Investing Unscripted Podcast 121: September 2024 Mailbag

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Jeff Santoro: [00:00:00] Hey, Investing Unscripted listeners. If you want to earn 6.9 percent yield for the next four years or more, you need to check out the bond account at Public.com. It's a new way to invest in a diversified portfolio of bonds and receive monthly interest payments. The best part, if you act now, you can potentially lock in a 6.9 percent yield until 2028, in other words, no need to worry about the Fed's upcoming rate cuts. With a bond account at Public.com, you can earn a 6.9 percent yield, even as rates fall. It only takes a couple of minutes to get started, but you have to act fast. If you want to take advantage of some of the highest bond yields in years, discover how you can lock in a 6.9 percent yield until 2028 with the new bond account, only at Public.com/InvestingUnscripted.​

Jason Hall: Hey everybody, welcome back to Investing Unscripted, where we ask and answer the hard questions about investing. I'm Jason Hall, sometimes known as Rudolph, joined today by [00:01:00] my good friend , Jeff Santoro, the voice of the people. Hey Jeff. 

Jeff Santoro: Hello, my friend. I wasn't going to bring up the red nose thing, but... 

Jason Hall: the tip of my nose is exceedingly red right now. It really like noticeably red. 

Jeff Santoro: Yeah, if you're a regular audio only podcast listener, it's, it's worth popping into the YouTube for a minute just to see. 

Jason Hall: Yeah, it's crazy. I have a mild irritation. I'll just, I'll just leave it at that. Well, I mean, besides Jeff, it's a mild irritation on my nose.

Jeff Santoro: Well done. Well played.

Jason Hall: Hey, we've got some good questions. Like actual questions from actual listeners to answer. Mailbag time. 

Jeff Santoro: It is. It is. It is our September mailbag episode. Before we dive into that though, Jason, we got a new Apple podcasts five, five star review from uh, Gorsk4023, who had nice things to say about us, so he's a liar, but, um, it's a good opportunity to remind our, our loyal and happy listeners that if you've not yet taken a moment to give us a [00:02:00] five star rating and leave a review on.

Apple podcasts and give us a five star rating on Spotify. We would super appreciate that. We don't, we haven't been asking for that in a while. And the rate at which people have done it has slowed and, um, is not great for us because the five star reviews really help people find and enjoy the podcast. Any help in that department would be appreciated. 

Jason Hall: In all seriousness. Of course, Jeff cannot take a compliment. Thank you for the kind things that you said about us there, Gorsk. Really appreciate it. It's good to know it helps. I want to say this, too, about the reviews. Number one, give us feedback if you, if there are things that you'd like, that you think we could do better, too.

As long as it's a five star, then we will read your- 

Jeff Santoro: We only listen to the feedback if it's accompanied by a five star rating. 

Jason Hall: Right. But I will tell you it is like this particular one. It had been a while since we've gotten, we get ratings pretty regularly, but with the reviews, the written reviews, we don't get as often lately. That, that's great.

That's great feedback for us because you know, we don't have a live audience watching [00:03:00] us giving us that feedback. So it helps us. It helps energize us too. for that. 

Jeff Santoro: The last thing I'll say about it is, you know, we do have friends who do other podcasts and some of them have been on this show with us and we want to have a better rating than them if we're being completely honest.

So that's entirely why we want your 

Jason Hall: reviews. 

Jeff Santoro: We want to be higher 

Jason Hall: than chit chat stocks. 

Jeff Santoro: Yeah. If you're a competitive, um, like we are and you want us to have a higher rating than our friends help us help us out. All right, let's, uh, let's dive in here. We got a bunch of good questions this month. And as a reminder, if you're listening to this, You can send us questions at any time via any means.

We, we have a pretty good system in place of keeping track of everything so that it won't get left behind. You could leave us a question today and we'll just hold onto it, answer it at the next mailbag. So whenever you have one, send it along. So the first one, Jason comes from Dan via email and Dan says, are you guys considering moving any of your money from high yield savings to somewhere that has a high rate, like a CD?[00:04:00] 

I am considering putting half of my cash. I have more than 12 months worth of expenses saved, so I'll be fine into a CD to make the most as I can for as long as I can. And I think Dan's referencing the fact that it's widely expected that we're going to get some interest rate cuts. In fact, by the time you listen to this, we probably have already gotten an interest rate cut because we are recording this after the market closed on September 17th.

