0:00

Hello everyone and welcome to the Complete

0:02

Wealth Management Podcast . I've got a

0:04

great guest for us on today

0:06

, actually our first ever repeat

0:09

guest , and when I launched this podcast

0:11

and was making a list of people

0:14

that I wanted to be able to have come on

0:16

to this podcast to share with all of our clients

0:18

, dr Apollo Lopescu was number one

0:21

on my list and he joined us for the very

0:23

first ever episode of the Complete

0:26

Wealth Management Podcast , and so welcome

0:28

back , apollo .

0:29

Well , Dave , thank you so much

0:31

and I'm really honored to be back . So thank you for

0:33

the invitation to be back and thanks to

0:35

everyone for taking the time to watch

0:38

this session .

0:39

Awesome . Well , it's quite interesting , apollo

0:41

. When I had you on the Complete Wealth Management

0:43

Podcast episode number one

0:46

, it was right around October

0:49

or November of 2022

0:51

. And I'd asked you to come on and

0:54

we did an episode . It was discussed

0:56

navigating volatile markets

0:58

and if you remember , or if any of our

1:00

listeners remember , what was going on in

1:02

the stock market in 2022 , if

1:04

any of our listeners remember what was going on in the stock market in 2022

1:07

, a

1:11

little bit of an uncomfortable year , I think . At the time , the S&P , as of when we recorded

1:13

that episode , was somewhere around 35 or 3,700

1:16

. Of course , today , over

1:18

5,000 now , and

1:20

so I think the ultimate message , of

1:22

course , that you delivered is it's

1:24

not a time to panic . There's certainly

1:27

a lot of volatility , a lot

1:29

of uncertainty in the economy

1:31

, in the markets . Unprecedented interest

1:33

rate hikes that we saw during that time period

1:36

led to a lot of that , but I think

1:38

, looking in hindsight and playing

1:40

Monday morning quarterback , those

1:42

who didn't panic and who did stay

1:45

rational and who , you know , stuck

1:47

to their investment principles , obviously

1:49

ended up having a good kind of year

1:52

and a half since the last time we all got together

1:54

.

1:54

Yeah , and I agree , and I think what

1:56

I've always appreciated is you

1:58

know , both of us have a very consistent

2:00

message and if you go back to like

2:03

, you know for the first time that we talked , we really

2:05

have been telling investors that

2:07

between letting your emotions

2:09

drive decisions or just being

2:11

disciplined , strategic and just

2:14

kind of work within the plan that was developed

2:16

for you , and not necessarily

2:18

panic , don't make rash decisions

2:20

. I think that it worked out really well because

2:22

, as you said , in 2022 , the market

2:25

was down about 18% and

2:27

that's a lot of people were scared and that

2:29

might have been the time to sell , and what we found

2:31

is that the people who actually use

2:34

our advice 2023 ended up being

2:36

a really good year for investors . The S&P

2:38

was up over 26%

2:40

. So , again , not to pat ourselves on

2:42

the back , but it's a very consistent message

2:44

that we have been delivering to investors .

2:46

Absolutely , and that kind of leads you to this next

2:49

question of like well is now

2:51

a good time to invest ? And

2:53

one of the things that we're going to be talking about in this

2:55

episode is something that I know

2:57

is on the mind of almost everybody

3:00

in the United States right now , and it is the

3:02

election . We know it's

3:04

going to be another Donald Trump versus

3:06

President Biden rematch , and I

3:08

think , more than ever

3:10

, a lot of people are just feeling uncertain

3:13

and there's a lot of strong beliefs

3:15

on each side , which we're not going to get into any

3:17

political discussions here . But we

3:19

are going to talk about the impact of stock market investing

3:22

in this episode . But before we do that

3:24

, apollo , can you just share for

3:26

all the listeners a little bit of your background

3:29

? And then also , you're

3:35

at Dimensional Fund Advisors . They've been a great strategic partner with

3:37

Prosperity Capital Advisors , my RIA firm . I think

3:39

we have over a billion dollars

3:41

, or close to a billion dollars , of our client

3:43

assets that you all are helping

3:45

to manage on our behalf . So can you

3:47

just kind of share with our listeners a little bit of your background

3:50

, your journey and maybe a little bit about

3:52

Dimensional Fund Advisors ?

