Inflation and Bonds Amid AI Concerns

SPEAKER_1 (0:02)

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Tom Keene (0:27)

I am laughing. It is a jewel, folks. Into the economic data here in a moment. Just out, smart investing in real life from two grizzled pioneers of the business, David Katz, Steven Weinberger. I love what you've got on page 167

It's the husband, the wife. They're at dinner. They're having wine and candlelight. It's beautiful.

He's on the phone. And to think if I hadn't been having dinner, I might have missed this wonderful investment opportunity. Boy, does that sum it up as well. There's an old way that we used to do this. What does David Katz say is the new way to do investment, if I'm not picking up the phone at dinner on an investment opportunity?

David Katz (1:16)

What the book focuses on is the old way. We think setting up a long-term plan, sticking to that plan, trying to keep costs low is the best way to increase wealth, not getting obsessed with the day-to-day volatility. And it's really a guide on how to do that.

Tom Keene (1:30)

Are we over diversified today? Are we doing too many things? Steve Ballmer bought Microsoft, said, that's it. That's what I'm doing. Are we over diversified?

David Katz (1:41)

Well, certain investor portfolios that might have 20 different funds are over diversified. But you'll also see right now you're talking about the AI implosion. A lot of investors put a lot of eggs in that AI basket, and they're a little bit too concentrated. So there's some sort of balance in between.

Ira Jersey (1:56)

So dig into that a little bit, because a lot of the indices that people invest in markets is market cap weighted. So when you get these mega cap names in there, you tend to be very concentrated in your investing. So are these doing a disservice to some investors in the long term?

David Katz (2:15)

Well, the S&P 500 is a living index. And right now, you're right. It's probably the most overweighted to growth that it's been in some time. So you do have to understand that as an investor, you just don't want to put all your eggs in the S&P basket and think you're most diversified. There are other areas to be. There's small cap, mid cap, international.

Tom Keene (2:33)

What about 60-40? I guess that's some Ira Jersey earlier, Wei Li, a BlackRock.

David Katz (2:39)

Again, there will always be times when it doesn't work, but for long term investors having a 60-40 or 70-30 asset allocation is going to allow you to grow with the stock market over time, but be a little bit more protected on the bond side.

Tom Keene (2:50)

What do you do with the impatient investor? They're not long term.

They're behind actuarially to their retirement. They're not there. What do you do to that person?

David Katz (3:01)

So we keep talking about that in the book. The key to success is taking that long-term approach. Yeah, but they don't.

Tom Keene (3:07)

I've seen what percentage of people come into the door, David, don't have a Matrix Asset. They haven't done that.

David Katz (3:16)

So a lot of people don't do that. So the lesson is you got to do that to be successful. We think if you're trying to chase the past trends, you don't do as well. And all of these studies show that if the average investor in a mutual fund makes, if the average mutual fund makes 10%, the average investor in that fund makes 7%, that's because they're trading in and out at the wrong times.

Ira Jersey (3:37)

So some of the sectors that you like currently, right?

You like staples, discretionary, interestingly utilities. And utilities are one of those sleepy sectors that you think about buying for income and for dividends, not necessarily for growth. So talk about why maybe you like some of these sectors more than others.

David Katz (3:57)

So the stock market has been a risk on, risk off stock market winners and losers. And the stuff that we highlighted there have really been done poorly this year. They've lagged the market.

And we think some of the better opportunities on a go forward basis, where's the puck going to go is in these places. Consumer staples, there are a lot of good businesses at 14 times earnings. Utilities had a great run, gave it all back when you had the AI sell off take hold. There are a lot of utilities right now that are paying a 3.5, 4% yield at 16 times earnings that are going to benefit by the AI build out and more electrical usage.