So tomorrow I believe is the day. 

Jason Hall: Today was the first day of the feds meeting two day meeting. So we're going to hear a lot more tomorrow afternoon. 

Jeff Santoro: So this question was fortuitous timing for me because you and I had been talking about this on the side. I had actually been considering doing this exact same thing.

I have a, a bunch of money I'm earmarking for my son's college. It's just sitting in cash in a high yield savings account. And I actually had the same thought. Like, should I lock into a CD now, while rates are still where they are knowing that as soon as the fed, yeah, I've noticed this when the [00:05:00] fed was raising rates, it would take several weeks for my high yield savings account to, to raise its, uh, it's great.

And I'm, I'm assuming if we get a rate cut, it will not take them as long until I can't, I can't remember. 

Jason Hall: I can't remember if it was. The wealth of common sense blog, or if it's somewhere else that I've read that was talking about it, but like the evidence is pretty clear that rate cuts happen about twice as quickly as rate hikes increase the rates, the yields that banks pay to depositors. So I think you're right. It's, it will certainly 

Jeff Santoro: happen faster. It's like when you owe taxes, they cash that check within like minutes and when they have to pay you taxes, it takes three months for them to wire you the money.

Jason Hall: Yeah, no, that's exactly right. No, well this, it's interesting because I think this question is, I mean, it kind of rings for me and beyond just the conversation that, that you and I've had about. Thinking about doing kind of this exact same thing, [00:06:00] the podcast episode that we released, I guess it'll be a couple of weeks ago when this comes out with the personal financial decision that, that we've made, my family's made to start shifting more of our invested, invested assets into bonds, right?

Bond funds and also bonds. And one of the things that I chose to do is I started going through my research. Was invest in and look on your broker, depending on who your brokerage is, you may have access to CDs at lots of banks. You don't always buy CDs directly from the banks. So fidelity is the brokerage that I use, for example, in their like fixed income where you'd find bonds and, uh, kind of doing all of that.

The research, they have CDs as well. And there were five year and 10 year CDs yielding 4. 5 and 4. 55 percent. Now they're callable, which means that the bank at some point may actually choose to call them [00:07:00] in before they expire or before they mature. 

Jeff Santoro: Because even though you're doing it through Fidelity, it's actually.

You're actually buying it from some random small bank. Yeah. No, 

Jason Hall: yeah, exactly. I'll have a CD deposited at that, at that bank. And it is, they're small banks. And one of the reasons they do something like this is because they're small and they're trying to raise a lot of capital, better access to capital markets for them.

It's one of the reasons they do higher rates as well, because it's more attractive and they can raise that capital. Of course, it's still a CD, so it's still a deposit at a bank, so it still qualifies for FDIC insurance up to the deposit limits per person at that institution, right? So that's kind of a cool thing you can do.

And for me, it's like, these are pretty good yields. Now it's not like a bond where the bond value goes up. If interest rates come down, it's a CD, so it's deposited and it's just worth whatever the money's worth. But yeah, I think it's a perfectly reasonable strategy to take to shop [00:08:00] around right now for CDs.

Jeff Santoro: Well, and I, so I agree. And it's something that. I'm pretty sure I am going to end up doing what's interesting is just today you and I were chatting about it and you gave me something different to think about. So I'm going to really quickly put some numbers around this because looking at the bank where I have my high yield savings account, it's currently yielding 4. 4%. The six, nine, and 12 month CDs that they offer are higher, 4. 6, 4. 7, 4. 6, but everything longer than that is lower, not a ton lower, you know. 4.1, 3.9, things like that, the further you go out. Which is still, we're still in this weird place where longer dated Yeah. CDs are a lower interest rate than shorter data points.

Historically, that's not how it has 

Jason Hall: worked. Right. But that, we're still in that world right now. Well, because we know rates are going to come down, right? Right. How much is, is in question. 

Jeff Santoro: So I was thinking of taking the money and splitting it into thirds and doing a six month, a nine month, [00:09:00] and a 12 month.

