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1:34

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cultivating financial success We

1:51

Got a herky-jerky market action continuing

1:54

as Powell puts down the gavel Tariffs

1:57

are entering the picture once again, and our

1:59

guests this week, Steve Selengut

2:02

talking retirement money secrets,

2:04

all this and

2:06

much more on episode number 865 of

2:10

the Disciplined Investor Podcast. Hello,

2:30

welcome to this week's episode of the Disciplined

2:32

Investor Podcast. Andrew Horowitz here in

2:34

the studio at the office of the Horowitz

2:36

Company inside of the great town of Fort

2:39

Lauderdale within the state of Florida in the

2:41

great country of the United States. So

2:43

thank you for being here and joining me this week

2:46

and every week. And

2:48

what a week, what a month. Everybody thought things were

2:50

smooth sailing and things are going to be just

2:53

peachy. And man,

2:57

we have what is the making of a corrective

2:59

action in the markets right now. I'll

3:02

talk about that a little bit and what some of the

3:04

things that we did and are doing for

3:06

clients and what things you should be thinking

3:08

about because right now is not

3:11

one of those times when you look at all the different headwinds

3:13

that are going on to be, you know,

3:15

I think super bullish. You can be,

3:17

you know, invested, no

3:19

question about that, but on margin, leveraged

3:22

up on this kind of market, not really. Be

3:25

careful right now because what we're seeing is a

3:27

lot of people deciding that there are too many

3:30

things that are going on around the

3:32

world that are concerning them. And they

3:34

think that maybe valuations are stretched

3:38

in some areas that need to be relaxed a

3:40

bit. And what

3:42

we had this week was once again, the onslaught

3:46

of Fed speakers, giving

3:48

us all sorts of great information for

3:50

us to chew on as investors, but

3:52

really mucking up the waters in

3:55

my opinion. Once again, they've gone from, and I'll

3:58

go back to their confidence in. their

4:00

transitory inflation numbers. And there's

4:03

just one example. There's

4:05

probably, if there's one, there's probably 50 of

4:08

the same kind of cavalier attitude that

4:11

the Fed speakers have that they feel

4:13

they know and understand what's happening, but

4:15

have no ability to really read the

4:17

tea leaves when it comes to the

4:19

economy. They have no crystal

4:21

ball, let's just put it that way, even though

4:23

they come off as experts in the field. The

4:26

fact is that when we look at the economy,

4:28

it is something of a

4:30

gigantic mess that trying

4:32

to untangle and understand is very

4:34

difficult. And why we use, and

4:37

it's a good thing to do, trend lines and

4:40

look at past occurrences

4:43

and comparatives, seasonality, all

4:46

those things are really good, but

4:48

it's very difficult

4:50

as a person that makes their living trying to

4:52

predict just as difficult it is as predicting

4:55

the weather. What they've done here is turned

4:57

around and said, you know, the storm isn't coming. Everything

4:59

is fine. In fact, it's so good. Just go outside.

5:02

No umbrellas needed. And very

5:04

little, very little suntan lotion

5:07

as well, because you know, there's something gonna

5:09

be strong, but not too bad. When

5:12

in fact, now they're telling you, you know what,

5:14

maybe you need to get some umbrellas out in

5:16

a hurry. All of a sudden, the

5:19

chances, the likelihood of

5:21

a cut, which was absurd to begin

5:23

with, at the beginning of the year,

5:25

seven cuts, about 1.75 to 2% cuts in rates were

5:29

predicted at the beginning of the year.

5:31

Absurd, idiotic nonsense. We talked

5:33

about this, again, if not

5:35

once, 50 times. And then

5:37

it was down to three, and maybe

5:40

now down to zero. We saw Raphael

5:42

Bostic and Powell and pretty

5:44

much, I'm trying to think, was it pretty much

5:46

everybody that was speaking over

5:48

the week or so say that, you know what, we're

5:51

not going to have rate

5:53

cuts probably this year. And even one

5:56

party was thinking

5:58

there could be rate hikes. And

6:01

what is happening there is on

6:03

the heels particularly of Powell's commentary earlier

6:05

in the week, we have

6:07

a correction that's informing. It is

6:09

forming. And although our

6:11

key reversal index in the signal to bottom

6:15

on Thursday morning, or at least the making of

6:17

a bottom on Thursday morning, but let me just

6:19

tell you something. Bottoming is a process. And

6:22

with all the signals we're seeing, including

6:25

the walkbacks and rate cuts, the issues

6:27

in Israel, the issues with oil, the

6:29

concern about the dollar, the spike in

6:31

rates, it's

6:33

a problem. Now, midweek we saw some buying come

6:35

in, maybe a relief rally

6:38

part of the days, and then beaten down

6:40

again. I suppose not so good. Look, we

6:42

saw that from top to bottom

6:45

so far, the Russell 2000 is down about 8% for the month.

6:50

The Dow, because the top was pretty much of

6:52

this year, right at March 31st. Then

6:56

we have the Dow, the S&P, the NASDAQ, 5%, 4%, 4% down for

6:58

the month. And

7:02

the magical 5% number, all of a sudden, just in

7:04

two weeks, two and a half weeks, where are we,

7:07

we're at the midline of

7:09

the month right here, right?

7:13

I mean, we're talking about 20 trading

7:15

days or so. Not

7:18

20, 20 days. There's

7:20

only about 12 trading days, 14 trading days

7:22

in total probably for this month so far.

7:25

And what we're seeing is that there is

7:27

a significant amount of selling.

7:29

And if I recall that we had – I think

7:31

we had – it was. It

7:34

was some similarities to last year. I

7:38

remember last year we had a strong start to

7:40

the year, and then all of a sudden there was

7:42

a drop off. And

7:45

then there was concern that we were going

7:47

to go back into a full-blown recession. Then

7:49

we had the excitement or AI

7:52

that started up end

7:55

of year with the – there

7:57

was a beginning of it with the move

7:59

to lower-recession. and that all to set everything on fire,

8:01

right? And then the same thing's kind of happened. In fact, it

8:03

was October 12th, a couple of years ago, it was like October

8:05

14th last year. And

8:08

there was some hiccups, there was some things, there was some drops

8:10

and all, but basically right now,

8:13

rates are the issue. The

8:15

move from 4.5% to

8:17

above technical resistance on

8:19

Monday, after Iran

8:22

rained down drones and missiles on

8:24

Israel, which was fascinating, because

8:27

usually what you see was an inverse reaction

8:30

and a safety trade. But no, that didn't

8:32

happen. In fact, not only didn't

8:34

it happen, it went haywire. It

8:37

went whacko, from 4.5% to as high as 4.69%

8:39

that day on

8:44

the 10-year bond. And now what we're seeing is

8:47

more technical issues that are really starting to

8:49

show up, where there's

8:51

a gap-filled potential to 4.8% in

8:55

relatively short order because of the strength of this

8:57

move. The predication of how fast

9:00

something can move is the

9:03

recent move, and this move has been moving. That's

9:06

all very technical jargon there, the move is moving. But

9:09

if you look at the trajectory and

9:13

the speed, the skew of how fast things

9:15

are moving right now, there is a really

9:17

good chance that we could break above the

9:19

resistance on the 10-year, and that would cause a bit of a

9:21

problem. So what we did here

9:23

is recently, the very

9:25

recent moves, versus what we've

9:28

done already, because a lot of things we've

9:30

done already, in anticipation of this, for our

9:32

Investology portfolios. If you haven't gotten on that

9:34

train, you should check it out, minimum $10,000

9:37

investment. And it's pretty cool stuff.

