Episode 43 What Makes Mark Pearson Worry?
Pearson of Nexus in Minneapolis Minnesota shares his passion for portfolio management and commitment to transparency and communication to allow investors. Welcome to the invest with clarity podcast where you will learn how success an investing as in life is the result of absolute clarity services offered through eight and S._E._C. registered investment advisor their entire life and they expect results with doing as little work as possible and think about that you know what how is it that investors don't understand that when you what they're doing because they're making emotional reactive decisions as opposed to sound proactive decisions why is it that when we talk about recessions when we talk about volatility everything is negative and it's reactive when the reality is that volatility should being proactive that you should be a proactive investor during volatile periods at fear cells right that fear gets people to react right and to react in a manner without thinking through and hello and welcome to another invest with clarity podcast with Mark Pearson. Now today we're going to find out what makes Mark Pearson worry the I've never ever heard you be sarcastic I mean if I ever been sarcastic on this podcast I think I think you are sarcastic in life not just cast right now the media has a predisposition to speak like the Cup is only half full or half empty oh no what you own that that may be one of the greatest investment risks that you are a that you have I don't know if I'd ever heard you use the word worry and we've been working together for a while well is it possible there may be some sarcasm in that we hear it in the news all the time so walk us through this talk about these these different things that you look at when it comes to worry go ahead and everything is about doom and gloom and I do think that the phrase or the old adage that investment planning goals and what really makes me worry is every time I turn on the TV everything is negative and as we're doing this means ultimate clarity that our ultimate goal is to change the investment world one investor at a time helping them invest with clarity and hopefully enhancing their ability to accomplish that yeah I mean you just nailed it on the head that the problem is that investors work super hard for their money talk lately Warren Buffett's eighty nine years old recently said I hope we see three or recessions in my lifetime why is that expect great results for doing as little work as possible when it comes to their money I mean I've said this to you before and I say probably a thousand more times than we work together who as a financial services professional as a as somebody who's been in the industry for a long time we've seen a lot of stuff that there would be caused to worry and in fact mark you know really what let's talk about this I mean this is interesting that this is the topic today because as we were prepping I thought to myself Warren Buffett these are kind of the grandfathers of if you will of successful investors right what you think about the successful investors out there Sir John Templeton Peter Lynch Mhm but if you're sitting there and everything's volatile and everyone's talking negative in prices are going down your thought process should be a lot like Warren Buffett I mean all this recession so that's a great question there are multiple things that make me weren't of course for those who have failed our podcast for awhile you know Matt that naps do I believe that they viewed volatility as opportunity because they knew what they owned and why they owned it in I mean because when you don't know what you own and potentially don't know why you own it. Volatility creates what uncertainty we all three have in common I believe that number one they had viewed investing as invested in grape businesses number two knbr three they had a bye discipline and they had a cell discipline and they stock to a process better make everything as cheap as possible right and and let's cookie cutter it as much as possible now on the podcast well let's talk about this because we'll that remark well you you you let's talk about this because you would think right hold on that sounds to me like somebody has to do some work here in order to be proactive Whoa Whoa Ho how important is your money to you well for me I think that's part of the problem And today I think we are taking investors down the primrose path of everything is easy make everything cookie a everybody wants things very cookie cutter and not to sound mean because that's not my intention but it seems like a lot of financial services professionals wanted to be and you were card for your money do you want things easy as possible well things aren't yes she is referred to have things as logical and as financial advisers the ability to more quickly acid allocate I e cookie cutter a portfolio that to be quite blunt about it doesn't take a lot of work and so what it allows the advisor to do is it allows advisor to go out and get more clients I think we've briefly talked about this but I think the advent of modern portfolio theory as quote unquote made the job of the advisers easy correct as possible right well you do work hard for your money so therefore you want your money to work hard for you to go back to something that you said though which is our portfolio accordingly right we have acid allocated it accordingly relative to our tolerance for risk and and volatility knows I don't put risk and volatility as the same thing risk is different than volatility spent time marketing getting more clients as opposed to managing the money now I'm not going through all advisors in that bus because a lot of financial advisers cookie cutter to advisors really haven't had to do a lot of work for the past eleven years I mean really let's let's just look at twenty nine themselves as poor as money managers by manage money for a living well No you manage allocations because when you go to a financial advisers says I managed the reality is that's not what the investor should be focused on the investors should be focused on what is there by discipline what is our self discipline if we have structured we've had volatile periods when we've had corrections when you've had uncertainty that the psyche of the majority of the investors that work with so the industry which tout's modern portfolio theory which tout's buying all these mutual funds exchange traded funds and your portfolio own and at the same time a still funnels down to the Foundational Component Matt that investors don't know what they own and they don't know why they own it and their expectation APSIS do not get worked up nearly as much as the investors who have mutual funds and exchange traded funds because the clients at naps the invest is designed to make the job frankly easier for the advisor but in turn it actually makes the job harder for the advisor and I'm GonNa explain that in a second because it you're for managing money quote unquote managing money by the way because let me explain what I mean they're you know as long as you've been in this business that many financial advisers there's at nexus understand the power of knowing what you own and why you own it they understand the power volatility if I'm sitting there looking at a accordingly I'm not going to worry about short term volatility I'll give you the great example of all that's the you spend the time knowing their money managers knowing how well their money managers do they they understand their investment philosophy and strategy but a lot of that why it actually makes her job more difficult I do because this is ben my experience here at Nexus my experience here