So starting in six months from now, I would get a slug of it back every three months, right? Just to have a little bit more liquidity. And you pointed out that it might be smarter to take. The lower yield and roll out longer, lower, longer, right? Take the three point something or the 4. 1 or whatever it is and do three years.

Cause I don't really need this money till then. Because your prediction is that 12, 18 months from now, you won't see anything above 4 percent or 3, 3%. So I don't have an answer to that. I need to, that's a decision I need to make. With along with my wife to figure out like what we're comfortable with, but that is something for Dan to consider is I'm not going to give advice.

You have to consider like the shorter term higher. I don't think it's I don't think it's advice to give it. I think because I was about to say, like, you have to think about, you know, but I think 

Jason Hall: I think you should. I mean, that's not you're not telling them what to do by saying you should think about this.

I think that's reasonable. But here's the point. This is what I wanted to say is why are you saving the cash? [00:10:00] Why, and by why, I mean it's not philosophically why, but what is the purpose of that cash? Right. And when is the purpose of that cash? Something else that I read recently talking about how, you know, there's so many people that have turned into savers because for the first time in a generation, you're actually getting a yield, right?

You're actually being rewarded for saving cash. And well, that dynamic is going to change some. We're not, we're not going back to what it was like in 2013 through really 2022. Right. We're not going back to fast. We're gonna 1% interest rates. Yeah, yeah, yeah. We're not going back to that.

But we're the days of getting 4.5% in savings and get, getting 5% in a money market that is gonna go away. And it could easily drop in the over the next year to 3 percent or less. I mean, I think there's a realistic case that that happens. And if it does, and all of a sudden you're getting that much less of a return [00:11:00] for cash that you're planning on holding indefinitely.

That's not good financial planning, I guess, is what I'm getting at. 

Jeff Santoro: Here's the other thing I would say Dan should think about, right? So he said in his question kind of parenthetically, And if your name is not Dan, you can think about this too. This is for anyone. But Dan did ask the question, but he said parenthetically in his question, I have more than 12 months worth of expenses saved, so I'd be fine.

I think he's referring to like, he doesn't need this money in the short term. Now, again, not financial advice, but 12 months of expenses is. A big emergency fund by what I think most people would consider to be the amount you'd want to hold on to. So I guess my question for him to think about would be, if you have 12 months worth of expenses in cash already, and this is cash beyond that, it are even CDs the best place for that cash?

Jason Hall: Yeah. 

Jeff Santoro: Depending on your age, I don't know anything about Dan, depending on his age, his family life, how much, how many years he has until retirement. 

Jason Hall: Do you own a home, dependents? All of that. 

Jeff Santoro: Like [00:12:00] maybe the right place for that is in stocks or in some other asset. Right. So that's just another thing to, or even longer dated CDs. 

Jason Hall: Or bond funds.

Jeff Santoro: Don't even. 

Jason Hall: Yeah. You Dan, you might even want to buy some bonds, buddy. 

Jeff Santoro: I wait. Great. Now the audience just fell asleep because you said bonds. All right. Uh, we did have some fun Twitter banter about other bond fans. So there's two things that I like to joke. Always put me to sleep. One is bonds and the other is soccer.

Um, I just angered all the soccer fans out there. 

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Okay. Let's move on. We got another question here from frequent writer to the show, Colin, who sent us this question via Twitter. Do buybacks fuel future dividend growth as a predominantly dividend growth investor? I love seeing a big dividend raise.

My future income goes up and it shows management has some confidence in the way things are heading. I get less enthused when companies opt to buy back stock over a larger dividend raise, but does buying stock fuel more and. Fuel more larger raises the company eats up shares. So it's paying less dividends out to shareholders, leaving less of an impact on the cashflow and the balance [00:15:00] sheet to cover the dividend.

Is my thinking right? Doesn't buying back undervalued stock juice dividend raises in the future. There's a second part to his question about a book to read, but let's get back to that part later. What do you think about Colin's 

Jason Hall: question? So a couple of things that Colin put in here, and I love that Colin really kind of answer the question in the question in a way.

But there's the two, the questions you start with. And then the question that he finished with, they sound alike, but they're different Dubai backs, fuel, future dividend growth, the answer, sort of. His last question, doesn't buying back undervalued stock juice dividend raises into the futures? Absolutely.