9:39

Just go to Investology

9:41

with an e-e-n-v-a-s-t-o-l-o-g-y.com. Our

9:46

managed growth strategy, which I'm going to tell you about in

9:48

a moment, what we actually did

9:50

there, and our global allocation, some things

9:52

we did the last few months. Much

9:55

higher minimum for those, but if you want a diversified

9:57

portfolio, that's where you look for that. TDIMG

10:02

strategy, what we have our trading

10:04

strategy, our equity core, primarily core, some

10:07

hedging. So here's what we did just

10:09

midweek last week, throughout

10:11

the week and midweek, I should say. So

10:13

what we did was we took down positions that

10:15

had a real nice run of late. We

10:18

said, you know what? Look at the valuations, look at what we

10:20

are right now. Look what's happening in the market.

10:22

These are holding up really well. They've done really well. In

10:24

short order, let's take some of those down. Some

10:26

we took down totally. We took

10:28

down our XLE position, nice profit. We took

10:31

down some

10:33

partial. But the fact is, what

10:35

we're talking about here is

10:37

generalities, right? We

10:39

wanted to actually add some short hedges on

10:42

the portfolio as well. So we

10:44

added a short hedge on the S&P 500 midweek. So

10:48

that was kind of something that we're looking

10:50

at just as precautionary, just

10:52

as something that we want to have on short

10:54

term, as we're seeing some strong numbers in the

10:57

economy and markets are on

10:59

edge. And now one

11:01

of the core reasons to be ultra long,

11:03

one of the legs of the table,

11:06

if you will, has been kicked out,

11:09

which is lower rates. But totally busted.

11:12

So that being the case and all the things

11:14

that are surrounding this, remember, the

11:16

Fed was the safety net. The Fed was

11:18

the place that we were going to look towards when

11:21

and in fact there was trouble around the world. They

11:23

were going to be saying, oh, you know what? We

11:25

could always reduce rates. We have a lot of scope

11:27

and flexibility. And now all of a sudden they're saying

11:29

something much different. That being the case, we have to

11:32

make some different things

11:34

happen in the portfolio. So that's just

11:36

an idea. I'm not going to give

11:38

you all the details here because it

11:40

will be out of context. But

11:42

basically what we've done is bottom

11:45

line, reduced down some equity positioning, added

11:47

some short hedges, and made

11:49

sure that any bond exposure in our

11:52

other portfolios are short term, short maturity,

11:55

maybe inch and out into the intermediate, but not much in

11:58

that. With

12:01

that, we're going to have a guest on in a moment.

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13:08

our guest today is Steve Selengut.

13:10

He's a 40-plus year professional investment

13:13

manager, advisor, he's an RAI. He's

13:15

current adventurer, he's coaching both individuals

13:17

and other advisors in creating income

13:19

independence for themselves and

13:21

their clients. And he's

13:24

right now involved in the, I guess we'll call

13:26

it the roadshow of promoting his second book called

13:28

Retirement Money Secrets. And

13:30

he's been a private investment

13:32

manager for four decades and

13:34

he's personally managed hundreds

13:37

and hundreds of individual portfolios. So we

13:39

have some really good things. One of the things I want

13:41

to start off with is, hello by

13:43

the way. How are you, Steve? Good.

13:47

How's it going? Good. Got

13:49

to kind of sometimes rein me in a little bit now. Yeah.

13:52

Well, you know, we were

13:54

talking before, so I forgot all about that.

13:56

Hello, Andrew. Yeah. Nice

13:58

to meet you. So

14:02

what tell me I mean you got a

14:04

great name in there retirement money secrets what

14:07

do you mean what I mean what secrets are there

14:09

left I mean I don't want to go through all

14:11

the list but like gonna give me broad based concept

14:14

here you're gonna be

14:16

surprised I'm

14:18

an income investor I focus on income

14:20

investing and I

14:23

do it just as much and just

14:25

as easily with the equity markets and

14:27

I do with the fixed income markets

14:29

you know I can generate

14:31

income from anywhere my

14:34

secrets are really the

14:38

type of security I use to

14:40

accomplish this income program to get

14:42

income independence is one of the

14:44

secrets and

14:47

it's ironic that it's a secret because

14:49

it's the oldest form of fund in

14:52

the marketplace Oh but

14:56

closed end funds have you ever heard of

14:58

them of course okay you're you're

15:00

better than most or there

15:02

are brokers bank managers all

15:04

kinds of people professionals who

15:07

haven't heard of them really

15:10

amazing they were running the

15:12

precursor to ETFs oh

15:15

they were 140 years before no no no

15:17

I know that but from design standpoint forth

15:19

with how kind of a traded on right

15:21

and market throughout the day right all that

15:23

yeah they are for that

15:25

aspect of it except ETFs are not

15:29

past retrusts right while

15:31

closed end funds are which makes them

15:34

the income production machines

15:36

that they are right the

15:39

the difference also is that they're not

15:41

designed to grow in market value and

15:44

that that blows a lot of professionals

15:47

minds because they were paid on market

15:49

value not on income production so

15:52

it's or sort of runs a thal of

15:54

what what they're really in there for what

15:56

they're doing but

15:59

for my for my purposes and my clients it

16:01

was always you know that was the best thing.

16:03

They could sleep nights

16:05

they didn't really care if the market went down. They

16:08

knew if it went up I'd be taking profits. They knew

16:10

if it went down I'd just be reinvesting and for

16:13

future profits. And if

16:15

we've closed down funds particularly when you

16:19

you have quality and income

16:21

and diversification standards in place

16:24

you're dealing with funds

16:27

that have been around for an average of

16:29

over 25 years. You

16:31

know they have literally an

16:33

average of over a hundred or more maybe 200 or

16:36

more positions inside. You know

16:38

so you've really got a

16:40

well-diversified income machine and I

16:43

trade it. And when you

16:46

do that then you develop a whole second a

16:48

whole second stream of income.

16:52

So I've got the base income coming

16:54

in and I've got the

16:56

capital gains coming in. So even this

16:58

year which has been an up and

17:00

down year it's been okay. In the

17:02

bond market it's pretty much been terrible

17:04

because interest rates stop

17:07

going down which has cost something.

17:10

But I've taken you know more

17:13

than two months worth

17:15

of additional income in the form of

17:17

capital gains on top of the regular

17:19

income coming in. And that's

17:21

a good sign for a good year. You know

17:23

I typically I make about

17:27

half as much in capital

17:29

gains as I do in base income. That would

17:31

be good. But this year

17:34

would be better. Most portfolio

17:36

managers don't take

17:38

profits unless the unless the

17:40

client tells them to. When

17:42

I was first doing it

17:45

some of our compliance people

17:49

that came out to audit would always

17:51

say why are you

17:53

taking profits. Why did you sell that. It's gonna

17:55

go it's gonna keep going up they say or

17:58

it's gone up since you saw it. sold it. So

18:01

I say, well, what's your point? Well,

18:04

somebody could sue us. Yeah.

