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A bite sized discussion on timely financial news and investment topics, to help you maximize your net worth and wealth for the next generation with Justin Dyer and Mena Hanna of AWM Capital.
Justin Dyer: Hey everyone.
Welcome back to another
episode of A WM Insights.
I'm your host, Justin Dyer.
Chief Investment Officer here at a
WM, joined by Mina Hana, portfolio
manager and my right hand man.
Uh, today we're, we're gonna do a little
bit of a flyover fly through of, of some
big topics that have been dominating the
market narrative, um, over, gosh, in some
of these cases for the last couple years.
Um, and, and in one.
Just this year.
So, so far, actually a couple, uh, so, so
far, just this year, um, and we're gonna
call this, uh, podcast Trends come and
Go, but discipline investing still wins.
So talking through some of the subjects.
topics,
questions of the moment and you
know, why they may or may not
be worth pursuing ourselves.
Punchline, it's probably not.
Um, right.
Um, that probably goes without being
said for you, frequent listeners, but
we're gonna give you some data and, and
anecdotes around that to kind of, to,
to support the conversation here today.
Um.
But the, those few topics that are
really continuously showing up in
headlines, you're probably seeing them
on, on TikTok, socials, et cetera.
Maybe your traditional, uh, media
sources, wall Street Journal, et cetera.
Um, first one being.
Mag seven, maybe Mag seven is a little
bit, uh, starting to fade, but the
idea of these large tech companies,
Nvidia, et cetera, just dominated market
performance, um, has come back, right?
The start of the year.
It was certainly not the case,
but it it's definitely back.
Uh, I would say at the forefront, and
we call these growth companies, right?
These are, these are companies that, um.
Cost a lot per dollar of, of earnings.
That's how you think about valuation
when it comes to investing.
Happy to spend more time on
that on another, uh, podcast.
But these are growth oriented
companies that are, that are back in
the headlines and, and being closely
watched, um, across the board.
Then there's this idea of, of, you
wanna call it us exceptionalism.
That's not a political statement,
it's just this concept in markets
where, um, US markets for the last,
uh, really I guess almost 10 to 15
years or so, US markets have, have
outperformed, they've been the dominant,
uh, player in the global marketplace.
Um.
And, you know, that's
changed really this year.
Is that gonna continue?
Maybe we'll talk about
that a, a little bit.
Gold, the bright shiny object, literally
back in the news had a phenomenal year.
Um, but of course the
devil's in the details.
And then, you know, all of these
can kind of be, uh, rolled,
rolled up into fads investing, FA.
I think there's, there's some legitimate
questions and we even always question
ourselves or question what fads are
potentially here for the long term and
what are, uh, more just get rich, uh, you
know, forcing people to, to, to chase,
um, chase the next bright shiny object.
Most of the time it is that I, you
know, I can't even think of one where
that it's been, it's had staying power.
Um.
And we did a podcast on that recently.
So we won't spend a ton
of time on, on that topic.
I'd say go, go listen to that
podcast, but we'll kind of wrap
with that general conversation.
So without further ado,
let's jump into it.
So, Mina, walk through how we
approach the question of, okay.
There's the, there's been this very
small segment of the market that
has performed exceptionally well.
I would also say, you know, I'm kind
of leading, leading the horse here.
Uh, the market overall has performed
quite well, at least this year.
But how do we, how do
we slice and dice this?
How do we try to assess this ourselves?
Mena Hanna: Yeah.
And the question that we sometimes get
asked is very, very aggressive from the
standpoint of, Hey, market's doing great.
Justin Dyer: great,
Mena Hanna: But NVIDIA's doing better.
Why don't I put all my money in Nvidia?
And the reason for that is if you actually
look at the data, and if also if you take
a step back and look at your portfolios,
you hold Nvidia, you hold Apple.
I, I was actually just talking with one
of my family friends who, um, is a doctor
and he was like, I just bought Apple.
I'm holding it.
That's the only thing that I'm holding.
And I was like, I hope.
Things don't play out as,
as they normally have.
Uh, and we'll, we'll get into the
data, but you hold all of these
companies in your portfolios
in the appropriate weights.
Where I, I think I was
looking at it the other day.
Every, every one of our clients has
around six to 7% of their US holdings
in Nvidia, which is a decent amount.
And that's, yeah, and
that's the market weight.
That's how much you should hold.
