know that gold doesn't pay you any dividends, right?
Clem Miller:What you know, that gold doesn't pay you. But gold is a very small portion of my portfolio. Let's see what its weight is.
Steve Davenport:Okay, my only point, clem, was that it's good to have those other names, and I think that you're trying to impact your beta is a good approach.
Clem Miller:I got a 1% allocation to gold.
Steve Davenport:Okay, you still didn't tell me how much is in technology, but I won't.
Clem Miller:That's because, in my view, technology, the gig sectors are all split up. It depends on how you define technology. The gig sectors have moved around a lot. You've got Amazon lumped in with cars and consumer discretionary. You've got Meta and Alphabet, which are over in communication services. Right, they're not in technology anymore. So you know what's left in technology. You got Apple. You got the semiconductor stocks right, I'm familiar Colin.
Steve Davenport:Yeah, so I'm just saying I know you're familiar.
Clem Miller:but for the benefit of our audience, you know, I just want to point out that you get, so you don't consider them technology stocks because they're in different sectors. Yeah, I mean, you can or you can't, I just, I just choose not to think in terms of gig sectors.
Steve Davenport:OK, I was speaking in general, I wasn't asking for their gig code and the fact that you won't give me an answer, I think is the answer enough. I think that Clem's situation and other people's situation right now is very prevalent, which is it's very hard to answer a question about how much risk am I taking in my portfolio, and I think that we all know that risk is a term that has a lot of different meanings and a lot of different things to different people. So when I look at a client portfolio, I believe that you should always have a component of that portfolio that is in the index and is a core part of what you do, because it's a very efficient way to get exposure to that return stream at a very low cost. But one of the reasons why I like to have that position in an index is that if you start to feel that the market is being overpriced, you can then hedge that index, meaning you can buy a put option, and a put option is the option to sell at a given price for a period of time, and you can sell a call option to pay for that put option, which means you sell above the price currently and at that price you'll get paid something and you use that price, that payment, to use against the price of the put, and that's what they call a caller. So a caller is a way for you to reduce the risk of the portfolio, particularly in a taxable account where somebody says hey, I'm just not as comfortable with all of this, I want to wait till next year, when I'm not working as much and I can take more gains, or I want to do something where I'm going to retire soon and I just want to make sure my portfolio is protected.
Steve Davenport:And so Clem goes long. Only he could obviously incorporate some of these names in type of a hedge strategy. But for simplicity's sake, and because he's a sophisticated investor, he's able to say I can live with everything I bought because I really understand the underlying companies. Some people, you know, their day job doesn't allow them the time and the space and their backgrounds are such that they just don't think that way, and so they're looking for simplicity. And so, in that search for simplicity, we want to try to talk to those investors and those listeners who might say hey, I've never thought about that, how would it work? So when we look at the market right now, the S&P ETF, spy is at 586.
Steve Davenport:And so what I've done is I've looked at different put options, different amounts below that, and so if I go 15% below that, it's about 500. And so if I look at a 500 put option for September of 2025, september 30th so I think that this is just Steve Davenport talking, no one else. I think there's going to Steve Davenport talking, no one else. I think there's going to be some volatility this year, and if that volatility is going to affect you, you might want to do something to protect your assets at this level, and so, therefore, the 500 put option costs $9. That's about 1.5 percent of the current market. So if you own the SPY or you own another index, you could probably find a put option similar to this for that index exposure. Maybe it's the Russell 3, maybe it's the Vanguard index, maybe it's the black.
Steve Davenport:There's a lot of different choices out there for your index exposure, and some people will look at that and say one and a half percent, that's very expensive. Well, it is, until your portfolio starts to lose money. Right, and the way that these options are measured is using something called the implied volatility, and the implied volatility of that is 22%. Historically, the S&P has had an implied volatility somewhere between 18 and 20. So at 22%, it's a little above average. And then, in order to pay for that, people would want to sell a call option, and so it costs 1.5% $9 on 586.
