SNP, Keith, Cape Schiller discussed on FSU Seminoles Basketball
Keith at Sayer wealth dot com. Anyway. I wanna talk to you about some growth strategies because whether you're independently wealthy or your concern you. You're not sure if you have enough money to live comfortably for the rest of your life. He probably needs you probably need some growth in your portfolio. Don't you think you have to offset flation if nothing else? You have to offset inflation, and even if you don't have to offset inflation, because you have all the money that you could ever spend. He's still wanna probably make that money grow for your ears or whoever you're leaving too. So let's discuss a couple of strategies for investing that could possibly give you a leg up now. Warren Buffett is one of the greatest all time investors. Right. And he has a certain methodology for picking stocks, one of the things that he likes, he loves companies with high free cash flow, right? Talk about what that means. Free cash flow is a measure of the actual amount of money that a company has left at the end of the year. After they paid all of their operating expenses all the payroll, all their merchandise pay all this shipping expenses. Just look at the cash, you don't look at the impact of, of taxes. You don't look Abbas Asian, you don't look at vestment. You'll just look at the cash balance because all the other aspects of go into the earnings of a company can easily be manipulated to give a very good pitcher. But you can't lie about how much money is in your Bank accounts. So the theory is, let's just invest in companies with really high free cash flow can't be that simple Kennett. Well, it actually can be between nineteen eighty-seven in two thousand seven the SNP hundred average I think about eleven percent a year during that time period, which means ten thousand to ninety thousand if you were disipline and you never sold, and you just let it ride, and reinvested dividends, ten thousand ninety thousand but if you just invested each year on January first in the fifty companies out of the S and P five hundred. Which had the prior year's highest recast, low, your ten thousand dollar investment Khuda three hundred sixty thousand instead of ninety four times with the five hundred. Wow. What a correlation between having high free cash flow in stock performance. Well, what do we do the opposite? What did we did the fifty companies that had the prior year's lowest recast out of the five hundred ten thousand have only grown to just over fifty thousand so clearly, there seems to be a correlation between companies with high free cash flow and stock performance. So if you want to be a better investor always looking see does the company have high free cash flow. Now, you can have a company that has high free cash flow, that's doing well, but maybe some bad news comes out, or maybe something changed legislative Lear from a competitive standpoint where the future doesn't look so bright anymore. Right. So that it's very hard to, to know when that's going to happen. But one of the things you can follow is the management of the company doing what's called a. Share buyback. Are they using their own money? That's this free cash flow. And they looking at shares thinking, oh, this year's looks cheap. Let's buy them, right. Are they share buyback now, manages, the company things we don't know? They, they have private information of L to available to them that we know. So I can we can assume although there's many reason companies share buybacks. And just because this year companies a share buyback doesn't mean it's going to be good for the company's future. We do know where we can infer that they're not aware of any bad news. It's imminently gonna come out. We can refer that otherwise they wouldn't the share buy-back until that news was made public than they could buy cheaper, right? So by doing that. Sort of gives us a little hedge against companies that know some stuff that's bad this about to come out, so we can eliminate those companies so we have a strategy called intrinsic value, and it's a separately managed account. We manage it's also available in index. Knew it if you don't want market risk. And essentially, that's what does it look at the five hundred companies and the s&p five hundred. They screen out the ones with low free cash flow. Get rid of those isolate the ones with high free cash flow. And then they look at companies with highs free cash flow, whose management is bought back shares in the last year, and they invest in those thirty stocks, we would invest for you which those stocks and they've done the strategies on very, very well for the last ten years ended in March of two thousand and thirteen the strategy has averaged twenty point twenty one percent before fees where the people have hundred fifteen point nine two pretty good right now. This is started late two thousand seven. Right before the mortgage crash. So you said to me, Keith, let me put some money in the intrinsic value. It's two thousand seven I need it in ten or eleven years, what's going to happen. I know market crash any time, but hopefully over longer time it'll do well we know the first year is bad was down thirty seven percent. This charge them thirty three point two five percent in two thousand eight versus thirty seven for the hundred so beat up by little bit. So that was pretty bad start. But since inception through the end March two thousand nineteen the strategies been averaging eleven point seven seven percent per year. Not bad to make eleven point seven seven percent per year, including one of the worst market crashes we ever had right right at the beginning. Now, if we were taking money out each year, this tragedy wouldn't have done as well, because it had a really bad first year, but we weren't, we're using this for growth, but you know what else is interesting? So that eleven point seven seven percent compared to the SNP did eight point two four during the same time period. So beat the S and P five hundred