3:53

Yeah , well , first of all , I really thank

3:55

you for the trust and the partnership to

3:58

you and the clients . And just quickly

4:00

about myself I really started by

4:02

looking at investing in my undergrad

4:05

studies at Michigan State . At the time

4:07

it was just a father

4:09

, one of my friends who came in and very

4:11

flashy guy and he had like a nice car

4:14

and took us all to a steak dinner and

4:16

he just looked like he was doing amazingly well . And

4:18

I asked him what do you do ? And he said well

4:20

, I trade stocks . And I thought

4:22

, wow , that's something that I might want

4:25

to look into because it seems like it affords you a

4:27

great lifestyle . So I

4:29

started to immerse

4:31

myself a little bit in the

4:33

classes that were offered at Michigan State around

4:35

investing and finance and I

4:37

found it fascinating . And my goal has

4:39

been to almost unravel

4:41

the mystery of the stock

4:44

market . And I've been

4:46

doing that for about 30 years and frankly

4:48

I don't think that I've unraveled

4:50

it , but I've kind of started to see

4:53

things better , see them in a different

4:55

light . So I ended up studying

4:57

at Michigan State as much as I could

4:59

and then I applied at UC Santa

5:01

Barbara for a business economics

5:04

a master's degree and then , once

5:06

I finished that I really liked investing

5:08

and I wanted to dive as deeply as I

5:10

could , so I got into the PhD

5:12

program with some phenomenal professors

5:15

and

5:19

then I finished a PhD

5:21

. Turns out that my sister-in-law

5:24

at the time ended

5:26

up going on some sort of a lunch date

5:28

whatever it was with somebody who worked at Dimensional

5:31

and in fact it was the founder of the financial

5:33

advisory group and then

5:35

told him that

5:37

he was disappointed that his identical

5:39

twin would move to the East Coast which my

5:41

job offers are on the East Coast and the

5:43

gentleman said , yeah , he just hadn't talked

5:45

to me and anyway . So I called him

5:48

up . I met him in Santa Monica for lunch

5:50

. I lived in Santa Barbara at the time and you

5:52

know I just really loved the guy . But

5:55

what was even more inspiring is that Dimensional

5:58

was a firm that was working

6:00

very closely with a lot

6:02

of the academics that I studied

6:04

in my PhD and in fact I used to

6:06

teach classes in finance based on

6:08

their work . And I was just absolutely blown

6:10

away that these academics many

6:12

of them who actually were awarded a Nobel

6:15

Prize in economics at some point they

6:17

were affiliated with an investment firm

6:19

and that investment firm actually had

6:21

practical solutions for investors . So

6:23

I kind of gave away the job

6:25

. I basically turned down the job that I

6:27

had on East Coast to come

6:30

and join Dimensional and at the time , I don't know , there was

6:32

an open position . But I was just so enthralled

6:34

by this company , the people , the

6:37

academic connection that I took a chance

6:39

. And 20 years later it turns out

6:41

that it worked out really well . And over

6:43

the years I've worked with financial advisors

6:45

, I've worked with 401k plans

6:48

, I've worked with all kinds of folks

6:50

and over the past decade or so it has

6:52

been much more around translating

6:55

some of these concepts to the end investor

6:57

, making sure that everybody

6:59

appreciates and understands

7:02

this approach to investing

7:04

, which tends to be a little bit more sophisticated and

7:06

sometimes it could be a little bit more confusing

7:08

. But I'm trying to make it more clear

7:10

and cut through the noise and make sure

7:12

that people are not just impressed by

7:14

jargon or big numbers but

7:17

really fundamentally have an intuition of why

7:19

this makes so much sense .

7:21

Well , that's great , and at Prosperity Capital

7:23

Advisors we have so many great partners and

7:25

there's a lot of great investment providers BlackRock

7:28

and Vanguard , and on and on but I've

7:30

really always gravitated towards

7:32

the approach that you guys have

7:34

taken . It always appealed to me , kind of the statement

7:37

I'll remember seeing it when I first walked

7:39

into your building of the science

7:41

of investing . And instead of trying

7:44

to speculate and guess

7:46

which way the market is going to go which

7:48

, of course , none of us have that crystal ball

7:50

it's your approach of using

7:52

more of an evidence-based scientific

7:55

method of arriving

7:57

at the investment decisions . And so

7:59

what I'm really excited about in

8:01

today's episode is to talk about what

8:03

I know is on the minds of many people today

8:06

and really bring your perspective

8:08

to our listeners . Because , as you

8:11

mentioned , you've been doing this for 20

8:13

, 30 years now . You've been studying markets

8:15

, you've been on the academic side , you've been

8:17

in the trenches at a

8:19

tremendous firm like Dimensional . This

8:22

is certainly not your first presidential

8:25

election that you've been through , and

8:27

so let's go ahead . And we're

8:29

going to jump right into today's episode

8:31

on talking about investing

8:34

in an election year .

8:45

I think you know you brought up something really

8:48

important , which is that

8:50

politics is deeply

8:52

emotional because it touches on

8:54

our deeply held beliefs , our

8:56

core identity as individuals , and

8:59

because of that it triggers these emotions . And

9:01

I think it's perfectly fine to have these emotions

9:03

. It's interesting because emotions

9:06

, as you said , can be on both sides . This is not

9:08

a right and wrong . I do believe that people on

9:11

all spectrums , they're good people . They just have different

9:13

views . And , interestingly

9:15

enough , not too long ago , a few weeks ago

9:17

, my wife and I went on a cruise , a

9:21

little small cruise . There were about nine families , nine

9:23

couples on that boat . So

9:28

just as we got on the boat boat the two folks who organized the trip , they basically stood out

9:30

there . It's like well , okay , uh , we have two rules on this , uh , on this cruise , which is about 10