Steve Davenport:If we look at the call options at 650, and I'm picking general numbers here, I know it's not exactly the same amount of upside as downside, but just kind of looking at that it will pay you about $8.7. So it's almost exactly offsetting. So 1.5 expense, 1.7 or 6 On the upside it's a wash and that's what they call a costless call. It's really cashless because there is a cost. You're giving up the upside above 650. And a lot of people are forecasting the value at the end of 2025 of much higher than 6,500 on the S&P.
Steve Davenport:But what I'm saying is, if your view is the market is fully priced and is unlikely to go up another 15% now, then it might be worth considering. I think that you can also do other things, like the 625, you get paid $18. The 675, you get paid less, only $3.70. So there are choices that you can make that say, I have a view that the market has more upside, so I don't want to sell a call that close. I want to sell a call a little higher than 650. You can look at it and say I'm not worried about the market. Going side costs less. It costs about 1.1%.
Steve Davenport:So there are ways to structure things based on your own needs and your own desires. One need is hey, I'm retiring in two years. I've done very well. I don't want to sell and pay all these taxes and I'm a middle child. So guess what I'm going to say If you're not sure about doing this, do it on part of it. Take part of your portfolio and say I'm going to hold this amount of the S&P forever. I think in my retirement account it's going to be 20% and right now it's 40% in the S&P index. So I'm only going to hedge the half. That, I think, is something that I might adjust as I go into retirement. So go ahead.
Clem Miller:I was going to say. A question that some might ask is wouldn't it be simpler to just have a high allocation to cash?
Steve Davenport:Well, in a taxable account, you can't get a high allocation to cash without paying taxes, yeah, so what I'm saying is that there are people who, yes, it would be nice in a non-taxable, you go to cash and that was choice number one at the beginning. I think that that works for a lot of people. But a lot of people have company stock. A lot of people have exposure to their taxable accounts is where a lot of their assets and their gains are, especially if you've owned NVIDIA or Broadcom in the last two years, you know those names are up a couple of hundred percent. So I looked at my NVIDIA gain I was just shocked, it was 1100%. Looked at my Nvidia gain I was just shocked, it was 1100%. I didn't think I, you know, had done a you know great job jumping on Nvidia. I think I was a pretty late participant, but that's an enormous amount and there's a lot of tax in that. And so, yes, we can wait until. You know, I don't want to make decisions just on taxes. What I would suggest is you take some taxes, pay your taxes and move on and say you've done very well, because in a year or two, if the tax bill is not renewed, you will be glad that you sold at today's rates. The other thing is in your non-taxable accounts. It's an easy way to diversify, so diversify. But for the hard question, which is what do I do with these taxable assets that I really don't want to sell and pay, I'm still working, I'm making over $300,000 and therefore I am paying a very high tax rate. Those are the people that you're going to say all right, there needs to be another solution, and that's where I say hedging is one alternative to doing that. There is another alternative, there's something called an exchange fund. There are other alternatives out there, but I think that for most people it is advisable to just look at the list and say can I sell because I'm in a non-taxable? Am I overweight to equities? Should I have more fixed income? If I think rates are going to stay higher for longer 4% or 5%, with very little risk of default, I don't know we could probably have a show on the default and the government, because I think we're going to have another round of the debt ceiling circus, but I think that, from a very low risk perspective, some of those bonds at 4% not a bad way to kind of ride out the storm I think we are going to have a storm this year.
Steve Davenport:Am I positive? No, I can't be positive because I can't predict the future, but I do feel like there are things setting up that this is a very overpriced market. This is a market where we have a new administration coming in. We don't know how all of those decisions about tariffs and other things are going to be held by the market, and I think that we saw we saw, you know some of the savage things that happened in New Orleans. I don't know where and what is going to influence the future, but I do're trying to think of things from the average investor's perspective and trying to give those average investors the tools and the education to understand ways that they can live better with the assets and wealth they have and try to get to where they want to get to in terms of the results.
Steve Davenport:And so we're starting 2025. Take a fresh perspective. It's a new tax year, so these taxes you wouldn't be paying until April of 26. It might make sense to sell some. So I think there's a lot of numbers there and there's a lot of. Is there anything there that you have questions about? Plum?