Yes. The key is just like anything else. Uh, management teams does with capital. You you've got to get a good return on the capital, right? You need to allocate the capital well. And one of my biggest frustrations as an investor over time is that you see the wave [00:16:00] of div of stock buybacks crests with record profits and record stock prices. And then the wave of earnings comes down economic reasons or cyclical reasons or whatever the stock price comes down. And what does the company do? Halts buybacks. Um, it's a massive frustration. And we, a lot of times we see companies tout buying back stock big buyback programs when all they're doing basically is just, they're erasing liquidity, right?

There are, uh, or dilution from stock based compensation. They're not actually. Increasing per share equity, or if they are, it's 

Jeff Santoro: at a most, it's at a much slower pace because so much of what they're doing is being eaten up by stock based compensation. 

Jason Hall: Right. I mean, that's exactly it. And that's why when we talk about stock based compensation, a lot of times we say, look, this is, yes, it's not a cash expense today and that's great for a growth company, but it's a future cash expense because at some point, ideally companies get big, they get really profitable.

Right. Their [00:17:00] profits have gotten so much bigger than their stock based compensation that they have enough money to start buying stock back. And the goal is to reduce the share count, right? To create that value. And it comes down to value and the good management teams are the ones that are smart about buying back shares when their shares are cheaper.

And when they do increase the dividend, they do it when they know it's it's sustainable, right? Because this is a difference between American companies and a lot of companies in Europe that pay dividends is the dividend here is like a promise. It's like, okay, You're going to get it next quarter to you.

It's, we're going to keep raising it. We're going to, we raised it a lot. Oh, we're going to raise it next year too. And we'll definitely raise it the next 25 years after that. I promise you. And the problem is you end up with a 3m or a Walgreens where 30 years later, there's been so much focus on growing that payout and chasing ways to grow the business.

You can no longer do it, right? And you've lost focus on actually creating value for shareholders. The other end is [00:18:00] you get these very rare exceptions like NVR is one that's done an incredible job with buybacks. I don't do the dividends, but they've done a really good job with buybacks.

And probably my favorite buyback and dividend growth stock. Over the past nearly quarter century, call it 22 or 23 years now is Texas Instruments. They've bought, I don't know, half their stock, 70 percent of their stock back is massive amount of stock that they've repurchased while also growing their dividend at the same time.

Because the core focus for the business has been growing free cashflow per share, right? Doing things to the business. To allow the business to grow free cashflow per share. 

Jeff Santoro: And buying back sock is a way to do that. 

Jason Hall: It is a way to, it is a way, right? That's the key. It is a way to do that.

And then you have companies like 3M and others that have acquired other things. They've tried to get bigger by buying other stuff. And it doesn't work. It does. Sometimes it works. And there, there are companies that are really good at, uh, like doing roll ups where they're good at buying these bolt on things that fit and [00:19:00] they can make the whole business bigger and they're really disciplined about it.

And they pay really good prices when they buy stuff and they know how to integrate them into their core operations really well and trim the fat and grow cashflow per share that way. I'm usually the companies that are really good at doing that kind of stuff. Yeah. Dubai backs really good because their management knows how to allocate capital.

I think generally for most companies, like your average company, that it's just a really good business and maybe they don't have perfect, it's not a business model built on capital allocation. As long as they're regularly buying back stock, their dollar cost averaging into their own stock for lack of a better way to think about it.

Generally it's going to create value for shareholders. 

Jeff Santoro: Yeah. You hit on, you know, You went into detail on kind of what I was, what, how, how I would have answered this, which is, I think a lot about the whole dividend versus buyback thing. And I always come down to, it depends, which is kind of what you're saying, right?

It depends on how good the management team is on allocating capital, how good they are at buybacks. Because like you said, a lot of times they're doing it solely to offset dilution. A lot of times they do it at the exact wrong [00:20:00] time. The other thing too, is just because a company announces a buyback, doesn't necessarily mean they're going to buy back, right?

And it's the 

Jason Hall: board has approved 2 billion in share repurchases. And I do not doing it tomorrow. 

Jeff Santoro: Well, they could. 

Jason Hall: Right. That's a whole thing. But that's, that's, it's just an option to do it. 

Jeff Santoro: And that's where I like when companies. I like when companies straight up tell you we bought back this much stock at this average price.