at naps his is that and our positions in China the underperformance of our portfolios and also in two thousand seventeen where we we don't view volatility is risk volatility is opportunity in fact we view the greatest risk for the investor is not knowing what they own and why they own it so the risks are is are such that when they walk in financial advisors office the Financial Advisors GonNa give them all the excuses why something didn't do well for the last year what's my largest holding what impact is it having my portfolio what's the largest sector invest in what's the impact my portfolio an mis allocated accordingly you know a Johnson and Johnson or you know a united healthcare her or Cisco Systems whatever that company is they understand that you know this is not eighteen thank you for putting the ball right on the t for me when I'm here for brother I think this is one of the unintended consequences of modern portfolio theory and greatest example but one great very good example last year in two thousand eighteen because of our position you know in zest right Schwab Schwab or interactive brokers was going to zero emissions zero Tikka charges for investors he's at all that lost return over two years not only will be given back they will be substantially better off because that positions performance huge news yesterday out of the retail brokerages dear about that no so as we you get this feeling if you will the advisers just picks his favourite fawns then he asoka acid allocates it within the appropriate style box now John Worry besides all the negative talk is investors are their own worst enemies investing is not for amateurs be by the way my hope is my hope is in light of the money for a living I said Oh really what's your largest holding they can't answer it they usually give you a mutual funds and exchange-traded foreign and modern portfolio theory has allowed that's good and it's bad and this is another thing that makes me worry when an investor does not have to think about a company that's really going to go away and if if naps follows they're by discipline and they follow their sell discipline and they've acid allocated we hope believe and think that is going to be off the charts the ability to know what you want to why you own it it's so powerful so what makes me how how much it's GonNa cost me to sell something or buy something I believe it can underperformed yeah I can honestly say I don't think I've ever had a podcast guest who is a financial professional say what you just said yeah raced decision so now that it's all going to be free the good news to that part of the story is that may be many invest what a day E. Trade Ameritrade followed suit so now all the major brokerage firms no ticket charges now we knew what we owned and why we owned it and of course you understand what that position as and you know the state of that position and what's going to probably happen nor clients or folio which means worry most about investors making bad decisions worrying most about investors selling great businesses at bad prices that's the biggest thing I worry about it can provide an investor a position of making bad decisions because they don't have to worry about a cost of doing it anymore they can take the portfolio managers in idiot when the fact of the matter is that we've had one position our portfolio that's had a dramatic impact on why we were negative for two years but why because number one a portfolio has an asset allocation strategy every offers will now go to a financial adviser who maybe wouldn't before and say you know what now that there's really no trading Scott's before the race to the bottom right in fees in ETF index the APPS and all that Yesterday it was announced that you want to know why is I have confidence in the process and I know exactly why the portfolios were down and we communicated that with clients and frankly the turnover just do it and so may call may cause investors to make more irrational decisions because there's no cost around making the decision ars and when you get me my seventy thousand dollars can you sell all the losers I right you've skirted the issue of worry what let's get back to this so we understand how you can combat worry but you as a human being a business person has to worry about something dude what what what is it what do I worry about here at nexus costs associated with doing this maybe it would make sense to work with an advisor because trading costs won't be there either they're still your advisory fees right vacantly underperforms any metrics you WANNA use by the way don't you think it's interesting the portfolio manager literally just said on a years in a row let the longest in history average year amount of years before recession is eleven years were sale you're GonNa take out which could actually affect in a positive way your portfolio long term this is why we say no one stock all your China stocks at a loss right now because you don't want to pay taxes on stuff you're gonNA hold onto all the more expensive stuff right and the stuff that's on position you sell that's a loser may be the biggest sale star the stocks that are on sale in the portfolio in the first place so why would you sell something when from that has been very minimal for a lot of financial advisers if they've had two years of underperformance they think the financial advisors in idiot issue of worry a whole idea of what makes me worry the most is that we live in a world of pure negativity we live in and we're not in a recession we're an economic slowdown there is a difference between a recession and your economy slowing down we still they don't think about the tax ramifications they don't think about what they're selling why they're selling it and how could be a mistake they just view it as a pure transaction I realize it's pretty trade as well but you're you know you're consistent yeah I have clarity I mean I give you an example a client calls and says I need seventy thousand how what you know twelve thirteen years twelve years longest in history right so down if you believe in the long term value of that business it's a loser don't you think we would have already sold Australia had a recession Oh years so can we go twenty eight years of recession we sure could roll were everybody focuses on the negative and not positive for an example we are in the longest economic expansion in history so in a in order to to scratch the itch let me by newsletters that will say the same things that I believe in so I feel good but maybe that'll that'll change change the landscape ice I certainly don't know okay let's get that I'm sorry I interrupted you put your money into a mutual funds exchange traded fund you don't know what you own you don't know why you own it you don't know where the risks lie therefore in my opinion you are gambling focused on the negative how about all of these newsletters that people spend millions of dollars on this is what makes me worry Matt and they all these news makes her breaks the portfolio in the long-term every position is owned in the portfolio for a very specific reason to accomplish a long term goal so that you don't think I'm skirting the from the idea of investing with clarity let's just say that we have a recession okay isn't that the great just like you said earlier others do prognostic keep harshly and speculate I let me be so bold to say that in my opinion for many investors it is no different so I take the losses so I have the least amount of capital gains you've probably heard that when you're in the business right you want to add some the dumbest things you can do if you could explain to our listeners hey you don't need to worry because you have clarity if