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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.
Mena Hanna: Valuations matter when there
is any sort of turbulence in the market.
$400 billion dollars just evaporating
in one position is not normal and it's
because that position was just bid up.
The majority of our clients
have already won the lottery.
You don't wanna risk your first lottery
winnings to win the lottery again.
When you're taking these crazy
swings or bets, it's like gambling.
You have to focus on using that
capital efficiently, effectively,
and in a way that improves your odds
over these long-term periods of time.
Justin Dyer: Hey, everyone.
Welcome back to another
episode of AWM Insights.
It's your host, Justin Dyer, chief
investment officer here at AWM, and
joined as always by Mina Hanna, portfolio
manager here at AWM and my co-host.
Uh, today, we're just gonna talk about
the markets kinda a-as they are right now.
I mean, there's a, a lot of
subtopics that we've kind of weaved
throughout various, uh, episodes
over the last weeks and months.
But in a sense, you could boil this
down to hype, how to think about
hype, how to invest around hype.
Uh, we are, I think, about a
week away from the biggest IPO
in history, and that is SpaceX.
Uh, you, you hopefully have heard about
that unless you're living under a rock.
Um, but yeah, just kinda unpack it
all and compare, contrast, uh, just
give you some perspective around
what's happening today in the market.
We're recording this on Friday.
What is it?
June 5th.
And, and markets, at least right
now, are not having a great day.
Um, and yeah, just kinda digest
the, the current events, if you
will, and, and really, uh, bring
it through the filter of, of how a
hundred-year family, a hundred-year
investor should be thinking about it.
So Mina, let's just jump into it.
Um, I guess let's-- A-as we, we
always try to do, um, let's go through
kind of the, the, the state, state
of the markets, if you will, right?
W- I, I referenced we have the biggestâ¦
What, what appears, and I don't think
we're gonna miss this, uh, even if it,
it doesn't come to at least the stated
numbers, but, uh, it's gonna be the
biggest IPO in the, in the history of
the markets, um, likely next Friday.
That's SpaceX raising reportedly
$85 billion at, what, a $1.8
trillion valuation, something in
that range.
Yeah.
Um, Anthropic ha- has ma- uh, filed
confidentially, which is always kind
of a, a, a ironic statement, right?
Unconfidential.
Unconfidential, yeah.
The- they're gonna go
public at some point.
Um, we have a new Fed in place.
There's just a lot of excitement
in general, kind of the return
to the tech trade in a different
version that we saw a few years ago.
But the return to the trek, tech,
tech trade is definitely there.
Now, that's also reversing at least, uh,
as it stands today, um, in some capacity.
So yeah, just, just kinda give
us a lay of the land, if you
Mena Hanna: Yeah.
It's a really interesti- interesting time.
We have this IPO that's coming up, and
we had markets that were absolutely
ripping for the last couple of months,
kind of post-recovery from the war with
Iran and, and shooting energy prices.
We've seen tremendous performance
recently in tech especially.
And these last few days have
been a little bit of a shift.
Broadcom is, I would
say, the best example.
Broadcom incinerated roughly twenty
percent of their market cap, which is
f- it's, uh, it's close to four hundred
billion dollars in true two trading
Justin Dyer: And ju-just to, uh,
orient everyone, Broadcom is a,
a chip maker effectively, right?
Within that, that part of
the, the tech ecosystem.
Mena Hanna: Yeah.
They're a chip maker, kind of
adjacent company to Nvidia, and all
they did was they re- just released
guidance that investor optimism was
probably unrealistic moving forward.
So wasn't kind of crazy guidance,
but we are so optimistic.
We're in a phase right now.
We're sort of in a hype cycle
where there's a lot of just
exuberance and optimism.
If that doesn't get met, you are
going to see kind of wild swings
on the other side of the spectrum.
Justin Dyer: Well, and, and that's
actually a phenomenal segue.
We didn't even plan this, but phenomenal
segue to talk about both the hype
cycle, but then, like I alluded to,
more importantly, how do, how do we
think about investing around this and
investing specifically for that 100-year
family, that multi-generational wealth?
Um, and so I wanna go there and, and
just help, help listeners understand
at least our thought process.
Uh, we can talk about past cycles.
Like really, at the end of the day,
I mean, I could kinda give the, the
punchline here is, uh, or maybe I'll set
it up rather with the questions like, "Oh,
should we be chasing tech and going all
in on growth-oriented companies," right?
Which e-effectively are what
tech- how tech companies are
behaving in the marketplace.
Um, and like, yeah, let's set it
up kind of with that question.
Is that something you should chase?