I really like that because that tells you like, if they're telling you the price, they're proud of the price they paid is the way I think about it. If, if they know they overpaid, they're probably not going to say that part. And then, so I think that's, you have to take all those things in consideration when you weigh that against getting the dividend instead.

Both. Able to be cut, right? Like you can cut a dividend, you can stop buying back stock. It does feel like the dividends are a little bit more, a little bit more permanent or so to speak, because there's the PR hit of lowering your, if you cut or suspend your dividend, your stock's going to take a [00:21:00] hit.

It's going to be a new story. If you don't buy back stock in any given quarter, it's barely noticed. So from that standpoint, I, I lean towards dividends, but. Yeah, it just depends on the company that the management team and how they handle it. 

Jason Hall: One, one little last bit here. There's one thing that I do look at companies that have a long track record of growing their dividend.

I also like to look at how has their balance sheet changed over time. Cause what you find in a lot of cases, companies that grew their dividend a ton, also added a ton of debt. So money's fungible, right? So you can do two things at one time. So like a lot of these companies, like, okay, they're acquiring assets that are going to generate cashflow.

So like I'll use a Brookfield, uh, infrastructure as an example, they've acquired billions and billions of dollars worth of power transmission lines and data centers and natural gas infrastructure and like all of that kind of stuff, that's their core business. And they've also raised their dividend like seven or 8 percent a year on average over the past [00:22:00] roughly 15 years.

So you can say that in part because they've also raised a ton of debt along that way. In part, they funded their ability to grow the dividend by taking on debt, right? because there's an alternate world where they took on less debt, didn't pay as much of a dividend and didn't grow their dividend as much.

And the business would have less leverage, less debt to service today, more cash flows, but it would be paying a much smaller dividend. So there's a balancing act there, right? It's not just this pure one thing or the other. 

Jeff Santoro: Yeah. And one other thing that I thought of is. And this is not exactly what Colin was asking about, but it's related to dividends.

And I think it's worth exploring. Paying a dividend is different than issuing a buyback in the sense that it puts the onus on us as the dividend receivers to then be careful how we allocate capital. Because if you don't have, dividend reinvestment automatically turned on in your brokerage, and you're just taking that dividend as cash, Now you're the [00:23:00] capital allocator, 

Jason Hall: right?

You're, you're 

Jeff Santoro: taking that Brookfield Walgreens 3M dividend and deciding how to spend it. So that it's a reason I don't I don't do any dividend reinvestments anymore. I take it all in cash because I'd rather use that towards whatever I think my best idea is the next time I go buy a stock. If you're taking in significant income via dividends, and you're not reinvesting, or even if you are reinvesting it automatically, that's that's you making a capital allocation decision for your portfolio, too.

So I think that's just another kind of twist to the whole dividend versus buybacks debate. The second part of Collins question is this, have you read the book die with zero? If not, it's about a four hour read. It kind of blew my mind as a father and someone who enjoys investing. It's changed my mindset.

I would think it would make a good show if you guys read it and reviewed your thoughts on the author's take. 

Jason Hall: Yeah. So Bill Perkins is the writer. Bill Perkins made a ton of money as an energy trader. Younger guy too. I think he's still in his early fifties and there's [00:24:00] some videos out there where he talks about the book and almost the frameworks and like some of the things I like about the idea of this book.

I haven't read it. I bought it. It's coming, but I haven't read it yet. As he talks a lot about. How your money you earn money by trade. You trade your time for money, right? Obviously, one of our goals is investors is to turn our money into more money. So we get more time back. But one of the things he talks about is philosophically.

You have to align your, your values with your money, right? When you think about getting as much of your life back as you can to do the things that you want to do. When do you want to do it? And the whole goal of die with zero the story is to maximize your life when you can maximize it. One of the videos that I watched, he says there's two times in life that you really have no direct need for money.

And it's when you're a baby and when you're on your death bed. So the hard part is figuring out all of the time in between [00:25:00] how to spend your money with intent based on your values. So I'm excited about reading it, but I'll I'll weigh back in after I read it. I'll report back. 

Jeff Santoro: All right.

Future, future episode there. Jason will give his book review. 