18:06

Don't do anything. Don't do anything. It's better. Yeah.

18:09

If you don't, you know, yeah, if you sell something,

18:11

yeah, you can have a lawsuit, but not if you've

18:13

already told your clients that that's what you're going to

18:16

do. And you put it in writing and

18:18

they've signed off on it. That's my job. Sure.

18:20

If I don't take profits, I'm going to get

18:22

sued. You know, so then, you

18:24

know, it was hard for a lot of those

18:26

types of people and for, and for

18:29

the people, even the ones that we sold our

18:31

business to, to accept that,

18:33

you know, the money machine isn't something they

18:35

particularly had any use for. They wanted to,

18:38

they wanted that AUM because

18:40

they planned on

18:42

putting their company on the block in a

18:45

few years after they, after they bought up

18:47

all these other companies, then

18:49

they had a big, big book of business,

18:51

right? And they were going to sell

18:53

it maybe to Fidel, who knows who they would sell

18:55

it to. But they didn't really

18:57

care that we made more money for our

18:59

clients than most people. That's a shame. That's

19:01

a shame. That's terrible. That's the, you know,

19:03

isn't that the definition of a fiduciary relationship,

19:05

putting the client first? Well,

19:09

most clients think that growth in market

19:12

value is their best

19:14

interest. Well, it's growth of portfolio

19:17

value. Yeah. You know, however you want to

19:19

look at it, you want to look at it from, if

19:21

it's, let me ask you this question. I mean, there's

19:23

some tax implications in this, but it's

19:26

10% growth and 10% income. What's

19:28

the difference? Everything,

19:31

you know, if your, yeah, right. Exactly. If your

19:33

portfolio goes up 10%, your income

19:35

doesn't change. Yeah. But if

19:37

you take that 10% and you turn it

19:40

into more capital to produce 10%, then

19:43

you've got a difference going forward. Our

19:45

goal was always to raise, raise both

19:47

the income and the working capital. And

19:49

I can define working capital if you

19:51

want, every quarter

19:53

and every year. And if, and

19:56

if the market value of

19:58

a portfolio ever. got to

20:00

be larger than the working capital

20:03

total, then we knew we

20:05

weren't taking our profits as we should be. And

20:07

how do you define that? Working

20:10

capital is the cost basis of

20:13

all the securities and cash

20:15

in the portfolio. Okay, so

20:18

what are you invested in at my level

20:20

of investment? Right, well,

20:22

yeah, your initial investment is

20:25

the first lump of capital. Right. You

20:29

add to it any dividends

20:31

or interest received and any realized

20:34

capital gains. So the capital

20:36

itself grows, regardless of whether that market

20:38

value went up or down in that

20:41

period of time, the base,

20:43

the capital still grows. Okay, the only

20:45

way working capital goes down is if

20:47

you take losses or

20:50

if you remove money, if you withdraw

20:52

money. So now I want to talk to

20:54

you, I don't want to forget

20:56

about this because it keeps on coming up in my hand. I

20:58

should probably put it down on paper real quick, but I want

21:00

to talk about closed-in fund discounts

21:03

and premiums, but hold that for one second. Okay. Let's

21:05

remember to talk about that. But

21:08

is this process, retirement,

21:12

money, secrets, does that

21:15

mean both sides

21:17

of retirement getting to and

21:19

then also partaking

21:22

in? Sure. The

21:25

more you use those, the approach

21:28

in the secrets book, the more income

21:30

you'll have when you retire. I started

21:32

using this approach, believe it or not,

21:36

back in the 70s. When I

21:38

was 25, I got what

21:40

was left of my college fund and

21:43

all the money I had put away as a kid when I

21:45

was driving trucks

21:47

and lumber yards and teaching

21:50

people how to water ski and mowing lawns,

21:52

all that stuff that I gave my dad

21:54

to invest for me because he insisted that

21:56

I do that. enough

22:00

to put gas in the boat, you know, that's

22:02

about how. And when at 25, that all came

22:04

back to

22:07

me in the form of

22:09

a whole slew of

22:11

stock certificates, something

22:14

that we don't see anymore. But

22:16

I had probably every company in

22:18

the Dow Jones 40 at

22:21

that time, and a few others,

22:25

and they were all dividend payers

22:27

and everything. And I had instantly

22:30

got focused on income. And

22:33

then my father was in

22:35

the real estate business,

22:37

and he had rental properties and stuff like

22:39

that. And he'd

22:41

be collecting the rentals, but he'd also

22:43

be selling them and buying more and

22:46

selling them and buying other ones and so forth.

22:49

And he explained to me that there

22:51

are several streams of income that I

22:53

have going in my operation. I've got

22:56

the rents, I've got the sales

22:58

profits, I've got the

23:00

profits from the lumberyard, which also helps

23:02

me build the houses cheaper. So my

23:05

profit margin there is better. I insure

23:07

these things. I take back the mortgage.

23:09

I mean, he had a vertically integrated

23:12

dynamic business back in the

23:14

60s. And

23:17

that's where I learned about all this stuff. So

23:19

I said, what I'm going to

23:21

do is I'm going to make enough

23:23

income from this portfolio safely to kiss

23:28

my job goodbye and

23:30

become an investment manager. And I did

23:32

it by the time I was in

23:35

79, I was making about five times

23:38

my salary. Admittedly, it was a lousy

23:40

salary. It was a lousy company. It

23:43

wasn't a lot of money, but five times it was a

23:46

lot of money. And I left

23:48

there, two of my buddies, I leaned over

23:50

them real hard to let me do

23:52

what I showed them my portfolio. This is where

23:54

it was. That's been eight years ago. This is

23:56

where it is now. Let me do that for

23:58

you. They signed up

24:01

and the rest is history. I've

24:04

always been there. Let's go into

24:06

that question that I laid out there. When

24:09

you're working with closed-end funds and

24:12

we deal with this issue that

24:15

I've looked at a lot and

24:18

we've seen this wide disparity

24:20

sometimes in levels of differential

24:22

between NAV and value of the

24:24

portfolio known as a discount or

24:26

premium. So

24:29

there's two things you're looking at. NAV

24:33

is one thing. NAV

24:36

is the value of the securities

24:39

inside the portfolio. And

24:42

let's say they're all treasury bills or

24:46

all corporate bonds. When

24:49

interest rates go up, the

24:51

value of those goes down, but

24:54

the amount of money they produce does

24:56

not change at all, right? They

24:59

keep paying the income. So the

25:01

only thing that's happening is net asset value

25:04

is changing as a result of, it's almost

25:08

like the scales of justice. There's nothing you can do

25:10

about it. If interest rates go up, the prices go

25:12

down, period, end of story. And

25:15

that's what you're seeing today. That's

25:17

what you're seeing since interest rates

25:20

started to go up. You're seeing this

25:22

change in the NAV downward because these

25:24

bonds can do nothing but go down.

25:28

The other side of the coin is

25:31

the price of the security.

