Why Your Portfolio Can Beat the Competition | AWM Insights #134
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Episode Summary
As a pro athlete or successful businessperson, you have heard this statement a thousand times, “control what you can control.”
Why?
It’s because every fiber of our being wants to react to the “noise” good or bad. We are easily caught up in the emotion of an event or views of the crowds.
This is where the pros are separated from the amateurs. The amateur reacts to what’s happening outside of themselves. Typically, rewarding themselves with feelings of comfort.
Yet, the pro resists. They know it’s all a distraction.
A pro is only concerned with what they can control. They choose to suffer through the feelings of doubt and discomfort.
Investing is no different. Few will earn the returns they deserve.
What can you control?
A negative market provides one of the greatest tools to maximizes your long-term after-tax returns.
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+ Read the Transcript
Justin Dyer (00:03): All right, welcome. We've got a special guest. Our fearless leader, Brandon Averill is on the road meeting clients. I'm happy to welcome Mena Hanna, who is going to be pretty applicable to this conversation we're going to have today. We're going to touch on trading and Mena oversees a lot or if not all, of our day-to-day trading activities for your portfolio. So you'll get some insight from the man who pulls the trigger, so to speak. But before we get into today's episode, we're recording on the earlier side, so sticking with our tasting notes here. We're got some coffee, Verve Coffee. Again, we're sticking with the Santa Cruz coffee roasters. This is their street level blend, has nice hints of clementine, red apple, honeycomb. We're big fans of Verve Coffee if you can't tell. We'll probably go to them when we're not drinking wine. So jumping right in to the topic today, we're going to talk a lot about trading, which is why you're here, Mena.
(01:10): But a big, big focus is going to be more around controlling what you can control. It's been a great year to revisit that broad topic. And the new cycle right now is a perfect place to start. We've caught a bit of a break. We've talked a lot in past weeks around the negative news. Can't catch a break. It's been really, really a dower period. But today, as of this recording, we got a report that third quarter GDP was better than expectations. So we'll touch on that. Earning season, we're in the heart of that. That's been a little bit better. And so let's start with GDP and what that report really said to the market. And as a result, not only of that but of some other things, markets actually off some recent lows, don't know if that's going to continue, but the GDPP report certainly came in above expectations. Why don't you give us an overview of what happened there?
Mena Hanna (02:06): Yeah, GDP came in two 10th of a percent higher than the economist expectations. It's interesting how the market is taking that information. You're seeing, I would say a mixed market day. And if you actually break down the GDP report even more, most of that tick up is due to net foreign trade, which is not what you'd expect with the strong dollar. So it's interesting to see that we still have activity overseas and more consumption of American goods and services, even with the stronger dollar.
Justin Dyer (02:45): And to your point, a lot of it was net foreign trade, but even the rest of the GDP variable was still positive. It wasn't negative, it was just below 1%, which was a good sign as well. You could say over the two previous quarters they were negative. They were negative periods. That's typically the definition of a recession. So who knows if the powers that be will actually slap that label on it, but certainly good to see a positive print there. And then you mentioned markets are a little bit mixed, which is a good kind of segue into the earning season conversation where that's in general been above expectations or strong is maybe a better broad term to use there except when it comes to technology. And that's where we're seeing some headwind in the market now in the NASDAQ broadly speaking. But tech companies, Meta, formerly Facebook, Microsoft's getting some selling pressure. So let's talk a little bit about the earnings season overall and what that's showing us at least today. It's still relatively earlier, but we're really hitting the heart of earning season.
Mena Hanna (03:58): Yeah. Only about 20% of companies have reported as of this current recording, around 75% of them have actually beat earnings, which is really positive to see with all the negative news circling. And over the last 10 years, that's actually above the average number of beats that we've seen. So it has been more positive overall. I'd say you are seeing some negative earnings coming out for the tech companies and they're suffering in the market right now. But that's just a great example as to why you actually diversify as an investor. You don't take individual stock risk and you invest in the general direction of the market.
Justin Dyer (04:40): Yeah, that's a great point, which I want to potentially sit on for a little while. I mean, it's not too long ago, 2020, 2021, even periods before that, the NASDAQ and tech companies could do no wrong. And it's not to say these aren't phenomenal businesses. I make that statement really more from a market standpoint. It was a very good time in the marketplace to be a tech-oriented investor. But that can change and that can change quite fast. And it certainly has this year. A lot of that was driven more from increasing interest rates, earnings performance was still kind of doing okay and is still doing okay in segments. Netflix had a decent earnings report recently, but now what you're seeing is the expectations around tech and tech earnings, they're not being met essentially. You're seeing these with the big tech companies, Google, I mentioned Meta, Microsoft, they're all coming in a little bit under expectations depending on various variables, right, some on revenue, others on bottom line earnings, other on forward looking guidance.