There's a huge difference between holding
six and 7% and 50 to a hundred percent
because you're all in on one position.
Don't do that.
So you do hold it, you do
hold it in the right way.
And you have to think about it as, you
know, having a pitching rotation instead
of signing one guy to a $200 million deal.
Justin Dyer: Yep.
Putting your eggs in
one basket right there.
Right.
Mena Hanna: Right.
And,
and calling it, calling
it quits after that.
So that, that's, I would
say the starting spot.
The interesting data and, and we will,
we'll share, uh, a few of these slides
here for people listening on YouTube.
But you can see here what it actually
looks like after a company joins the 10
biggest companies in the stock market.
And this data goes back pretty
far back to the 1930s, I believe.
You can see that companies.
Typically outperform the
market for three years by 0.7%,
but they typically grow so large and so
much capital moves into them with also the
headwinds of technologies always evolving.
There's always new ideas.
So performance in the later years.
Really drops off and significantly
underperforms the market.
Nokia is a great example of this.
You know, everyone was all in
on the cell phone in the late
nineties and two thousands.
It was one of the 10 biggest
companies in the world.
And you know, now it's, it's obviously
not because technology moves along.
Justin Dyer: So
Mena Hanna: There's, we'll,
we'll put some, two other slides
here that are interesting.
There's only one company that was in
the 10 largest company list in the
year 2000 that still exists on that
list today, and that's Microsoft.
Everyone else here, you can see Cisco,
ge, they, they've all dropped off
because there's been new companies, new
entrants, new technologies, and yeah,
that's, that's the way markets work
Justin Dyer: And, and there's a
logic, you kind of touched on it,
there's a logical framework as to why
this should be expected to continue.
I mean, yeah, maybe there's a chance
of one of the current top 10 being
there 10, 20 years down the road.
Taking that one today
is incredibly difficult.
That's a very low probability,
um, decision to make.
But.
I mean, uh, you, you, you coined
the term, or, or originally said it,
there's financial physics here, right?
When a company, this is
kinda what you alluded to.
When a company gets so large, you just
think about the, the ability for a,
you know, multi-trillion dollar company
to double or triple from, from that
point, it's incredibly difficult versus
smaller companies, you know, the,
just the amount of money in the world.
Can go to those companies a
lot easier and potentially
multiply them, uh, much faster.
So I think that is one thing
to always keep in mind, this
idea of financial physics.
It's true across markets.
Um, and then the, uh,
um, you were gonna say
Mena Hanna: something?
Yeah, I was just gonna say, this is a
curve ball for all our clients listening.
I've heard so many times, dang, I
wish I got into Nvidia five years ago.
Of course.
Yeah.
Like, that's like, and, and you're right.
Like you would've 12 Xed your money.
The returns 1200%.
One thing that no one is talking
about, build a bear over that
same five year period of time.
Up 3200%.
Love it.
So it's, yeah, that's like 2.7
times the performance of Nvidia.
And it's for the same reasons
you were talking about.
It's a smaller company, you know,
they've improved operations, I believe.
Um, they've done a lot on the operational
side, but they're so small and that.
Kind of any improvements can be
rewarded at a much higher level.
Totally.
And you don't need, you know, Nvidia right
now to double need $4 trillion to flow in.
Yeah, that's, it's great.
A lot of money.
Justin Dyer: Yeah.
And
the, so the other thing I was gonna
say is just this idea, it's a,
it's a, I guess a, a beauty in, in
a, in a way of capitalism, right?
Creative destruction, right.
Capitalism has competition at its core.
And so those on top right, they are
making a lot of money, which is why
they're valued the way they're valued.
Mena Hanna: And then
Justin Dyer: Competitors are gonna come
into the marketplace and challenge them.
And so the, the, it's another
thing to keep in mind, right?
And there's no reason to believe these
two forces, um, are, are going to change.
And to your point, build a bear.
You want exposure to build a bear.
It's not the one that's getting
all the, the, the attention.
That's why we're
disciplined and diversified.
Okay, cool.
So that's talking about,
you know, a small number of
companies dominating performance.
Why you don't want to go chase those.
Uh, the data just really doesn't
support that, especially from a, a, a
future looking forward looking basis.
Right.
That.
The odds that those continue to
dominate performance are very, very
low.
We're
gonna switch gears to us exceptionalism.
I mean, they're, I say switch gears,
but they're kind of related here.
But this idea that US markets
have dominated, they have,
they've done exceptionally well.