Chase the hype cycle, chase those
crazy expectations where, you know,
Broadcom's kinda giving us the answer to
Mena Hanna: right?
Yeah.
If, if they're not-- If there's
hype that's not tied to fundamental
reality, I would say no.
Broadcom, before, before this
all happened, their price to
earnings, so their price relative
to how much money they make every
single year, was roughly 80.
So if everything kind of stayed as
is, it would take you 80 years to get
your investment back just based on the
amount of money that that company is
Justin Dyer: is generating.
And I, I just wanna orient people.
So 80 is an insanely high.
Market in, kind of on average is what?
15, 16 or so.
Yeah.
It's Probably higher
than that right now yeah
But like, like just to give people, uh,
kind of the long-term historical average
is probably in that 15 to 16 times range.
So we're seeing really, really high
expectations along those lines, right?
Mena Hanna: For some of
these companies, yeah.
Uh, Tesla, Tesla's sort
of a notorious one.
Like, Tesla does not trade
like a normal company.
They're at three hundred and sixty today.
Nvidia, a company that I would say has
more of a foundational and fundamental
base, they're trading at thirty.
So you can see Nvidia's also down today.
They're down roughly five percent,
which is a massive move for
the world's largest company.
But when you do sort of overpay,
it's like overpaying for a house.
If you're gonna pay two, three times the
reasonable market amount, that could go
well for you, or it could go disastrously
if, uh, you need to get out of the
house and you need to move, you get
traded, you're, you're going somewhere
else.
So
at at the end of the day, I think we're,
we're seeing that valuations matter.
Valuations matter when there is any
sort of turbulence in the market.
$400 billion dollars just evaporating
in one position is, is not normal, and
it's because that position was just
bid up beyond, call it reasonability.
Justin Dyer: Yeah.
Yeah.
100%.
And I mean, kind of bringing that to,
let's call it a, a takeaway, a meaningful
takeaway around hype and what type of
companies you should be investing in.
Um, you know, you kinda, you, you, you
hit on it, but the, the short answer is
there-- you still wanna be diversified.
The
vast
majority of our portfolios have
exposure to Broadcom, have exposure
to SpaceX, but you want toâ¦
And Nvidia for that matter.
But you want to make sure the percentage
exposure does not get carried away because
the expectations often, in general, if
you look at market cycles, the history
o-of markets, when periods like this do
happen, very rarely in aggregate or on
average, whatever term you wanna think
about it, do those overly optimistic
e-expectations actually come to fruition.
And so you're pricing in
Broadcom at 80 times earnings.
You're-- There's a, there's a belief
in the market that They can grow
their earnings to a degree that
that price will be worthwhile.
And more often than not, again, if you
look at all companies kind of in that
general category, it doesn't work out.
And so you still wanna be diversified, but
you wanna take into account the valuation.
You want to favor companies that are
more attractively valued, and even
looking at things like profitability
and whatnot, that also matters.
Nvidia's an interesting one.
Like, it's trading at a actually
more kind of, you know, I
guess, believable multiple.
Yeah.
Would you
say it's 30?
Yeah.
Um,
and that makes sense.
It's re- it, it's within the
realm of reasonabil- reason-
reasonableness, let's call it.
Um, and that's largely because
their earnings have been
just on an absolute tear.
Like, that is an interesting company.
And so between the two, like,
Nvidia just makes more, more sense.
Now, how much that continues
into the future, right?
That's why you still want
that diversification.
Never put all your eggs in the, the
Nvidia basket, if you will, because
there are a lot of things that
have to go right for that type of
trajectory to continue into the future.
And, you know, that's why
we want to stay diversified.
So kinda the, the punchline here, if you
will, uh, and that, uh, you can, you can
add to this, Mina, is like around hype
cycles, the financial physics, the term
we like to use, starts to not make sense.
And your example of, of, uh,
Broadcom taking 80 years to make an
investment worthwhile, like, that
doesn't make any sense whatsoever.
SpaceX, same idea.
But Elon-- Or not
SpaceX, excuse me, Tesla.
Elon Musk is an incredible, uh,
narrative master, if you will, and,
and gets a lot of people excited.
And he's done well.
Like, there's noâ¦
You can't, can't fault that.
Um, but when it comes to actually
putting dollars behind that, you
have to tread exceptionally lightly.
So we know from, from the past,
participating in hype cycles
can be incredibly dam- damaging.
Now, you don't want to go to the
other extreme and just be 100% out,
out of the market either, right?
Like, timing this stuff is
exceptionally difficult and damaging
Mena Hanna: the your family.
Yeah.
You can't ignore some of these
just mega companies and, and these
themes, but you should right size
your investment in these industries.