9:32

days . Number one is no

9:35

whining . You're not going to complain that this

9:37

is not that and no , no , we're gonna have

9:39

fun . No whining now . Rule number two no

9:42

talk of politics , because

9:44

, again , this is a very emotional issue and

9:47

you'll not be able to change somebody's

9:49

mind . So , rather than

9:51

try to get into this with all these different views

9:53

, might as well avoid the whole subject , which we're

9:55

not going to do today . But with that acknowledgement

9:57

in mind , I'm here to tell you that whatever

10:00

we will discuss , it will not

10:02

be based on my views . I'm

10:04

not going to try to make anybody feel good or bad

10:07

about their political views

10:09

or what they think about

10:11

candidates , but rather I'm

10:13

going to suggest that really successful

10:15

investors and I found this over and

10:18

over and over again are able to acknowledge

10:20

these emotions that I've been talking about , because

10:23

that's what makes us human . So there's nothing wrong

10:25

with having these emotions and nothing

10:27

wrong on acting on these

10:29

emotions . The most obvious way

10:32

to act is go vote . If you

10:34

really feel strongly , go get involved

10:36

in a campaign . So I absolutely acknowledge

10:38

these emotions are real , they're fine to have

10:40

and there is a certain healthy way

10:42

to act on them . What I found is that

10:44

the really successful investors , while they

10:46

acknowledge these emotions , they are very

10:49

pragmatic in the way that

10:51

they make decisions about their money and

10:53

they base those decisions on evidence

10:56

and data rather than how they feel . So

10:58

this whole session will not be

11:00

about my views at all . But what does

11:02

the data say ? What do we know in

11:04

terms of the data ? And you mentioned that there

11:06

is a lot of uncertainty and one

11:08

of the comments that I hear over and over is that listen

11:11

, there is already enough uncertainty in the world with

11:13

the war in the Middle East , the war in Ukraine

11:15

, we have the Fed , we have interest rates . All of this

11:18

is going on and this political

11:20

race is adding additional uncertainty

11:22

and , in general , political

11:25

race is adding additional uncertainty and , in general , the idea

11:27

is that being an election year

11:29

is a year that adds uncertainty in any time , not necessarily

11:31

in 2024 . So the first

11:34

data point that we wanted to look at

11:36

was how do

11:38

the markets behave in

11:40

an election year ? Is there something different

11:43

about the way the market behave in an election

11:45

year ? And we know that over the long

11:47

run . If you look since the 1920s

11:49

since we have good data on average

11:51

, this is just a high level average

11:54

. About one in four years the

11:56

markets go down and

11:58

three four years it goes up on

12:00

average . We don't know there might

12:02

be a series of six years when it goes up

12:04

and then three down . We don't know it might be a series of six years when

12:07

it goes up and then three down . You know there's no predictable pattern , but on average

12:09

, if you want to average over the long run . It's about 25

12:11

percent of the time in any given year the market's

12:13

likely to go down , 75 percent

12:15

to go up . So now let's look at the election

12:17

years and if we go back to 1926

12:20

, almost 100 years of

12:22

data in the market , hundred years of data in the market this is what we

12:24

see . In these almost a hundred years we

12:27

have had 24 different

12:29

presidential election years , so there

12:32

are 24 different elections . So

12:40

the question is how did the market behave in these 24 elections ? Do we see a preponderance

12:43

of positive or negative outcomes in the market , and what can we learn from there ? And it turns

12:45

out that if you actually examine

12:47

this year by year , which we did , what

12:49

you find is that 20 out

12:51

of the 24 years the market

12:54

actually went up . It was a positive

12:56

year , the markets gave investors

12:58

solid returns . And then there

13:01

were four out of the 24

13:03

when the market went down and we had negative

13:05

returns . So the very first interesting

13:07

fact , dave , is that when

13:09

you look at a presidential election year , just by

13:12

being an election year , when

13:14

everybody says every election is the election

13:16

of a lifetime , that's the most important election . If

13:18

you go back to the 24 election years , what

13:21

you see , is that the overwhelming majority

13:23

of the years the market did go up and

13:26

there's no real reason to be concerned

13:28

that , oh , it's an election year , the market tanks . That's

13:31

not what we see in the data , but we do see that

13:33

four years the market did drop . So

13:35

the question is , what do we learn from

13:37

the years when the market dropped ? And

13:40

again , we looked at it one by one , and it was in 1932

13:43

that we saw the first drop in election

13:45

year , and what's interesting

13:47

is that we did have an election in 32 , but

13:50

we also had the Great Depression . So

13:53

one might wonder what might have mattered more to

13:55

the markets , the Great Depression or the fact that

13:57

we had an election . And then , eight years afterwards

13:59

, we have the second negative outcome

14:02

in the market during an election year , and

14:04

that was also the year when it became obvious

14:06

that this will become a world

14:09

war . And that's again

14:12

. You had an election , but you all said the World

14:14

War II going on . And then it took

14:16

60 years until we saw the next negative

14:18

outcome , and that was 2000 Bush versus

14:21

Gore . And if you remember the chat with the gentleman

14:23

looking through the opening in the paper

14:25

, and that was definitely

14:27

something that somebody might say well , we went to

14:29

the Supreme Court , so that might have been bad for the markets

14:31

. The truth is that that was also

14:33

the year when the dot-com

14:35

started to go bust , when you had all

14:38

these tech stocks in the 90s

14:40

started to kind of go down in value . So , yes , we

14:42

did have an election , but we also had

14:44

the beginning of the dot-com bust . So , yes , we did have an election , but

14:46

we also had the beginning of the dot-com bust . And then afterwards we

14:48

had the last one in 2008, . Obama

14:51

versus McCain , but that was the year of the

14:53

great financial crisis . So

14:55

what's interesting , dave , is that if you look at the data

14:57

, you see that the overwhelming majority

14:59

of the time 20 out of 24 times the

15:02

market does go up in an election year . So

15:20

there's no real reason to be concerned that . We've seen the data that most often

15:22

the market drops . That's not the case and what we also see in the years when the

15:25

market did drop in . An electioneer does not scream

15:27

to me that , hey , this is something that you should be

15:29

cautious and investor . There's a lot of evidence

15:32

to suggest that it's going to be a down

15:34

year . That's not what we're seeing in the data .