25:34

The price of security is simply

25:36

supply and demand. There's

25:38

no intended relationship in a

25:41

closed-end fund between the price

25:44

and the NAV. It's not like an

25:46

ETF or a mutual fund

25:48

where at the end of every trading

25:50

day, they manipulate the

25:52

number of shares so that

25:55

when they divide the one by the

25:57

net asset value or multiply The

26:00

price by the number of shares you

26:02

equaled the net asset value and every

26:04

they do that every every

26:06

night. Well, they do it because it's

26:08

a constantly there is there is

26:11

a the constant relationship between

26:13

price. Right. But the difference is also

26:15

they have a limited

26:17

amount of shares being either retired or

26:19

issued. Whereas the post-it fund which has

26:21

closed end, which I think we're closed

26:23

is important versus open end. Right. A

26:26

normal mutual fund is considered that quote-unquote

26:28

normal mutual fund is considered open end

26:30

where the closed end there is a limited

26:34

and exact number of shares period end

26:36

of sentence. Right. Precisely. And

26:38

the only way they

26:40

can change that that I've seen is

26:44

by rights offerings, which

26:46

very few of them actually do. And

26:49

I've only known of one that's ever

26:52

issued in

26:54

every dividend. It was giving

26:56

a portion of the dividend in stock. So

26:59

like a principal flow back. Yeah,

27:01

like that. There also is

27:03

return of capital, but that can come from

27:05

many sources. I mean, if I

27:07

own the closed end fund and it gave me

27:09

return of capital and I gave it to my

27:12

shareholders, it's going to be return of capital

27:14

too. So it's

27:16

a non-taxable $1 for dollar

27:18

and it reduces the cost

27:20

basis. So it's a wash.

27:25

But the – The way that

27:27

most investors don't know about this is

27:29

that the Wall Street machine

27:31

that has no real

27:35

ability to capitalize on the

27:38

fees or something or what is it? I

27:40

think it's got a lot to do with

27:42

the fact that they don't grow. I mean,

27:45

they have to give out – they have

27:47

to pay out 95% of

27:49

their earnings to their shareholders. So it's

27:51

very difficult to grow a Business

27:54

on that basis. What If Amazon had to pay

27:56

out 95% of its earnings or even 50%? It

28:00

wouldn't be the size it is today, but a

28:02

beautiful and and open a mutual fund does. Does.

28:05

What has to pay out all of his earnings? It

28:08

yet. No don't out all the or in

28:10

Alberta visa and something like eighty nine or ninety

28:12

is some number the same kind of thing with

28:14

an open and me to find that requires of

28:16

the pass through not pay up pass through. Many.

28:19

Times they passed the of has

28:21

really come but they're also and

28:23

they're also. they have to add

28:25

security say can have balances of

28:27

cash so they if if we

28:29

ever have bull rally and people

28:31

keep buying music, finance, key binds

28:33

securities where they think it's smart

28:35

or not they don't have a

28:37

choice. Was the case closed and

28:39

fund manager says hey i'm not

28:41

buying and as bryce you know

28:43

my and it's as it doesn't

28:45

matter doesn't matter So on. And

28:47

so. Back to the question. Since.

28:51

They don't. Send to go

28:53

up. In. Price.

28:55

And because they're so interest rates sensitive

28:58

I mean is only a couple sectors

29:00

of the stock market that are really

29:02

interest rate sensitive. Nose or what? utility

29:04

socks and and bank stocks maybe. And

29:06

real estate? The Eagles they probably were.

29:08

And and rules say this. But everything

29:10

even the equity side is interest rates

29:12

sensitive enough. In a close and month

29:15

you know said they're not going go

29:17

up in price. they're not gonna. You're

29:19

you're a lamb is not gonna go

29:21

up. Except in a year like Twenty

29:23

Twenty one where everything goes up. Dot

29:25

you know if. So. Even this year

29:27

when we just we just had all time

29:30

highs up until a week or so ago,

29:32

right? And but interest

29:34

rates weren't going down. so does fixed income

29:36

market with has not gone up. So.

29:39

You know you talk about Marcus Cycle Investment

29:41

Management. Markets. Cycle

29:43

of this amazement. Nasa is accurate. M M

29:45

C I am I making that up? Ah,

29:48

tell me about. It. What? What? Is

29:50

it? Me: It's. Not made up it

29:52

was in my first book. As I'm not,

29:54

I'm okay with a professor at See I'm

29:56

Marcus or younger than Me with that means

29:58

is that you under. You

30:01

understand. If you look at any

30:03

chart, any long-term chart, you'll see

30:05

that the market has always gone

30:07

in waves. If you're

30:09

really dissected, sectors move

30:11

in waves. Overall,

30:15

there's an upward bias on

30:17

that cyclical movement.

30:19

But the cyclical movement is

30:21

there. Right now

30:23

in the equity markets, we're just below

30:26

an all-time high in the market cycle,

30:28

but we're really only 2% above

30:31

where we were in 2021. But

30:34

the prices are still relatively

30:37

high in the equities. If

30:39

you look at the five years, which I do now

30:41

in closed-end funds rather than one year, we're

30:48

particularly in the income sector, we're

30:51

way, way, way below where we were five

30:53

years ago when interest rates were near zero.

30:56

Yeah, I mean that cycle, we're at the

30:59

bottom at. So you use that cycle. Okay,

31:01

if I'm buying income portfolios, I'm saying

31:03

to myself, I'm still at the bottom

31:06

of the cycle. It's somewhat

31:09

more likely if interest rates

31:11

are going to move at all, they're going to move down

31:13

and not up. So if my thinking

31:15

is that I can say, all

31:17

right, it's safer for me to buy more

31:21

of what I'm buying

31:23

now in the income area

31:26

than it would be to buy more

31:28

equities because they're closer. They're

31:31

at their one-year high and

31:34

they're closing in on their

31:36

five-year high. Some of them are always there.

31:38

And I'll make a list of closed-end CFS

31:40

that are at their five-year high and I

31:42

won't buy as much

31:45

of them. So

31:47

the management aspect is if you

31:49

know you're in an upward trend

31:52

like in 2021, right? You'd

31:57

still want to be in the market because interest

31:59

rates were zero. There's no money market funds.

32:02

So when you took your profits, you

32:04

definitely wanted to reinvest. So instead of

32:06

taking a 2%

32:10

position as an

32:13

initial investment in a security I take

32:15

a 1% position because

32:18

my gut tells me eventually the market's gonna

32:20

go down right? So that's what

32:22

I do if the market's down I'll take a

32:24

little larger position because it's more likely that I'll

32:26

be taking a profit than

32:30

having to add to this position. You know,

32:32

it's interesting because you talk about how this

32:35

is a total

32:38

difference than a momentum trader and I'm gonna just take

32:40

you through what my thought is on this for a

32:43

second you mentioned that and

32:45

we've had plenty of momentum traders and people

32:47

that are in that area,

32:49

whether it's trend

32:51

following whether it's momentum whether it's you want

32:53

to call it, you know, just you know,

32:55

keeping up with the the technical

32:58

analysis and all but one of the things you said

33:00

was when you

33:02

see that there are an all-time highs or

33:04

closing in on that maybe you'll buy less of

33:06

those which makes me think you're a bit

33:08

more of a contrarian investor looking for the

33:10

other side that they're gonna come back and we're

33:13

gonna see a reflexive trade on the other

33:15

side very different than momentum trader that is

33:17

actually going after in fact chasing chasing

33:19

the the run-up which we

33:21

can't argue that there is some there are some

33:23

people that are very good at that, right? There

33:25

are people that are are good at the whole

33:28

area of of investing that way.