Clem Miller:So I don't have any questions on the options and on the tax questions. You know, one thing you and I have talked about at times is private equity, but perhaps we'll leave that for a future episode to talk about. I mean, is private equity essentially? Is private equity a solution in a market that could see some downside? I think that's the key question, but let's, we'll just leave that to entice our audience.
Steve Davenport:I do want to say one thing, which is two of the largest firms in the country Bank of America and Goldman Sachs both predicting for the next 10 years that equities will be giving us a return of 3% to 4%. And I looked at that and said I understand Goldman Sachs, who is a big proponent of private equity, private real estate and all private things, because there's a lot more fees and if there are a lot more fees things because there's a lot more fees and if there are a lot more fees, there tends to be advisors who are willing to recommend those things because they get a percentage of those fees.
Clem Miller:Are you saying that Goldman Sachs projections are self-interested?
Steve Davenport:I'm saying that I'm skeptical at this time as to why, when everybody is trying to get people into these private equities because they realize public markets might be overpriced and it's very hard to price private markets properly that yes, there could be people who are interested in increasing their revenue per client instead of trying to increase the risk-adjusted returns per client, and they can be right. The private equity can be a good thing, but everything in moderation. And so I'm a little bit concerned when I see a Bank of America which has a more Main Street-type clientele and none of those clients can't get private equity or private real estate. You know saying the same thing about public markets, because I think that a 20% decline, you know, does a lot towards your next 10 year. You know returns If you do 8% for the other nine, you're somewhere around that number. So I think that we have to realize that a drawdown could be coming.
Steve Davenport:And how do we make sure our portfolio is structured so that it rides through it without affecting your life and without incurring a lot of hardship or forcing you to work for another three or four years? Those are the things that really impact people's lives and that's why we mentioned them here. If we can do something to help you mitigate one of those situations as you approach retirement or as you are just trying to live your life and you're having trouble sleeping at night thinking about the market and where you are right now. These are all ideas that can help bring a little more peace and a little more comfortable feeling to your investments. Are you comfortable where you are right?
Steve Davenport:now yeah, I am.
Clem Miller:Um, you know, when you just sort of sum up these two episodes that we did today, I've got 20% of the portfolio in some of these spicy stocks where I think there's some significant upside potential, even in an overall down market. And I've got the 80% in stocks that I believe do have some downside protection because they have lower betas, they have lower short interest, they have lower pegs. So I see I'm quite happy with that portfolio. I got some cash, I got some gold. How much cash in gold?
Steve Davenport:uh, I I have about somewhere between eight and ten percent in cash and about one percent in gold nice so yeah, I think that you know everybody approaches this uh process a different way, and I think that you know there is no golden, there is no silver bullet that's going to attack this and give you the results. So I think you have to have the discussion with your partner, have the discussion with your advisor and say to him I'm not comfortable, I'm less comfortable. What do we do to try to make me more comfortable? And I'm not saying that you should, as an investor, jump around, but you should also be comfortable after a period of extreme success. Right, we've had 20 plus returns two years in a row.
Steve Davenport:Doesn't happen that often. Not a lot of data points here, but it points to the idea that it's worth stopping, looking and thinking about it, so that you can then start your year and do the things you need to do with your day job and try to leave some of these things behind because you've addressed them. So I guess I'd ask everybody in the skeptics world to be a little skeptical. Make sure you're comfortable and do some things that you can to try to make it better. Do you have any finishing comments, colin?
Clem Miller:Nope, that's about it. I think this was a great discussion, steve.
Steve Davenport:All right, everybody. We appreciate you over here on the Skeptic's Guide to Investment World and we look forward to making 2025 great. We're going to try to have more guests this year. We've had a lot of good success with some of our prior guests. So, in terms of Fraser Rice, we hope to see James Thorne, we hope to see Steve Gattuso, and so we hope to see some other new people in our world and we hope to have them on the cast and we hope you have a great 2025. Thank you everyone. Thanks.