15:36

Yeah , that's just , that's great data . And

15:38

I think emotionally and

15:40

as I talk to clients , it's

15:43

always kind of one of two conversations

15:45

. Number one is if

15:48

so-and-so gets elected

15:50

, the world is going to fall apart and the markets

15:52

are going to crash and the economy is going to come

15:54

tumbling down . Or if

15:57

so-and-so gets elected , everything's

16:00

going to be dire and kind of be on

16:02

one end of the extreme , and

16:04

that's soliciting more or less

16:06

that panic selling . Should

16:09

we try to get out of the market before

16:11

President X gets elected

16:13

and ruins the economy and ruins

16:16

the stock market ? And I

16:18

think your data really validates

16:21

why it's important to

16:23

stay the course At the end of the day

16:25

in election year and

16:27

ultimately , whose president isn't

16:30

going to statistically

16:32

at least , it hasn't impact

16:35

the stock market terribly in

16:37

any given year . Right .

16:39

And you're absolutely right . I mean it's . There are

16:41

a lot of people out there who are , in

16:43

my opinion , letting . They're letting the emotions

16:46

speak and then say well , I'm going to sell everything

16:48

, move to Canada , because one

16:50

person is going to be elected or another and

16:53

ruin is going to come to the economy , and

16:55

I do think that come November , half the country

16:57

will feel that way and the other

16:59

half will be ecstatic . So we need to acknowledge that that's

17:02

going to be the case .

17:03

Why is it everyone wants to move to Canada

17:05

?

17:06

I heard that from a man this weekend .

17:08

If so-and-so gets elected .

17:10

We're moving the family to Canada .

17:13

Really that seems a bit extreme .

17:15

That's funny . But let's

17:17

look at this a little bit closer because

17:19

, first of all , we are in an election

17:21

year when either one of

17:23

the candidates , as they are now , it's

17:25

not a surprise to the economy

17:27

, to the markets , because both

17:29

of these folks have been in the White

17:31

House for at least three years , like President

17:34

Biden over three years now , and then

17:36

President Trump four years . So , whatever

17:39

it comes , you can look and say well

17:41

, look , the markets did something

17:43

and they both had positive outcomes . If you look at

17:45

the performance of the market while they're

17:47

in office , whether it's President Biden or President

17:50

Trump , it's roughly the same performance

17:52

. But let's go back and see

17:54

how much do policies matter

17:56

. Let's go back and see how

17:58

much does it matter having one president

18:01

with a certain policies or not , policies

18:07

or not , and to begin with , ask the question does it really matter having a

18:09

Republican or a Democrat in the White House ? For the markets and

18:12

I'm born in 1969 . I'm

18:15

54 , about to be 55 years old , and

18:17

I wanted to look at my lifetime . And

18:19

in my lifetime the average annualized

18:22

return for the US stock market the S&P

18:24

500 , has been about 10% . So

18:26

let's just put that as your

18:28

yardstick . 10% per year on average

18:30

has been the growth in the market over the

18:33

past 54 years . Now

18:35

here's the thing . If we now look , president

18:37

by president , and ask the question well

18:39

, how did the market do , on average annualized

18:42

, during their time in office ? Perhaps

18:44

there are things that we can learn . So

18:51

when I was born , president Nixon was in the White House and during the five and a half

18:53

years or so that he was president , on

18:55

average per year , the market actually

18:57

didn't grow , but it dropped by

18:59

about 2.9% per

19:01

year , which is interesting

19:04

because it didn't grow . It

19:06

actually dropped by about 3% per year , which

19:09

is interesting because it didn't grow . It actually dropped by

19:11

about 3% per year . And

19:13

then he leaves the White House and President Ford comes along for about three and

19:15

a half years or so , less than that , and the market skyrockets at over 20%

19:17

annualized per year , which is a really

19:19

big number . And then after

19:21

him , in 1977 , President

19:24

Carter gets elected and on

19:26

average , the market for the four

19:28

years that he was in office goes up by about 11.77

19:32

, followed by President Reagan

19:34

15.8 for the eight

19:36

years . And then his vice president walks in

19:39

the White House , george HW

19:41

Bush , with an average return of 13.9

19:44

annualized during the four years that he was

19:46

in office and then , as you know , he loses

19:49

to President Clinton , who comes in

19:51

and , on average , annualized , the market goes

19:53

up by 17.6%

19:56

. And then , as we talked

19:58

about the Gore versus Bush President

20:00

, george W Bush comes in the White House

20:02

and on average year

20:04

during the eight years that he's in the

20:06

White House , the market actually drops

20:08

by about 4.4%

20:11

. On average , per year there's a

20:13

loss of about 4.4% . And

20:15

then we know President Obama comes in , markets

20:18

go up about 16% per year

20:20

on average during the eight years , and

20:22

then President Trump at about 15.2

20:25

. So the reason I bring this

20:27

up is that you can look at the numbers

20:29

. They're all kind of laid out in front of you , and

20:32

I think there are three important questions that

20:34

I would ask . The first one , dave , and you can

20:36

help me out Do you find that there's

20:38

an obvious pattern that

20:40

will tell the investors that having a

20:43

Republican or a Democrat

20:45

in the White House is better or worse

20:47

for the markets ? What do you think ? I

20:51

don't see anything and I've asked clients

20:53

, I've asked investors whether

20:55

, in conservative states , liberal states

20:57

, nobody could ever tell me yeah

20:59

, there fact is really well known for the business friendly policies

21:01

, for the tax cuts . And

21:22

the question is well , how did the market do when you have

21:24

such a business

21:27

friendly , business focused president

21:29

? And , as I said , the long term average

21:31

is about 10 percent per year . During

21:34

the eight years that that he was in the White House

21:36

, the market actually went up by 15.8%

21:39

per year , which is , again , it's

21:42

a very nice outcome . And

21:44

what's interesting is that you can have

21:46

presidents whose priorities

21:48

might not be around business , tax cuts

21:51

, economic activity but really could

21:53

be around social programs , economic

21:57

activity , but really could be around social programs . And to me , the president that really