Hey everybody. We'll be right back. But first a word from our sponsors. If you want to earn a 6.9 percent yield for the next four years or more, you need to check out the bond account at Public.com. It's a new way to invest in a diversified portfolio of bonds and receive monthly interest payments. The best part, if you act now, you can potentially lock in a 6.9 percent yield until 2028, the new bond account only at Public.com/InvestingUnscripted.

Hey, Investing Unscripted listeners. My name is Brett. One of the hosts of the Chit Chat Stocks podcast. If you love Investing Unscripted, we think you will love listening to Chit Chat Stocks. On our show, we research individual stocks, interview investing experts, and well chitchat about investing every single week from hot stocks, such as Nvidia and Celsius, the hidden small cap gems.

We have something for every type [00:26:00] of investor. All of the Chit Chat Stocks podcast on YouTube, Spotify, or Apple podcasts, and start discovering new investments today.

Jeff Santoro: All right. Let's, uh, let's move on. Let's move on to our next mailbag question. This came from Seth via email. Seth says, I enjoy the show. Thank you guys for all the information. I'm curious if you guys ever invest in any commodity or materials companies outside renewables, how do you approach them?

If so, I asked because I noticed. Ox, OXY, which is Occidental Petroleum is near 52 week lows and with Buffett's growing stake. It looks interesting. Love to hear your guys thoughts. So this is an industry and a part of the investing world I do not dabble in at all. Jason. So this is all you.

Jason Hall: Yeah. So I actually, I cut my teeth as an investor and as a researcher and writer covering the energy industry, a lot of oil and gas also covering steel to some, to some degree. A couple of things with oxy stock. It's down a little bit. But it's over the past decade, right?

It's sometimes it's [00:27:00] easy to forget that stock is still way down. Over the past decade, the buying opportunity, as far as I'm concerned, was when Buffett was loading up on shares after they had backed themselves into a corner with the Anadarko petroleum deal which was a big overpay and they didn't have the money.

Uncle Warren had the money. You got a sweetheart deal with some warrants. They've increased their stakes since then. So I mean, oxy's fine. I know you're not asking specifically about oxy, but I think what you have to think about with different companies in different parts of these commodities industries is you need to understand how they're exposed to the commodity.

How do they make a living? How do commodity price cycles affect them? And then think long term, what are you looking to attain? So, like, Occidental petroleum or Devon energy or, you know, in any of those oil and gas producers, they live and die on oil and gas prices. They go look [00:28:00] for oil and gas in the ground or under the ocean, depending on the business.

They have contractors that drill for it, produce it, and then they sell it. And they generally sell a portion of it under contracts. So they have a certain amount of pricing it's locked in. So it kind of gives them a floor, right? And the entire industry has got a lot better about their cost structure.

But at the end of the day, especially in the short term. Their stock prices are like leverage bets on oil and gas prices. They move in lockstep, right? So that's just kind of one of the realities of those sorts of businesses. You can look at, and Tyler Crowe and I've made a number of videos over on our YouTube channel with one of our partnerships.

And we've done a lot of videos looking at some of the lithium companies and it's the same thing. Lithium prices have absolutely crashed. And. You go back to like the EV stocks. Start up a few years ago, like that big bubble where [00:29:00] everybody was looking for the next Tesla. And all of those stocks are down 80 or 90%.

Massive amount of money, like billions of dollars went into developing more lithium. Growth is slow to time and demand there. Even though it's going to continue to grow, but there's this massive amount of oversupply that's been overhanging that whole market. So generally as a retail investor, if you don't already follow a commodity closely.

You're hearing about it. If you're investing, you're somebody's bag holder, right? It's you're too late. You're just too late. You have to know the cycle, right? 

Jeff Santoro: Like if, if, if lithium is on your radar because everyone's talking about it, that's the wrong time to be buying lithium stocks. 

Jason Hall: Right. Yeah, no, it's generally true.

It really, really is. But then there's these other companies that are like more value additive where you can well, it's like in the oil and gas business, Phillips 66, they're a refiner. Petrochemicals manufacturer and they have all these pipelines and like the infrastructure. They're far less exposed to commodity prices.

Then the oil [00:30:00] and then the producers are, or a minor would be in something like lithium or steel or or iron, I should say steel producers. And they've been able to create more value over the longterm because of their business model. And also share buybacks, by the way, we throw that one out there too.