They're the largest market,
um,
on the public side in the
world, and, and we favor them.
Right?
We actually, uh, over allocate to them
relative to, to the general or, uh, yeah.
General market capitalization
around the world.
But
when we think about, Hey, should
we just completely forget about
international, emerging other
markets and just go all in in the us?
I mean, I guess the, the, the logic
we're talking about is very similar
to what we just talked about with
concentration in a, a few number of names.
But let's go do the data as well.
And
I.
First of all, we have to remind ourselves
that economies are not stock markets.
So yeah, you can make an argument
that Europe is, uh, further
aging or a greater aging economy.
I'm not saying that correctly,
but hopefully you guys are all
tracking what I'm saying here,
where, uh, than the US maybe, maybe
it's not as dynamic, et cetera.
Yeah, there's some implications
there for stock markets.
You have to remember that economies are
completely different from the companies
and markets, stock markets within a,
within a, an economy, within a country.
But then let's go back and
look at the data again.
There's dynamism in investing in
capitalism, in global markets,
and we look and, and get.
It's really interesting to look
at where over the last, uh, let's
call it 40 years, you could slice
each decade up and basically.
W International developed
versus us just flip flops.
Who, which one outperforms the other?
The eighties were, let's say, uh,
eighties.
Were really good for
international markets.
Nineties were really good for US markets.
The early
2010s were actually better for it.
It was not great for anyone.
'cause that was a, a, um, just
a weak decade, great financial
crisis to wrap that up.
But then
you look at the lost decade.
The lost decade is a term
everyone should be familiar with.
That was the us.
The US markets from 2000 to
2010.
Uh, if you look at the s and p 500 were
basically flat in some cases negative.
You, international,
emerging markets were up.
Pretty, pretty solid
in that period of time.
And then now flip flop, kind
of the most recent decade,
we're looking at US dominant.
So it, it, it's very difficult to time
these things, um, first and foremost
and pre then predict the future
based on what's happened in the, in
the recent recent, uh, recent past.
Yeah,
Mena Hanna: And I, I would just add
the way that we like to think about
constructing a public market portfolio
is sort of like a hitting rotation.
If you have nine guys out there that
only are there to hit bombs and just
swing for home runs, like yeah, some,
some games you're gonna do great.
Some games, you're gonna
have a miserable time and.
It's probably gonna be, you're
probably susceptible to a no-hitter,
a no-hitter for your portfolio is
unacceptable and that destroys wealth.
So what we like to do and, and you talked
about international markets, like Yeah.
International markets.
Don't have as much juice from, uh,
a material standpoint as US markets,
just based on some of the fundamentals.
But that's fine.
You're getting decent batting averages
and you're getting companies that hit
singles, doubles and triples, which can
aid you in then incorporating a US public
market strategy that hits home runs.
And then you're not just hitting, you
know, one run home runs, you're hitting.
2, 3, 4 run home runs.
So it's, yeah, it's, it's about creating
a systematic strategy to actually get
runs in and not just swing for the
fences constantly, because that does not
Justin Dyer: always
work.
Yeah, exactly.
And, and this year is
a great example of it.
Now we don't look at one year and make.
Extrapolate that in on into long term
trends, but it's worth highlighting
international and emerging markets have
dominated this year, and I don't think
anyone necessarily would've predicted
that It's been a good year overall for,
for stock markets, equity investors.
But international and emerging has done
exceptionally well and we're happy to
have exposure to, to that as, uh, a
perfect example of what you're saying.
Alright.
Um, kind of turning to
the, the home stretch here.
Gold.
The bright, shiny object literally is been
definitely in the headlines, um, lately.
We could do a whole
conversation around gold.
Uh, we typically don't allocate to gold.
I'll just kind of give you quick cliff
notes here because it's just incredibly
hard to, to, uh, to value, right?
There's no cash flows.
There's actually very little
industrial use for gold.
It's, it's a, it really is a speculative
asset, and I'm not saying speculative
in like a, a crazy strong, negative
connotation, but it is, it's, it, you're
just betting more or less that someone
is gonna pay a higher price than you, uh.
The next trade or when you, when you go
to sell
it.
But it is, it's done very well this year.
There's no, there's no,
um,
no, uh, no way around that.
And, but we want to take a
step back and say, oh, okay.
Does that change our general
theory and thesis around gold?
I, the short answer is
no, but let, let's go into
Mena Hanna: data.