21:59

probably is best known in recent years for that is President

22:01

Obama , because his signature accomplishment

22:04

is not tax cuts or business

22:06

friendly policies , but rather

22:08

Obamacare , which is a social

22:10

program around health care . And

22:12

again , I saw a lot of people and

22:15

I talked to a lot of people who were worried that

22:17

perhaps not having a business-focused

22:19

president would turn out to be really

22:21

bad for the markets . And there

22:23

were some of the folks who wanted to move to Canada because , listen

22:26

, we're going to have socialism in the country . The markets

22:28

are going to tank . So the question is , how do the markets

22:30

do during a president that

22:32

wasn't known for business-friendly policies

22:34

, but rather Obamacare . When

22:36

you look at the data , you see that over 80

22:38

years it's exactly the same time spent as

22:40

President Reagan . The markets

22:43

on average went up by

22:45

about 16%

22:48

. So it's virtually the same . And it's

22:50

so interesting because that's what the data says

22:53

. You can have a business-minded

22:55

president or you can have one that's focused

22:58

on social issues , and when

23:00

you look at the data it doesn't seem

23:02

to be that clear distinction that

23:04

the markets is so much better during

23:07

one or the other . Not at all . It seems to be . They're virtually

23:09

identical Identical . I can't

23:11

really distinguish that .

23:13

And I just want to kind of try to translate

23:16

this for investors and what

23:18

the table stakes are here . These

23:21

returns are phenomenal , right , almost

23:23

16% in either

23:25

of these cycles , which , hey , I think

23:27

we all wish we could deliver 16%

23:30

on our money forever . But to put that

23:32

into perspective of what 16%

23:35

is , that means your investment

23:37

would double in value

23:39

about every four and a half years

23:42

. And so if you

23:44

were to say , hey , the

23:46

color in red , they're going to be

23:48

the elected president , we don't want to be in

23:51

the market , and you would have pulled all your money

23:53

out of the market , you would have

23:55

missed the chance for your money to potentially

23:57

double . Or if the incoming

23:59

president was kind of in that blue category

24:02

there and you missed the opportunity to be

24:04

in the market . And I think this is just

24:06

the big advantage of the stock market in general

24:09

right For those who have the right framework

24:11

, for those who have the right structure

24:13

. The rest of the world

24:15

looks at the United States market

24:18

in awe a little bit at the

24:20

ability for it to continue to

24:22

produce wealth for

24:25

the market participants who

24:27

actually have good , sound advice

24:29

and don't freak

24:32

out , don't panic , don't try to speculate

24:34

. And so I just wanted to put those 16%

24:38

numbers into terms that I think a lot of people

24:40

could relate to . That if you had invested $100,000

24:43

at the start of either one of those election

24:46

cycles , your money would be worth

24:48

almost $200,000 by the end of

24:50

it , and that's a big deal

24:52

.

24:53

That's a really big deal and I'm glad you brought it up because

24:55

that is really important context

24:57

. If you let your emotions decide

25:00

that , listen , are we going to have a president that's

25:02

going to do this or that , and then you get

25:04

out , you miss on that incredible

25:06

opportunity to grow and then you'll

25:08

always be disappointed by the stock market . You

25:11

might wonder why . But I think there's even a more

25:13

fundamental question that as I looked at

25:15

this data , that when I

25:17

looked at this data , the first thought that I had

25:19

was that the president that had

25:21

the worst annualized returns

25:23

was President George W

25:26

Bush

25:28

. Say , look

25:31

, he was not a very good

25:33

president for the markets . And this

25:36

just might be it , and

25:42

perhaps you should blame him for the market dropping about 4% per year because he

25:44

just didn't seem there was a good president for the markets . But what I do remember