(05:52): So it's not all one's a single reason that's driving these performance or the headwinds within tech companies specifically. But it is. To your point, it's a great reminder that individual stock risk is real and predicting the future or playing that game can really hurt your priorities. If you put your priorities at risk, our view to you clients is that is impacting your success. Our definition of success is making sure everything we do increases the likelihood that you meet your priorities. Picking individual stocks does not line up with that. You can't. The data shows time and time again that you just cannot do that in any predictable way. So what we do is control what we can control. Right. I kind of tease that out at the outset.
(06:43): And so we talk about that a lot throughout this podcast, but I think it's a good time to revisit that given what's gone on so far this year and even what's gone on recently where news moves incredibly fast and markets also move incredibly fast, they take that information and constantly digest it to interpret what a fair price is, doesn't mean that price is always correct, but out guessing that whole process is a very difficult proposition to undertake. And so getting a little bit into how we think about that, obviously that touches on diversification, not buying and selling individual stocks because there's no predictable way in which we found to do that. And the broad data certainly supports that. And there's podcasts we've done on that and data we're happy to share around that. But that gets a little bit in the weeds.
(07:37): So talking a little bit high level around one of the areas in which we actually do implement that is tax lost harvesting. We're approaching the end of the year and unfortunately a lot of advisors and investment managers wait until this time of year to actually do tax lost harvesting, which is really silly. I mean the technology exists to allow you to do this on a regular basis. Certainly that's what we do. And so maybe Mena give a little bit of a color to the listeners around not only the recent way in which we've done that and the timing of it inadvertently has been really, really good. But even broadly speaking throughout this year where it's been a tough year in the market, but it's also a time where we can actually take advantage when certain opportunities are provided to us.
Mena Hanna (08:25): Yeah. And right now, this year is a perfect example of why you should look for tax loss harvesting opportunities on a biweekly, monthly, maybe going into a weekly basis. That's certainly what we do. If you only do look at tax loss harvesting opportunities at the end of the year, this is the perfect year to show you that you'd have missed out on pretty much everything that occurred in 2020 and 2021 and gone into this year and you wouldn't have captured anything. So getting into what tax loss harvesting is, it's selling your assets, switching into a very similar position or holding, maintaining that exposure, but being able to, one book a loss that you can carry forward for,
Justin Dyer (09:17): Very important.
Mena Hanna (09:18): For a bunch of different purposes. I believe you can write off $3,500 against your income every year. You can save that for a home sale or any other gain that you might realize in the future. But getting that loss is very beneficial for you as an investor for any gains that you might realize in the near future. The second thing that you do is you do lower your cost basis. So if you are charitably inclined, do want to gift, that could be a very important piece of your financial structure and just something that you can take advantage of. So monitoring for opportunities to actually be able to realize a loss, lower your cost basis could be hugely beneficial for you as an investor and really compound as you go through your investment.
Justin Dyer (10:16): Yeah, so I think the quick takeaways there is its something to do actively throughout the year. We've certainly been doing quite a bit of it this year, which again, that's the unfortunate reality, but we're taking advantage when markets provide that opportunity for us. And then I think the piece that I want to underscore there as we wrap here is that the coordination effort with how we view your entire financial structure really comes into play here. So often I talk to people, and this is a big frustration where they're tax planning or their tax professionals not talking to their investment advisor. That is the benefit of a multi-family office where you have this coordinated activity, the tax preparation piece of it talks to the overall planning piece and gets down to the portfolio implementation level. And so we know what type of tax lost harvesting we can do, we should be doing, it's active and then it has a substantial benefit that either can be used in the present time if a gain is realized, whether it's in your portfolio or outside of your portfolio, gains are gains.
(11:26): It doesn't have to only be a stock gain, capital gains that is our capital gains. And so it's a really, really, really powerful tool to take advantage of that benefits you highlighted. It really benefits the continued compounding of wealth over time. And so as we wrap here, the kind of takeaway we'll leave you with is control what you can control. The example we gave is you should be tax loss harvesting. We are doing that for our clients. For you, you should be doing that throughout the year. If you're not certainly leaving some opportunity on the table that really, really adds substantial value over the long term to your overall wealth and gives you more financial power to meet your priorities, leave your legacy and overall have an impact. So hopefully that was beneficial to everyone. As you likely know, the best way to learn anything is to teach it.
(12:26): So hopefully you can impart that guidance, controlling what you can control. Give some specifics around tax loss harvesting. Hopefully that's already been happening within folks' portfolios that you're speaking with throughout this year as opposed to waiting till the end. The market very well could rally further and that's diminishing your tax loss harvesting opportunities, not making that call. We can't predict the future, but markets, like I said earlier, do move fast. But quick reminder, shoot us a text for a bullet point summary of what we talked about today. That text number is 602-704-5574. Also just shoot us a text if you want to stay up to date and communicate with us. That's the best way to get us questions and topics to discuss on this podcast. And until next time, own your wealth, make an impact and always be a pro.