Yeah.
And, and the data is fascinating here.
Um, I'll, I'll throw this.
Slide on you actually just broke
even on gold on an inflation adjusted
basis if you invested in 1980.
So even though your gold was appreciating
from a dollar standpoint, like an ounce
of gold, you could see price W went up.
Inflation actually outpaced
how much gold went up.
I know everyone talks about gold
as an inflation adjusted play, but.
Justin Dyer: but
Mena Hanna: You know, you have
here a 45 year period of time.
I'm definitely not 45 years old.
I know the vast majority
of our clients also aren't.
There's a 45 year period of time
where you got a zero on a real basis.
That's, that's tough.
Um, and that's because gold
is a speculative asset.
Obviously there's been a lot that's
happened in the past five to 10 years
that has led to gold recovering.
But we don't want to allocate to an
investment that does not have financial
utility, doesn't make you money.
And historically, um, has, has.
Not yielded a significant
return for an extended period
Justin Dyer: of time.
Yeah, that's right.
I mean, you, you're talking
45 year timeframe, but even if
you go
a little bit
shorter, yeah, it's done well over the
five year period, but
it still hasn't even.
Performed what the s and p 500 has done.
So I think a lot of that has to
do with what you're saying, right?
The, the value drivers, value
creation, cash flowing companies
are in the s and p 500.
Gold is a, is a speculative asset and
it's hard to, hard to get speculation.
Right?
Right.
It's
like
there's a, there's a spectrum here, but
there's a lot to be said around or, or.
Potentially compare gold and more
speculative type of investing
to, uh, to gambling, right?
Um, we always say we want to
be the casino, not the gambler.
And I think this, that
analogy applies there.
So,
Mena Hanna: um, and
one thing I'll add, gold does not give you
obviously the financial utility comment.
Gold doesn't give you any passive income.
A reason that we love investing
in public equities and also public
real estate, is you get dividends.
On a regular basis, you have that passive
income and that cash flow coming into your
portfolio that you can use or reinvest.
Versus gold, you just have X number
of Troy ounces that's not moving.
You could potentially lose it.
So I, I don't, there there's other
risk factors there, but you know, when
you think about passive income too,
gold is not the way to actually create
that cash flow for yourself for the
Justin Dyer: future.
Yep.
Yeah.
Okay, cool.
So, uh.
As we wrap here, um, I wanted to
highlight, actually there's a great
article in the Wall Street Journal
by Jason Zweig, who is kind of their
personal finance, um, columnist.
Uh, he must have been listening to
our podcast 'cause he literally, uh,
wrote an article about why you don't.
Want to trade stocks like a member
of Congress, uh, right after we
had had talked about that topic.
Um, but the first, the first sentence,
the reason why I'm saying this, the
first sentence, um, I'm gonna adapt
it slightly to us, but it basically
was the peak of a bull market and
bottom of a bear market have one
thing
in
common,
tr disciplined investing, starts
to feel like a waste of time or a
little bit boring, or, hey, there's
better ways.
You know, I'm not, by no means am I
calling the peak of a bull market, right?
And I don't think he is either.
But there's, there's some, there's some
elements of that going on right now.
Um, where there the, you, you
kind of throw out the traditional,
um,
methods, discipline, et
cetera, that we know.
Over time just continue to compound
growth and is a better way to, to
invest in a high probability fashion.
We say, Hey, our job is to keep
you rich, not to get you rich.
Um, it's very difficult to play
investing in this, like, Hey,
I'm gonna play the lottery type
mentality or ga gambling mentality.
And so, um, as we wrap kind of, I, I
alluded to a lot of these are both fads
get rich quick kind of schemes that
potentially are being thrown out there.
Um.
Under the guise of investing and it's
just great to, to take a step back.
Hopefully it, it's helpful
for you all to hear
how
we
go back to
the data.
Ask ourselves, Hey, is there
something we're missing here?
Uh,
you know,
no it's not.
The data still shows us we're not gonna
go chase our tail, chase some sort of
fad 'cause that puts you, our clients and
your priorities at, at long-term risk.
And we do not wanna play that game.
So hopefully the conversation
today was helpful.
If you have any questions,
follow up, send me
a
Mena Hanna: text,
6 2 6 8 6 2 0 3
Justin Dyer: 5 Awesome.
And, uh, until next time, own your wealth.
Make an impact.
And always be
a pro.