25:46

is that it was roughly the time when I started Dimensional that

25:48

there were very significant

25:51

tax cuts specifically

25:53

geared towards investing , that George

25:55

W Bush promoted Taxes cut

25:57

to long term gains , to dividends

25:59

, which really were very supportive

26:02

for investors in the stock market

26:04

, and yet it dropped by about 4%

26:07

. So that kind of leads me

26:09

to the one fundamental kind of

26:11

idea is that I don't believe

26:13

that presidents should

26:15

receive neither credit nor

26:17

blame for how the

26:20

market does during their time

26:22

in the White House , because it's not

26:24

a legitimate way to look at it . President

26:26

George W Bush negative 4.4%

26:29

annualized and you say , well , maybe he wasn't

26:31

good for the markets . Think about it . He

26:33

walked in that White House just as

26:35

the dot-com was going bust

26:38

. How much did he have to deal with

26:40

the dot-com bust ? Nothing . 9-11

26:43

happened nine months into his term . And

26:45

talk about it . He walked off at the very bottom

26:47

of the financial crisis and you look

26:49

and say he was not good for the markets . I'm like I'm

26:51

not sure that's fair to

26:54

blame a president because again , the big

26:56

drop 2000 , 2001

26:58

, 2002 , there were three years in a row

27:01

. They're all driven by the dot-com bust . Something

27:03

had nothing to do with that . And then , on the

27:05

other hand , you take President Clinton

27:07

. Bill Clinton walked in just as the dot-com

27:10

was taken off , just as all these companies

27:12

, petscom and Amazon . They're

27:14

flying high and I'm not 100% sure

27:16

that the White House has much to do with that . I

27:19

mean it just happened that those

27:21

companies took off during their time in office

27:23

. And talk about market timing . He left the

27:25

White House just before the tide turned

27:27

and didn't capture any of

27:29

the backside of the drop

27:32

in the market . So again , to me

27:34

it's a fundamental misconception

27:36

that presidents should receive credit or

27:38

blame . We saw that the political

27:40

party of a president doesn't seem to matter at all

27:42

to the market . But , even

27:44

more fundamental , the policies don't

27:47

matter and I don't know that the president

27:50

should receive credit or blame for

27:52

how the uh the the market does during

27:54

their time , because they might just be picking up things

27:56

that happened before and then

27:58

you might miss things . That happens

28:01

when the other president comes

28:03

in . Yeah , that's great perspective

28:05

.

28:05

Go ahead , no , go ahead . I

28:08

was going to say I wanted to change the framework

28:10

a little bit , maybe have a little bit of fun here , because

28:12

the other thing that I hear about and I think all the

28:14

perspective you gave is

28:17

great framework for a

28:19

long-term investor who

28:21

really kind of the moral of the story is

28:24

stay the course , stick with your

28:26

investment philosophy , don't panic

28:28

and freak out . At the end of the day , there

28:30

is very little statistical correlation

28:33

to who's the president

28:35

or what party is in power

28:38

. As to stock market returns

28:40

, the thing that I hear , though

28:42

, from some clients and I

28:44

know your overall philosophy on investing

28:47

, so I'm really interested to hear some

28:49

of your framework around speculation

28:51

that also comes into the stock

28:53

market , because I've had other

28:55

clients that have said well , what

28:58

if Donald Trump gets elected ? Should

29:00

we be tilting our investments more

29:02

towards certain things ? I

29:04

remember in the last election cycle , when

29:06

he got elected , it was more like

29:08

towards small cap companies , because

29:11

he was going to deregulate and help small

29:13

businesses , and I heard very similar

29:15

things when President Biden was elected

29:17

of like we should be putting more money

29:19

in , you know , green energy and

29:22

solar and like all

29:24

of these . You know I would call them just bets . At

29:26

that point , right , you're speculating and

29:28

you're taking bets , but talk about

29:30

kind of how that active

29:33

management framework or trying to

29:35

pick where the market's going to go , based

29:37

on who's in office and what their public policy

29:39

might be , could either help

29:41

or hurt investors .

29:44

You know , I'm going to tell you

29:46

that we looked at this . I've gotten that question

29:48

over and over and

29:51

we looked at absolutely we looked at this because it's a

29:53

really important question and

29:55

there are some case studies that

29:57

we looked at , both on what happens

29:59

if you do have the government

30:02

supporting that particular industry

30:04

or the particular company . Is

30:06

that a good play for investors ? But

30:08

also , what if the administration

30:10

doesn't support that particular

30:12

industry ? Does it mean that that that it

30:14

can go the wrong way

30:16

? And I'm going to use some case studies . There

30:19

are nothing more than case studies , because you

30:21

mentioned the previous administration and

30:23

I remember that one of the big things that they talked

30:25

about was trying to promote

30:28

local manufacturing , us

30:30

manufacturing , and particularly

30:32

the area of interest for

30:35

the previous administration was steel

30:37

and , if you remember , dave , like as they

30:39

walked in , there was just

30:42

a big push to promote the

30:44

steel production in the US and

30:47

there is a company that carries the

30:49

name of the industry it's called

30:51

United States Steel Corporation , which

30:54

these days it's actually

30:56

in talks to maybe be acquired

30:58

by a Japanese company . But back

31:00

in those days you're looking at January of 2017

31:03

, it was interesting to see what

31:05

was going on with that

31:07

stock price , given that the administration

31:09

was becoming quite public in its support

31:12

of the domestic steel industry

31:14

. So when you look at US steel and

31:16

this is a price per share for US steel

31:18

you do see that it kind of bounced

31:20

around a little bit . But at some point there was

31:22

talk of tariffs , and

31:25

tariffs would apply

31:27

towards foreign producers that really

31:29

benefit the US manufacturers

31:32

. So you did see that there was a price

31:35

bump in there that

31:38

a lot of folks were saying , well , this is it . I mean , you

31:41

do have this company

31:43

that now will be supported

31:45

by policies of the US government

31:47

and indeed , in March of 2018

31:51

, the former administration announced

31:53

steel tariffs . And at

31:55

this point , as an investor , your thought

31:57

is like well , this is great , because now this

32:00

company can take full advantage of

32:02

just

32:04

being more competitive and

32:06

sell a lot more in the US . So if

32:08

you're an investor that right now kind of says

32:10

let's jump on this opportunity because this

32:13

is the play to make , what would have

32:15

happened for the remaining of the term

32:18

of the previous administration ? Well , it

32:20

turns out that , interestingly enough

32:22

, the value of US steel completely

32:25

tanked afterwards , completely

32:27

lost the majority of its value

32:29

, even though it

32:31

had the full backing of the US government

32:34

. It

32:37

had the full backing of the US government , even though there are tariffs in place to support