five. About three and a half percent a year for the last living years. But what did better growth value? The last eleven years growth, much better. But this value strategy right? Intrinsic value, overweight value stocks, so not only did it beat the hundred but it beat the s&p five hundred when it's class was out of favor. Imagine how could do classes in favor. Right. So I think the best is yet to come for that anyone who's interested in that. Give us a call at eight six six wealthy. We'd be happy to talk to you about it another strategy, which we like to do is called Cape Schiller. Now, let me ask you a question ROY, what kind of car you drive in these days, I'm still driving Porsches? Okay. So did you around to get a good deal in that? Yeah. That's pretty tough with portions. There's only four Porsche dealers from south Miami to West Palm Beach. But you try to get it for Sheba's. You could write still went from one to the other my Sheba's, most frugal clients to have a lot of money. So if you don't waste a lot of money buying stuff. You tend to have more in your Bank in. Investments now getting a good deal and buy cheaply is good to do, right? It makes you wealthier than if you waste money. Right and save applies to stocks. If we can buy stocks cheaper, then we'll probably do better with them if we pay too much for stocks, right? So professor Robert Schiller of Yale, author of a rational exuberance very famous noted economists came up with a strategy and it's called the Cape Schiller index is based on his Cape ratio, which is his version, the price earnings ratio, which measures, if a company is overvalued or undervalued relative to their earnings, and he takes a look at the last ten years earnings for a company, he actually applies to the ten economic sectors of the five hundred actually there's eleven sectors now but this doesn't include real estate, which they added energy materials industrials consumer discretionary, consumer Staples healthcare. Financials information technology, telecommunication utilities, and he looks. Of the ten economic sectors. The five chiefs and then he looks at which one has the worst momentum because sometimes something can be called a value trap. You know what that is right? Collective bargain really isn't because he's getting cheaper and cheaper. Because it's still going that, right? So you want to avoid that so even the cheap if price is going to keep falling you want avoid that. So it has bad momentum. We're not gonna do that. So with this strategy they by the Ford sheep, is that have the best momentum and they rotate every month. And so here's what's interesting for the one year period. Ending may fifteenth the strategy average ten point three seven percent versus five point five versus PY. Okay. This is finance for five years through the end of may fifteenth. The strategy went up eight percent versus forty nine point seven six for the people that hundred and since January first two thousand thirteen through mid may two hundred nineteen if a hundred forty six percent versus ninety percent for the people at hundred. It's pretty good, right? These are sectors, the by one hundred the cheaper sectors are beating the our sector. Right. So it pays the buy cheap. Now what's great about this is we're not saying go by. Energy energy energy has been doing great. Or go by this actor this sector's doing great. We're saying by the cheapest sectors, whatever they are. Right. So we're not piling in to the most expensive asset class that did the best the last year, the best, five years, the best, seven years. We're piling into the cheapest every month and that is a great strategy for people that want to try to grow their money in something logical really good for IRA accounts if he wanted without Mark Reuss, we can put it in an index of nudity where I think he makes seventy two percent of the gains index without downside risk. Or you can buy straight up and are matters accounts, along with the portfolios that were managing for our clients, and then, you know, these are really, really good, growth strategies. We also mentioned last time there's some great other strategies alternatives alternatives to the stock market, which won't actually go down the stock market goes down. Because eventually we're going to get a bad year. Right. We're gonna. Goes down twenty twenty five percent. Don't you think that's going to happen? At some point. Two years. Yeah. So if you have only let's say thirty or forty percents portfolio inequities, right? And you have twenty percent in alternatives that aren't the stock market that won't necessarily go down. If the stock market goes down and you got another forty percent in protection. Right. So if the more he goes down twenty percent. You might only lose six or seven that year. Right. And if the market goes up, you still could make seventy. So what we want to do is have great stocks have great stock strategies. But we also want around the portfolio with other things that are producing six seven eight percent income and products that are protected, where if the market goes down you don't lose. It goes up you make money, and we put it all together, whether the mortgage, upper within the mortgage down you're gonna have enough money and even the down years, we won't have to take our income, if we're taking income from the stocks, right? If we have a safe bucket, or a couple of safe buckets, and the mortgage down. We'll just take our money from the other buckets, and we won't be selling it a low that's the key to investing that's the key to not run out of money. That's the key to having peace of mind and security is having enough the -bility in your portfolio so that no matter what happens if we get one or two bad years in a row or three years in a row. It's not going to ruin you, you'll be just fine. So if you wanna learn. Strategies. How effectively grow your investments with the potential to do better than the overall market. But also, not lose too much and have much less risk. Give me Keith singer..