You're not going all in into these
companies that are gonna take you 80 or
80 to 300 years to actually pay you back
and, and hope that the world really,
really fundamentally changes and these
companies multiply at crazy rates to
actually fit into these valuations.
You don't wanna do that.
You don't wanna completely
ignore them as well.
So yeah, it does end up coming down to
investing in a portfolio that generates
solid cash flow that is reasonably valued,
where you have some boring companies
that, that aren't as exciting as all
of these AI companies, uh, but that
are trading at, you know, some of these
boring companies are trading at eight
to nine times earnings, which is a lot
more attractive from that standpoint.
Obviously, they don't have the same growth
prospects, but they're gonna at least
kick something off and they're, they're
a lot more profitable holistically.
So, so yeah, you don't wanna
put all your eggs in one basket.
You wanna assemble sort of the right team
and use your salary cap appropriately.
You're not gonna dump, you
know, $100 million into a
dollars into
prospect that hasn't played a game,
uh, because they've got like the
perfect physical characteristics
for being a starting pitcher.
You're, you're gonna be kind of
understanding of what they've done
potentially on the field that's kind
of cash flows and profitability,
and then, yeah, distribute
your salary cap accordingly.
Um, so, so yeah, Nvidia,
Nvidia makes sense.
Maybe Nvidia's like Shohei, uh, but you're
not gonna give a Shohei-like contract to
a guy in the minor leagues who's, who's
showing potential but hasn't actually
Justin Dyer: done it
yet.
Right.
And you're
not gonna build your entire team
with Sh- Shohei either, right?
Yeah.
You gotta stay diversified.
The oth- the, the last thing I wanna
make, uh, make a point around is
you also don't need that, right?
So like theâ¦
There's the be- on the behavioral
side, there can often be the,
let- let's call it FOMO, right?
Um,
behavioral
mentality around this.
"Oh, wait, I didn't get it."
Exposure to SpaceX.
I mean, in the private markets,
you know, that's a different conversation.
We've, we just did a podcast
not too long about that, uh,
not too long ago about that.
Definitely worthwhile to listen to that.
but
Um, but right, like, "Oh,
should I be participating in
the SpaceX IPO, et cetera?"
You don't need that to
support the 100 year family.
It is not a critical component
to wealth, and it's o- often
a very bad bet in general.
Again, we talked about this, like
playing IPOs generally is a way of
eroding wealth and not compounding-
Yeah ⦠multigenerational wealth.
So, uh, it's statistically
not a great game to play.
But just know as well, to support that
multigenerational, uh, family, the,
the, the tried and true discipline in
times like this is the way to play it.
That is the way you have a lot more
confidence in what your outcomes
are gonna be over the long term.
And so, you know, the, again,
kind of understandable, there's,
there's hype all over the place,
articles talking about SpaceX.
Elon does an incredible job hyping
up his, his particular companies.
But, uh, there's a right way to get
exposure to companies like that in the
private markets early on, and then playing
the IPO is not really this systematic
way of building, building wealth.
And, and just know that the, the, the
systematic tried and true disciplined way
of
of investing in the public markets,
we're predominantly talking about today,
really, really gives us that confidence
on our side that you all are gonna
list- or meet your 100-year priorities.
Mena Hanna: Yeah.
And usually, when you're, you
know, taking these crazy swings
or, or bets, it's like gambling.
We've said that a million times.
The majority of our clients
have already won the lottery.
You don't wanna, you know, risk your first
lottery winnings to win the lottery again.
That doesn't statistically make sense.
So, so yeah, when, when you think about
building and preserving the 100-year
family, you've already won the lottery.
You have to focus on using that capital
efficiently, effectively, and in a
way that sort of improves your odds
or potentially guarantees success
over these long-term periods of time.
Obviously, guarantee is, is not a
word that we can, uh, we can say.
I, I have to retract that one.
Uh, but it gives you the highest
likelihood of being able to meet your
priorities and accomplish what you want to
accomplish.
You don't need to be chasing these
super right tail, unprobable, improbable
outcomes because it will do more harm
for your 100-year family than it probably
would even help it if you were to, to
win the
Justin Dyer: the lottery
again.
Yeah.
That's a great place to end.
Uh, and we'll do that on that note.
Hopefully, this was helpful.
We'll probably talk about this, uh, a
little bit more over the coming weeks,
um, just given the, the impending SpaceX
IPO and what markets may or may not do.
Uh, but if you have any questions
along these lines or, or any
other topics that are top of
Mena Hanna: definitely shoot them
our
way.
Six two six-eight six
two-zero
Justin Dyer: three
five five
And until next time, own your wealth,
make an impact, and always be a pro.
Thanks for listening