32:39

it . It didn't mean that was a good thing for investors . It

32:41

did not translate into

32:43

a successful investment experience

32:45

. In fact , it turned out to be a disaster

32:47

for investors if they simply

32:49

focused on that idea that , hey , the government

32:52

is not going to support an industry and that's going

32:54

to be good for me . So it is interesting

32:56

to see that just because

32:58

there is this support coming from

33:00

the administration , it

33:02

doesn't really mean that that's going to translate

33:05

into investment success . The

33:07

other case study that I mentioned is what

33:10

if there's an industry that clearly is

33:12

not being supported by

33:14

the administration , does it mean that

33:16

you should bail out of there because it

33:18

doesn't have solid prospects ? And

33:20

, as you said , the current administration , the Biden

33:23

administration , has been promoting

33:25

more green energy than fossil

33:27

fuels . So

33:30

in that respect , nobody can say that

33:32

the oil industry

33:34

has a big support in the current

33:36

administration . And what's interesting

33:38

is that if you look , for example , at Exxon

33:41

and the price per share of Exxon

33:43

, what you find is that during

33:45

the current administration it really skyrocketed

33:48

up . So it's been really productive

33:51

for an investor to own

33:53

Exxon rather

33:55

than bail out of it . So to

33:57

me it kind of goes to a

33:59

fundamental question of why ? What's the

34:01

economics of this ? Does this make

34:03

sense , or is just some randomness that it

34:05

doesn't make any sense ? And I do want

34:07

to come back to what is the intuition

34:10

of all this and how the markets

34:12

relate to the politics . Well

34:15

, the stock market is fundamentally

34:17

a place where you and I anybody can

34:19

go buy ownership in companies . That's

34:21

what we're buying . We're buying ownership in companies and

34:24

the value of that ownership

34:26

depends on what

34:28

do I believe that company is going to make in

34:30

earnings and profits for

34:32

years and years down the road , because that's where

34:34

the true value comes from . If you

34:36

buy a little restaurant and you want to say , how much should

34:38

I pay ? Well , how much is it making in profits

34:41

and do I expect those profits to continue ? And

34:43

that's going to inform me of how much that

34:45

company might be worth that little restaurant . And

34:48

it's kind of the same with the market . It's a little more complex

34:50

because businesses are bigger and there are more moving

34:52

parts , but the fundamental premise is

34:54

the same . So in that respect

34:56

, the question that investors

34:58

are asking is fundamentally

35:01

this given the policies

35:03

, given what's going on right now . What

35:06

do I expect these policies to

35:08

change in terms of the earnings

35:10

of the company for many , many years down the

35:12

road ? And if you think of what

35:14

matters for the earnings of the

35:16

company , take Apple , facebook

35:18

, coca-cola , mcdonald's , you name it . In

35:20

my view , economically

35:22

, you can look at their products , their services

35:25

, their strategy , how they executed

35:27

, what competitors are going to do and , in my

35:29

opinion , what drives

35:31

the earnings and the profits of a company

35:33

are much more related to something

35:36

that they control themselves , rather

35:38

than who's in the White House

35:40

and how these policies might

35:44

change . Because ultimately , in

35:46

my opinion , the main drivers of

35:48

every company's profits are driven by

35:50

something they have much more control over

35:52

, rather than the policy in DC . And

35:54

do the policies in DC matter ? Absolutely

35:57

, does the government matter

36:00

? Of course they do it . Just to me , the way

36:02

that I've looked at this , dave , is

36:04

that there's so many variables

36:07

that go into the performance

36:09

of the stock , the earnings of

36:11

a stock , and , to me , politics

36:13

and elections is one of the many

36:15

, many , many , many , many variables

36:17

that impact the stock market . That's how

36:20

I look at it . It's one of the many variable impact impact

36:22

in the stock market . In my view

36:24

. It is not a primary

36:26

one , it is not one that drives

36:28

the market . It's blends in there with so

36:31

many other variables that it becomes indistinguishable

36:33

. And the

36:36

thought that I had lately , just to kind of illustrate that

36:38

point , is that I've been baking cookies

36:40

with my daughter and you go

36:42

in and you put in the flour , the sugar , the butter

36:44

, the eggs , and then you mix them up , you put them

36:46

in the oven , you bake it . When the cookies

36:48

bake and you break it apart , it's

36:51

impossible to point and say

36:53

, aha , I can see the egg yolk in there .

36:55

No , you can't .

36:55

It's just one of the many , many ingredients that

36:58

made that cookie , and it's kind of the same with the

37:00

market . Politics is like

37:02

the egg yolk in a cookie you can distinguish

37:04

it from anything else . But what I can

37:07

tell you , folks , is that politics

37:09

is not the garlic in a cookie . It's

37:12

not something that stinks it up so badly that you can recognize . It's not

37:14

something that stinks it up so badly that you can recognize . It's just not . It's

37:16

the egg yolk rather than garlic in a cookie

37:18

, and because of that I don't think it's

37:21

worth trying to figure

37:23

out what exactly portion of the market

37:25

return is associated with that . It's baked

37:27

in with so many other , much more

37:29

potent ingredients that

37:31

to me it should

37:34

not be the basis of making an investment

37:36

decision .