And also, also dividend growth, Colin will tip the hat to you there. So there are companies that are. In those commodities industries where there's opportunity generally as a retail investor, the best time to invest in them is when nobody's talking about them when absolutely nobody's talking about them because the stocks are depressed, nobody's searching for them. So nobody's chasing the Google SEO by putting lithium stocks in the headline or whatever. Generally that's the best time to buy because it's at the bottom of the cycle. The stock prices are depressed. And over a multi year horizon as the cycle turns, you know, if you buy good quality companies, you can do pretty well.

It's just really hard long term to own those businesses and expect great [00:31:00] returns. 

Jeff Santoro: Yeah. I've. I won't say too much because I've already expressed the fact that this is not an area of investing I'm comfortable with. But it's always felt like a lot of work for not a lot of returns to understand these kinds of companies.

And I'm sure there are plenty of examples where there have been great returns. But, you know, if I'm going to put hours of work and thinking into something I'm going to pick something a little more exciting than lithium stocks. But that's just me. Okay. Next mailbag item is from Andrew via email. Andrew says, love the pod as always.

One of the big changes I implement I implemented in the past year has been setting up a spread spreadsheet triggers to advise me when to buy. So if the market drops 5%. I take my cash levels down to 12 percent of my portfolio. If the market drops 10%, I take my cash down to 10 percent and so on. I've debated internally about these percentages, but hopefully over time, I'm putting more money to work at opportune times.

The [00:32:00] problem with this plan is boredom. My plan is increasingly telling me to wait and do nothing right now. What is your best prescription for investing boredom? So I know you have thoughts on this because you have a pretty, uh, I don't want to say strict rule about when to use cash, but you have a process, but I want to chime in first on this one.

I, this really resonated with me because there's a part of my logical brain that says I should probably. Not by every single time the money hits my account and let it build up a little bit. Not even so much for a massive downturn, like a 2022 18 month long bear market, but even just for those random, five day spans where sometimes the market will drop five or 6 percent just over the course of a normal year.

So that I have the cash to, to buy. To buy in opportune times, like Andrew says, and I just cannot bring myself to do it because I like buying stocks too much. Yeah, that's one of those things where [00:33:00] my logical brain argues with my. I don't know, whatever the non logical part of your brain is.

But I guess the way I would answer this, if, if I were trying to come up with a system, which it sounds like Andrew is like a systems thinker when it comes to this stuff if I'm just going to pick random numbers here to make them easy. If you're able to invest 200 a month, like that's what you're able to spare.

Maybe take half of that 75 percent of that 40 percent of that and buy regularly with it. And squirrel the rest away. So you're still sort of scratching the itch of not being bored, taking money and keeping it for when. The market drops and then you can go hog wild. So that would be the way I would do it if I were to come up with some sort of system, but you have much more thought well thought out plans as it pertains to this.

I want to hear what you think. 

Jason Hall: So there's a few things we don't know. As a starting point, we don't know what is the steady state cash percentage. [00:34:00] So since he 

Jeff Santoro: says he takes it to 12, if the SMP drops, I'm guessing he's had, he has more than 12 percent in cash normally. That's how I interpreted this. 

Jason Hall: I don't, I don't.

Uh, this almost to me feels like, and again, we're making some assumptions here, but it almost feels like when we see a 5 percent drop, Andrew says, okay, I need to sell a little, I need to free up some cash on this little decline because it's an indicator that there's a bigger decline coming. 

Jeff Santoro: But then the next sentence says, if the market drops 10%, I take my cash levels down to 10%.

Right. Which means that you will be buying. So I'm assuming he's, and he says buying an opportune time. So my assumption is when the market drops, so again, I don't work. 

Jason Hall: I don't, we don't, we have incomplete information, 

Jeff Santoro: Yes. 

Jason Hall: Which is always the case, right? That's whenever, any question we're answering, we have an injury to make 

Jeff Santoro: 22 or 82.

Jason Hall: Well, but the other thing too is like, but I think this is important because we also have an incomplete information when we're acting for ourselves. Let's be honest, right? When we're making a decision to buy [00:35:00] a stock to sell a stock, we're always right. Trying to work. In an imperfect world with imperfect information to try to find a perfect solution.