33:30

Oh, yeah, I'm sure there are I think

33:33

for the average guy to try to

33:35

predict stuff like that. I think it's

33:37

foolishness really I'm not a technical

33:39

guy. I've never used technical analysis analysis Even

33:41

when I was starting out and I was

33:43

all in individual stocks. It was always fundamentals,

33:46

right for me P ratios debt

33:48

to equity ratios Profitability

33:50

how long raising dividends does he pay

33:53

a dividend if he doesn't I'm not

33:55

interested, you know, that's just a matter

33:57

of respect I think well because

34:01

I find there's

34:03

a lot of use in both

34:05

sides. I find that

34:07

there's a lot of use in the fundamentals, but

34:10

there's nothing to be said that a great company

34:12

can't get caught up in a stock market jam.

34:16

Right? It's like having a great car doesn't

34:18

mean that it just can't get into a

34:20

bad accident. Exactly. Whereas

34:23

a technical analysis sometimes can keep you on course. That's

34:25

all I'm saying. Yeah, like

34:28

I said, I'm sure so many people

34:31

do technical analysis. It's great. It's out

34:33

there. It's a great adjunct

34:35

is all I'm saying. I'm not trying to

34:37

convince you. I'm not trying to convince you.

34:39

No. I recognize it, and it's good for

34:41

me. It's good for me because it pushes

34:43

things up, and I

34:45

own things. I

34:48

own securities that own everything else. Right.

34:50

But with the tech guys are pushing

34:52

up that stock market, that's great for

34:55

me. I'm going to take

34:57

profits. I'm going to buy more

35:00

equity, close-in funds, and so on. I'm

35:02

as happy as a pig, and when

35:04

that happens too. So I love

35:06

it that there's so much diversity in the way

35:08

people approach the market. I

35:11

get scared when advisors

35:13

will suggest to

35:15

people that there's

35:19

safety in stuff like

35:21

commodities and futures and

35:24

things like that. That

35:26

worries me. I don't know. The great

35:28

thing is diversification. I mean, I like

35:30

commodities for diversification. I do

35:32

too. But I'll buy a closed-in

35:35

fund that owns companies that

35:37

have commodities. I'll

35:40

buy this one Gabelli

35:43

closed-in fund that specializes in gold.

35:46

I've made a lot of money on it in

35:50

inflation. When inflation sends gold

35:52

prices up, I've made a lot of money on

35:54

it, and it pays me a 7% or 8%

35:57

distribution when I'm in gold. with

36:00

the Kabeli, it's going to be gold companies. Yeah.

36:02

Mining companies, junior miners. Right. Right. So

36:04

that's, that's how I do commodities.

36:07

That's how I do options. Right. There are

36:09

closed end funds that do covered calls. I

36:11

like covered calls, but I don't want to

36:13

spend the time and have had

36:15

it equities and have equities taken away or

36:17

whatever, all that, all that work involved when

36:19

I can own. All the meth. I just

36:22

want to eat the food, man. I just

36:24

want the income. Just give me the food.

36:26

So the closed end fund manager does all

36:28

that work. Yeah. And I,

36:30

and I can take the gravy, you know,

36:32

so I, I found this, I, you know,

36:35

I was an individual stock person for

36:37

half my career, probably if maybe a

36:40

little less, I discovered I actually.

36:43

Use some, uh, closed end funds for equity

36:46

before I even knew what closed end funds

36:48

were, it was one called

36:50

petroleum and resources. It's got a different

36:52

name now. It's P still PEO, but

36:55

it used to pay this for. Among

36:58

us distribution every December.

37:01

And particularly when, when the energy sector

37:03

back in the day, when all those

37:05

takeovers were going on and stuff like

37:07

that, it was amazing. You get two

37:09

or $3 dividends in December compared

37:12

with quarterly's of 10 cents. So

37:15

then I, so I, so I started trading

37:17

those instead of waiting for the dividend. Right.

37:20

I would, I would take the profit

37:22

that I had just before the X

37:24

date. That's what. Because

37:27

then I could, then I could, didn't have to buy

37:29

it again until next September. Right. So

37:32

today on my selection universes, I have

37:34

a thing called, I call the September

37:36

group. So when I

37:38

give that to my coaching clients,

37:40

I say this group you

37:42

look at in September. So

37:45

what is the current, you mentioned yield a

37:47

few different times, many times. What is the,

37:49

what is a approximately the, um, the

37:51

average yield now on like

37:54

the closed in universe that you're looking at? Okay.

37:57

The, oh, well, I keep.

38:00

three universes. I'll get you started and

38:02

this should open the eyes

38:05

of the I have 45

38:08

closed-end tax-free funds in

38:11

my tax-free universe. The average yield is

38:13

over 5%. On tax-free?

38:15

On tax-free. Right. And some

38:18

of those are state state tax-free is

38:20

California, New York, New Jersey, Minnesota. Mm-hmm.

38:22

The taxable income

38:25

right now after this last

38:27

downturn is just at 11% and

38:29

that's a hundred

38:32

different closed-end funds. Say

38:34

it again though. Wait, what? The taxable side is 11% on

38:37

average? On average. Oh, what are

38:39

they? They can't be just your

38:42

normal everyday. That's got to be high-yield bonds

38:44

and things of that. There are some high-yield

38:46

bonds. There are also treasuries. There's also preferred

38:48

stocks. There's also mortgages. It's

38:51

incredible. I mean if I sent you

38:53

the universe and you

38:56

look them up you'd see that the

38:58

security it's not all junk bonds as

39:01

you would say. How they squeeze 11%

39:03

out with rates that have come up

39:05

so dramatically? Well, I mean

39:07

the rate is only 5.5% and 6% as 7%. I know but the income hasn't changed

39:12

and the way they do initially

39:14

the way they do it is because

39:17

instead of borrowing to build

39:19

more factories or borrowing

39:21

to get more retail outlets

39:23

or open more offices, they

39:26

use leverage just like a company to

39:28

buy more securities.

39:34

So if they've collected

39:36

a hundred million dollars from their

39:38

initial public offering, they

39:40

can borrow up to 50 million dollars

39:43

and buy more securities. So

39:45

the original investors are investing

39:47

in a portfolio of 150 million instead of 100 million.