37:38

Well , and I love that . And just to kind of recap

37:40

, I mean , I think everybody as an investor

37:42

is like all right , what's the bottom

37:44

line ? What does this mean for me and my

37:46

portfolio ? And I think , going

37:48

back to what you opened with Apollo

37:50

, that if you look at the history of the market

37:52

, I think you said it's what about

37:55

? One every four years is a negative

37:57

year ? Or , said another way , the

37:59

glass is half full . Three out

38:01

of every four years is generally a positive

38:04

experience . And then , if you

38:06

zoom into an election year

38:08

, if I recall the numbers

38:11

, it was about 83%

38:13

of the time the market has delivered

38:16

a positive performance

38:18

in the election year . And so

38:20

I think for all of our long-term

38:22

investors , it's we have

38:24

a good plan , we have a good structure

38:27

. Stay the course . Don't let

38:29

what you hear in the media

38:31

or around the coffee machine

38:34

at work spook you , because

38:36

, as we opened , politics

38:39

is a very emotional

38:41

topic in conversation about

38:44

the things that are important to all

38:46

of us in our life and our beliefs

38:48

. But you got to be able to kind of

38:50

dislocate that to a certain

38:52

extent from your investment structure

38:55

and philosophy . And then I'll just

38:57

share one more thing , because it's why we're

39:00

such believers in this

39:02

overall , more capital market , diversified

39:05

approach to investing that I know Dimensional

39:07

supports us on so much as well is

39:09

we're not taking concentrated bets

39:11

anywhere . It's not like in the previous

39:13

administration we were making a concentrated

39:16

bet into steel . Do

39:18

we have some exposure to it ? Yes

39:20

, and if it does well , we're going to ride that up

39:22

, but if it doesn't do so well , it's

39:25

not going to cripple your retirement

39:27

or your investment structure . Same

39:29

thing with oil , for example

39:32

, and so many of these other asset classes

39:34

. And again , I think that , although

39:36

maybe you might not see all of

39:38

these underlining positions , if we're

39:40

using different mutual funds or

39:42

ETFs , you're catching a lot

39:44

of this overall exposure and it's bringing

39:47

value to your investment approach . It's very

39:49

similar to when clients say hey

39:51

, dave , we have this artificial intelligence craze . I

39:53

don't see any Nvidia in my portfolio and it's like well , dave , we have this artificial

39:55

intelligence craze , I don't see any NVIDIA in my portfolio and it's like

39:57

well , yes , it's because you see the funds

40:00

and the ETFs that we're using , but if you

40:02

dialed at one level deeper , you actually

40:04

own 5% or 6% of NVIDIA

40:07

and 5% or 6% of Facebook

40:09

and 5% or 6% of Apple and

40:11

Microsoft and so again , that's

40:13

why we believe that nobody has

40:16

this crystal ball . If

40:18

you want to gamble a little bit , you could make

40:20

bets with some of your money . Right , there's nothing

40:22

wrong if that's your money , if that's a passion

40:25

for you and you want to play some individual stocks

40:27

to try to make oversized

40:29

profits , that's great and we

40:31

fully support that with our clients . But I

40:33

think , for the core of your assets , for the

40:35

money that you're going to need to rely upon for

40:38

financial security , stability and

40:40

retirement , we believe this

40:42

is so much more of an evidence-based

40:45

approach , with a lot of the data

40:47

that you can see that Dr

40:49

Apollo Lopesco shared with us today . So

40:51

, apollo , any kind of closing thoughts for our

40:53

clients ?

40:54

Well , I think you kind of said it so well

40:56

, folks , when you're thinking about

40:59

politics , I personally found

41:01

that that emotions could drive decisions

41:03

. It's not always the case , but if you feel

41:06

like this is not going to end up well

41:08

, the world is different right now . That that you

41:11

know . Certainly I don't see the markets looking

41:13

good or that because of one candidate

41:15

or another . When we looked at this , it

41:17

tends to be emotions . When

41:20

you look at the data , I don't see any

41:22

evidence that that any of us

41:24

should make any moves

41:26

with our money because

41:28

of the election . It's just emotions

41:30

talking and all the data that we

41:32

share today . There is nothing there that I

41:35

again I was just going through my mind . Is there anything

41:37

that we share that would indicate that

41:39

you should make a move ? So

41:41

to Dave's point you have a plan

41:43

in place and the best

41:45

way to give yourself the

41:48

best odds to accomplish those

41:50

financial goals is to stay disciplined

41:52

, to stick to the plan , because the plan

41:54

has accounted for the uncertainty

41:56

in the market and it turns

41:58

out again that in an election year there's nothing

42:01

really different that I would do with

42:03

the stocks allocation .

42:05

Great . Well , we appreciate everyone joining us for

42:07

today's episode . Hopefully you got some value out

42:09

of it . Apollo , I appreciate your time

42:11

, as always , and I look forward to

42:13

having you back on a future episode

42:15

.

42:16

I look forward to that too . Thank you so much for having me separate

42:18

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42:20

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42:22

. Insurance and tax services

42:37

offered to Allison Wealth Management are not

42:39

affiliated with PCA . Information

42:41

received from this video should not be viewed

42:43

as individual investment advice . Content

42:46

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42:48

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42:50

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42:52

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