39:49

But that's one way. But

39:52

you don't find that impressive? You don't find that. You

39:54

know you mentioned things like commodities and things like that

39:56

but leverage is one of the evil

39:59

sides of it. of investing they could really think you bring

40:01

it on. Yeah, it's evil if

40:03

you use it as margin investing. But

40:05

that's what they're doing inside the fund,

40:07

you're saying? No, they're not

40:09

doing margin investing. They're doing direct

40:12

loans on... It's BlackRock, for God's

40:14

sake. BlackRock could go out and borrow money from

40:16

anybody. I know that, but what I'm saying is

40:18

that the portfolio they have, the $100 million, is

40:20

really $150 million. The

40:23

$100 million they raised, it bought $150 million. It's

40:25

bought $150 million. That's

40:27

a leverage. Therefore, that's why you're getting

40:29

the excess return. Right. That's

40:32

why you're getting the excess income. Which means you'll get

40:34

the excess downside if something happens. You'll

40:37

get the market value maybe a little bit more

40:39

volatile, but that doesn't change the money you're getting

40:41

out there. That doesn't change the income. I'll give

40:43

you that. Doesn't change the income. No, I

40:45

got that. I got that. So

40:48

what it does, it creates opportunity to bump up

40:50

your income, which is exactly what we

40:52

have right now when there are 11%. Then

40:55

it was down 6% when the

40:58

interest rate was zero, as

41:01

it was from 2010 to 2020. Right.

41:06

No, okay. That's all. No,

41:09

it was back and forth. We had 2008 for a while, it was zero, 2020. We

41:13

had multiple times that we went to this

41:15

once in a lifetime zero bullshit. Yeah,

41:18

I know. But remember

41:20

back in the day, you're a younger guy. I

41:23

don't know if you would, but before the

41:25

financial crisis, you never heard of 4% interest

41:28

rates. Right. No,

41:30

I get that. It was never that low.

41:32

I remember buying... H was normal. H was normal.

41:35

That was the normal number. I

41:37

know. And I remember buying a

41:39

New York transit authority municipal

41:41

bond pay in 12% once. Yeah.

41:44

It was incredible. Of course, it got called away from

41:46

me. That's what it was. Right. But

41:49

think about what these guys

41:51

had. These guys had been around for those 20, 25

41:53

years. They

41:56

were buying bonds back then that are still

41:58

in their portfolios. 20

42:00

years 15 years later right so they they

42:02

had this base and then they were maturing

42:05

and then over time they had to re

42:07

replace those 8% bonds with 3% or 4%

42:12

bonds during that last 12

42:14

years okay so now

42:16

what we have is the newer

42:19

bonds and if

42:21

you're a smart manager you're not gonna buy a 30

42:23

year bond at two and a half percent you

42:26

might buy a five-year bond right not a

42:28

30 year bond but now those

42:31

two-year bonds in one year's and the older

42:33

ones of 12 or 15 are maturing

42:37

and now instead of getting 2% they're getting a 5% or 6%

42:39

or 8% or a high

42:43

yield maybe they're getting 12 mm-hmm so

42:45

their rates last month

42:47

alone Eaton

42:49

Vance raised their dividends at

42:52

every one of their equity closed-end

42:54

funds everyone that I owned anyway and

42:57

that was 12 of them Wow well so

42:59

far this year there have been 52 I

43:01

just I just did

43:03

this on April 12 so I know

43:05

the numbers I didn't I didn't just

43:07

make this up right there were 52

43:10

increases this year and closed-end fund distributions

43:13

monthly distributions and only eight

43:15

reductions well and that's that's

43:18

out of 240 funds well

43:21

now that I you you mentioned

43:23

something we should talk about and and something

43:26

I kind of want to understand

43:28

more about because you you pose

43:31

the point that

43:34

there's something wrong with a

43:36

4% annual draw rate for

43:39

retirement portfolios and

43:43

maybe you can clarify that yeah

43:46

I don't think there's I don't

43:48

have a problem with the concept that

43:51

a person is likely to need to draw 4% or

43:53

could safely draw 4% from his portfolio

43:57

every year I think it's probably a pretty

44:00

fair and good target. What

44:02

I take exception with is that the

44:08

professional community makes

44:10

no effort at all to provide that 4%

44:13

from income. And

44:16

I always used to think that way. And

44:18

now that I've been a coach and I've

44:20

looked at roughly 100, 120

44:23

different personal

44:26

portfolios since I started coaching,

44:30

it almost looks like they're purposely

44:32

designed to produce as little income

44:35

as possible. But there's something to be said in

44:37

the area of tax efficiency of a portfolio. Now

44:39

let me give you an example. There

44:42

are some clients that are very tax sensitive, there's some

44:44

that aren't. I mean, that's the way it is. Some

44:46

clients are, let's

44:49

say the client or a person that has most of

44:51

their money in IRAs. Well, who cares? Well,

44:53

we can talk about who cares. I'm just saying that

44:55

the income versus, the taxation of the

44:58

money out is the taxation of the money out. Whenever

45:00

you take out it's taxable. It's different

45:02

what happens inside the portfolio. Now let's

45:04

take the opposite extreme. Someone who has

45:06

no retirement funds at all

45:09

and is only invested in individual

45:12

accounts, joint accounts with their spouse or whatever it

45:14

is. Now that account,

45:17

if there is any tax sensitivity, you have to be

45:19

aware of, at least I think so, of

45:22

where you're getting your income from and

45:25

what is the distributions. I

45:27

can oftentimes set up a portfolio

45:29

to have distributions from a combination

45:32

of growth and income, reducing down

45:34

the overall taxation of

45:37

the output of the

45:39

income. And I do that purposely, for example.

45:41

Okay. I

45:44

understand that and I understand why some

45:46

people are obsessed

45:49

with the amount of taxes they pay. I've

45:53

always had a smile on my face when I, except

45:55

this year, because I just sold my business and you

45:57

can imagine what I paid in taxes. So

46:00

but typically I'm not

46:03

all that unhappy with it

46:05

because I like the idea that I'm making that much

46:07

money. But what's the, I've

46:09

been working lately with people with

46:12

you know high seven figures and

46:15

they're talking to me about this and their

46:17

joint accounts, the interest

46:19

sensitivity can easily

46:22

be resolved with a

46:24

portfolio that contains a couple hundred

46:26

thousand dollars of tax exempt closed

46:28

end funds yield in over five

46:30

percent. I mean I have a

46:33

guy I'm working with right now that his

46:35

very large investment portfolio

46:38

we're going to have a seven figure

46:42

tax free portion

46:44

of the income portfolio.

46:48

It's still going to

46:50

be traded and that's going to

46:52

be very lucrative if interest rates

46:54

go down because those things go up like

46:56

crazy when interest rates come down over

46:59

by experience that is no guarantees. But

47:04

the rest of the

47:07

income portion of that personal

47:10

portfolio is going to be taxable and

47:12

this guy's in whatever the maximum tax

47:14

bracket is, he's in it. But

47:17

the idea to me is

47:19

it's almost like another one of

47:21

the captions on the cover of the book. If

47:24

you've got, and this is

47:27

about income or capital gains

47:29

or anything, but if you're walking

47:31

on the side of the road and there's a hundred

47:33

bucks there, you're going to pick it up and you're

47:35

going to take it even if it's

47:37

taxable and you got to pay out 40

47:39

of it to the government. You're still 60

47:41

bucks ahead. Yeah, I understand that. I

47:43

totally get it. And that's

47:46

the same thing with my

47:48

feeling about the income portfolio

47:50

that the focus on income and

47:53

the maximization of

47:56

the capital gains

47:59

stream of income. income is

48:01

going to make you happy camper

48:04

income wise even after taxes. I

48:07

guess the only thing is that

48:09

I've been doing this a long time also and I

48:12

get it. It's just different strokes for different

48:14

folks how you get to the same place. It's

48:16

totally different mindset. And

48:18

it doesn't mean necessarily one is better than the

48:20

other. It's also what's best for that client. Exactly.

48:23

That's all? I mean as simple as

48:25

that. Exactly. There's different ways of getting to

48:28

the same. You can take three different roads. You tell your phone

48:30

I want to go to this place. It gives

48:32

you three different options. Right. This one

48:34

is two minutes longer. This one is a little bit faster

48:36

right now. By the way, faster right now because there's traffic

48:38

on the other one right now. Which

48:40

one do you want to use? It gets you to

48:42

the same place within a reasonable same amount of time.

48:44

So that's I think what we're talking about here. I

48:46

don't think we're talking about major differences. It's

48:50

just different tweaks of

48:52

how it's done. Yeah. Yes and no. I

48:56

mean the income focus itself is

48:58

different. I give you that. I give you

49:00

that. And the

49:02

focus on equities, people

49:05

not taking their profits, then

49:08

when you get a two

49:12

month COVID

49:15

downturn which was almost as severe as

49:18

the crash of 87% and people panic and

49:20

all of

49:25

a sudden they take those losses

49:27

instead of having taken their gains.

49:30

Their profits have just turned negative

49:33

and they think the world's coming to us. Back in 87,

49:35

my cousin-in-law, I had his high six figure portfolio and in

49:37

87 he just couldn't see

49:39

it. He

49:48

said no Steve it's not going to be like it always is.

49:53

This time is the real thing. We're going

49:55

under. We're going under. I

49:58

kept telling him no, no. It's just it's just. It

50:00

could even be a computer loop for all we

50:02

know because it was the first time that we

50:04

had those trading bots and stuff like that. And

50:08

he said, no, I'm taking all the

50:10

cash I have right now. And he did. He

50:13

sold everything. 18 months later, we were back

50:15

in another all-time high. It

50:17

reminds me of a story. I had a friend

50:19

of mine call me. I think it

50:22

was during COVID. And things

50:24

were not good. And he said,

50:26

it wasn't a client. And he said, I'm thinking

50:28

about taking my money out.

50:31

But everybody I've been talking to says don't. And

50:33

I said, what do you want from me? He

50:36

says, well, you seem to have a real

50:39

good pulse. Well, what he wanted

50:41

from me was permission, by the way. This is

50:43

a shortcut here. You have a real good pulse

50:45

on what's going on. I listen to you. I

50:47

hear you. Even though I don't work with

50:49

you and all that, I've always admired my blah, blah, blah. He gives me

50:51

this whole thing, right? And I said, OK. I

50:54

said, here's the deal, my friend. I

50:56

think you're probably right that it's a

50:59

good idea maybe to cash out if that's

51:01

what you want to do for your

51:03

sanity, for your family, for

51:05

all this. However, you

51:08

need to get back in. And how

51:10

are you going to do that when you can do that? If

51:12

you don't have that plan, I don't mind you getting out. I

51:14

don't mind you getting out. I really don't. But

51:17

if you don't have a plan to get back in, you're

51:19

going to screw yourself. And that's why

51:21

most people just kind of hang on and say, oh, just

51:23

write it out. Because that's their plan, is to write it

51:25

out. If you say to me something like, this is what

51:27

I'm going to do, if the

51:29

market goes down from here another 25%,

51:31

I'm going to show that as a

51:33

bargain, not get concerned and nervous and

51:35

think about maybe inching in and starting

51:37

getting going. Or if, in fact, it

51:39

doesn't go down, I mean, give yourself a

51:41

couple of different parameters. If it doesn't go down, but I don't

51:44

know what he did in the end because I didn't want to.

51:46

I said to him, that's the only way you could do this.

51:48

And I'm not giving you a blessing either way, by the way.

51:51

So but that's the same thing you're talking about is when people

51:54

make a lot of mistakes at the

51:56

wrong times. Right, exactly. And

51:58

that's why this might. My

52:00

profit taking discipline

52:03

is quite a bit different from most Advisors

52:07

really I mean I take I take

52:09

pride in when I was doing it

52:11

for individual equities. I had a 10%

52:13

profit Target

52:16

right and I was

52:18

done even back in the day when we were

52:21

paying commissions on trades Oh boy, so I'd have

52:23

a 12% basically. I'd have a 12% target So

52:26

to go to court could my cost

52:28

basis included the Commission but it came out

52:31

So but I've always

52:33

done that and always and I've

52:35

never hesitated to reinvest Regardless

52:38

of which way, you know The market

52:40

was expected to go or anything because

52:42

I always tempered it was high

52:44

I wouldn't buy as much if I was lower I

52:46

would you know that type of thing so

52:48

I wanted to I knew I sort of

52:51

gave myself like I Never

52:53

want to get as high as

52:55

5% in any of my clients

52:58

portfolios a 5% position in anyone

53:00

individual holding So the

53:02

profit taking covered that right but in getting

53:04

back in I had to give myself another

53:06

leeway. I thought for

53:08

maybe Averaging down at

53:11

least twice and still not get to

53:13

5% So that's how I

53:15

would try to manage it

53:17

through the cycle You

53:20

know and if it went back up, it took

53:22

the profit, right, you know, then we start all

53:24

over again You know that type of thing. So

53:26

that's carry that's carried over into closing funds But

53:28

I don't have quite as high a goal

53:31

because we're dealing with a portfolio securities

53:34

Which means you need a trend as opposed

53:36

to just one, right? So I

53:38

have two or two I want to enclose you I want to ask

53:40

one or the other and you tell me which one you Want to

53:42

answer and go through? Okay. Okay You

53:46

want to talk about some of the principles of

53:48

income focused retirement investing which we've been talking about

53:50

right? We're some of the biggest mistakes investors make

53:52

which we kind of talked about also I

53:55

choose I think we could do Either.

53:58

I mean I have I can,

54:02

I'm just looking at the big mistakes

54:04

that I jotted down. Okay. Let's

54:06

go do that. Let's do that. And

54:09

I guess, okay,

54:12

I would say that I'll put them,

54:15

they're really kind of conceptual.

54:18

I'd say probably the biggest,

54:21

one of the biggest mistakes is

54:24

that they go through

54:26

their entire investment life with a market

54:28

value only focus. Okay.

54:32

I understand that. They don't think about

54:34

the need for income. Like somehow I

54:36

was lucky. I got that message. I

54:38

need the income. Yeah. I'm

54:40

buying the same securities everybody else is

54:42

in different packages and I'm thinking

54:45

about the income. But they don't get that

54:47

market value focus until it's too late. And

54:49

then they're in a position like you were

54:51

talking about where they've got this $5 million

54:55

individual portfolio, half of which

54:58

is their company stock that

55:00

they retired with. It's paying

55:03

1% and the other

55:05

stuff has got a half a million in

55:07

profits there that, oh my God, I'm going

55:09

to pay all these taxes if I want

55:12

this portfolio to generate income. And

55:14

I'm going to have to pay the taxes anyway, because I'm going to have

55:16

to sell them to live on. Mm-hmm. You

55:19

know? And they had that market

55:21

value focus. They had an

55:23

income focus instead. They

55:26

would get there. The taxes would already be paid

55:28

because they'd be paid them every year on the

55:30

profits in other words. They wouldn't have

55:32

anything with a 60% profit left. And

55:37

they'd get an answer. That's the market value focus

55:39

I think is a mistake that people make. Okay?

55:43

Okay. Another one is

55:45

almost related, but not really. It's

55:49

kind of ingrained because of

55:51

a lot of things and

55:54

particularly in managed portfolios that

55:56

the profits aren't taken. Well,

56:00

it's kind of the same thing where it's

56:02

because it's important where the growth. Yeah,

56:05

they don't take the profits. They

56:07

languish in them. They feel good

56:09

about them, you know, especially

56:11

if it's their own company that they love. I

56:14

mean, well, you

56:16

can't deny that some people have

56:18

bathed in their profits like a

56:20

Jeff Bezos as a crazy example.

56:23

And that's what he's had. And I sell it until you need it.

56:26

Yeah, yeah. And, you know, of

56:29

course. But what happens if?

56:33

What happens if is what was in the back

56:35

of my mind. You remember

56:37

Payne Stewart? I do. Oh, he

56:39

would break the offer with what

56:41

he used to wear knickers. Knickers,

56:44

exactly. Right. He was a Scot. He like the

56:46

Scot was there. What if that was him? What

56:49

if that was Peter Lynch instead of Payne Stewart in that

56:51

case? Payne

56:55

Stewart in that jet. And it crashed

56:57

into the side of a mount. What

57:00

would have happened to your Microsoft holdings? You

57:03

know what I mean? So you get it's

57:06

the what if. It's that's the diversification

57:08

thing. And that's another of the mistakes

57:10

they make. They get a

57:12

fall in love. There's no love

57:14

in the market. Well,

57:17

I always say I sell out of love. I sell

57:19

out of love. So

57:21

I always have a love

57:23

of stock as long as it loves you. There

57:27

you go. But I think that'll get you in trouble. Well, what

57:29

do you mean? I think it can get you in trouble. Can

57:31

get you in trouble, yes. I'll give you that. It can. Of

57:34

course. But in my – I mean, I don't really care.

57:37

It gets to my target. I'm out of there.

57:39

Yeah. I got you. And I'll

57:41

take – and every day of my investment

57:43

life, I'm going to take – in

57:47

my portfolio, it was just substantial. I'm

57:49

going to take at least three – my

57:51

goal is take three profits, the three

57:54

top profits, in each of my

57:56

three accounts every day. Really? Every

57:59

day. And they can be minimal

58:01

profits because what I'm doing with

58:03

those minimal profits, and this is what I call

58:05

the accelerator effect of

58:07

profit taking in the Secrets

58:10

book. When I take that

58:12

profit, I'm releasing $12,000, $13,000

58:16

in capital that

58:18

I can buy something new with, maybe something

58:21

that I sold at a profit a week

58:23

ago. Or I can

58:25

add to multiple positions that are below

58:27

the cost basis so I can increase

58:30

their yield and reduce their cost

58:32

basis. Every time I do

58:34

that, I'm accomplishing that. And in

58:36

a rally type environment, a broad

58:39

rally like 21, my

58:41

top three profits could be 7%, 8%, and 9%

58:43

in each of those accounts. Right

58:47

now, I'm lucky if they're 1% after

58:49

this last fall. Do that. And

58:52

especially if that's your daily

58:55

routine, but I've taken

58:57

the equivalent,

58:59

I think I said, of

59:01

over two months worth

59:03

of income in profits already this year. So

59:08

that's the accelerator effect

59:10

that I subscribe to.

59:12

So profit taking, poor

59:14

diversification, low

59:19

income, of course, is right in there. They

59:22

allow the tax to

59:24

get obsessed

59:27

with taxes. I

59:29

mean, controlling your taxes. I mean, you've

59:32

got Roth IRAs. You've got IRAs. You've

59:35

got things you can put 529s if

59:37

you have children that you know you're going to be putting

59:39

through college. You've got places to put

59:41

money that keeps you from paying a lot of

59:43

taxes. Take advantage

59:45

of. Take advantage of. But

59:49

I think – I

59:52

guess the last one is probably the

59:54

fault of our educational system

59:58

as well as it is of these. individual,

1:00:01

not taking the time to

1:00:04

learn about investing or

1:00:06

economics even. You know,

1:00:08

it is financial literacy month. It is April. Is

1:00:11

that right? Yeah. It's a good thing to

1:00:13

have. Yeah. It should be 12 months a year. People

1:00:16

13 months a year. I mean, you know, you

1:00:18

know, as well as I, at the average guy,

1:00:20

the average woman is not

1:00:23

financially savvy. Well, that's why we do this

1:00:25

whole thing. That's the whole point. It's

1:00:27

a financial education and information.

1:00:30

The education piece. Yeah. Yeah.

1:00:32

That's important. So. We're

1:00:35

going to wrap it, my friend, Steve Selingut. We have

1:00:37

the information on how to get your book. And of

1:00:39

course you could find it in all great bookstores and

1:00:41

all that, but over on the Discipline Investor Show notes,

1:00:43

episode number 865, all the information

1:00:46

is 865, been doing this since 2007. Wow.

1:00:50

Yeah. Yep. Longest running independent

1:00:53

financial podcast, still running. Continuously

1:00:56

running. I think it's the right word on that there.

1:00:58

That's great. But thanks so much for joining us. I

1:01:00

appreciate it. Well, it was pleasure. It

1:01:02

was pleasure. It was a good conversation I thought. All right.

1:01:04

Great. Thanks so much. Bye bye. Hey,

1:01:07

that wraps it up for this edition

1:01:09

of the Discipline Investor podcast. A different

1:01:11

side of the investment universe, looking at

1:01:13

income and closed end funds as a

1:01:15

different way to produce your,

1:01:18

your, your long-term needs for

1:01:20

money, much different

1:01:22

than we talk about a lot of times

1:01:24

with the folks that talk about momentum, technical

1:01:26

analysis, even hardcore fundamentals, kind of a different

1:01:28

thing. So I want to thank Steve for

1:01:30

bringing that to us. Thank you

1:01:33

so much for joining me again. I'll see you again

1:01:35

next week. We have a great guest coming up, John

1:01:37

Williams. Um, and then on the list

1:01:39

goes on and on and on with who we have coming up

1:01:41

over the next several months,

1:01:43

uh, Kim Flynn and Michael Johnston. Then

1:01:45

we got Jared

1:01:47

Dillion. Um, that's

1:01:50

going to be kind of cool. Then we have, uh, uh,

1:01:53

Brad Baldridge. This is all the way through

1:01:55

July right now. Thanks for joining me. I'll

1:01:57

see you again real soon. Nothing

1:02:04

discussed in this podcast should give a recommendation

1:02:07

to buy or sell any security. Past

1:02:09

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1:02:11

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1:02:20

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