So I think one of the things I want to say here is that this is definitely the kind of case where you know, directionally I love this idea because sometimes you just need something good enough to keep you from having for unforced errors, right? I think that's, that's really important.

all right. That's a bit, but again, directionally, I like the idea of having some sort of a progress process. So my process, uh, which has evolved I've increased the amount of cash that I carry from a goal of around 5 percent to 10, like 10 percent is how much cash I tend to like to carry.

If I see a 5 percent market drop, I started to get interested, but I don't really actively start looking to deploy that. And again, this, that 10 percent is above and beyond my regular contributions. I'm a net contributor. I'm in my late forties peak earnings period that I'm kind of entering into.

So this is the point in life where I'm [00:36:00] putting the most amount of money in. So I've got 10 percent in cash and then the regular contributions that I make, that's my regular buying. And sometimes I go through periods where I might not deploy as much, it might be a few months and then I might really start to buy more.

But with that 10 percent in cash, I'm generally only acting when there's clear opportunity. That 10 percent market decline is like, that's the first trigger for me where I'm going to take. Probably close to half that cash and go to work because. There's a good chance of the markets down 10%. There are some things that I'm going to be really interested in buying.

They're going to be down a lot more than 10%. 

Jeff Santoro: Right. 

Jason Hall: And then we start seeing like 20 percent level declines. That's when I'm going to run out of cash because I'm going to get pretty aggressive over multiple months, not multiple days. When we see that sort of a decline. So I think a process is good.

I just, I would say, and again, Andrew, there's so much we don't know, but. Beware trying to be too perfect and precise with it. And think about the percentage of cash you're getting, the [00:37:00] purpose of that cash, short term, long term, what kind of return are you getting for it? Are you sacrificing return for some sort of optionality that you, that doesn't make sense to try to be solving for?

So that's the one thing that I would think about. The boredom part. Listen, listen to more podcasts. Um, read, read. Get a job driving an Uber like I . No,

Jeff Santoro: I mean, I know you're being funny. No, no, no. But it's the investing boredom is a real thing. Like I, I feel that.

Jason Hall: No, it's true. It's true. Yeah. I, I honestly though one thing you've talked about, trade less, learn more when you're getting bored. Idle hands are the devil's play things, as they say. You have to inoculate that by doing things that are going to make you a better investor. And acting in a time that you should be inactive is probably not the best thing to do.

Go research the companies you own. 

Jeff Santoro: Yeah. One thing I'd love to get better at is getting to a point where I know the price I want to pay. And I mean, price, [00:38:00] not so much the dollar amount, unless I'm correlating that to the valuation metric, but like knowing the price I want to pay for a company I have high conviction in.

Jason Hall: Yeah. 

Jeff Santoro: Right. So just to pick a company we've already talked about today, let's just say I had really high conviction in. Brookfield infrastructure. And I do, I want to get to a point where I know enough about valuation to say to myself okay, if Brookfield trades for X percent or X times free cashflow again, that's what I'm going to deploy some of my cash hoard and buy like A half a position or a full position, whatever I decide, right?

Cause then you're being a little bit more micro opportunistic and less macro opportunistic because the other thing, the other thing that I was thinking about as you were answering just a second ago is I remember whenever it was the beginning of August, we had those two days where the market dropped a lot.

And I didn't do anything. I waited. And then of course, three days later, the [00:39:00] market had rebounded and everything was back up. But the reason I didn't do anything is I went through the stocks I already owned and even some of the ones I was have on my watch list. And even though some of them were down seven, eight, 9 percent over those couple of days, that had only really put them back to where they were in like mid July.

Jason Hall: Yeah. 

Jeff Santoro: And I thought to myself, well, this isn't like a generational opportunity. I'll just be patient. But had I done enough work in advance to say to myself, okay, when this company drops to this price or to this multiple, I'm going to buy it. Maybe I would have done something that. One of those days and it would have been a smart move.

So to your whole like learning point, like maybe that's the next step. 

Jason Hall: Well, a couple things. I'm glad you brought up that kind of that mini little sell off that we had and how quickly the market rebounded. There's a lot of people that are kicking themselves for not acting quickly. I will tell you generally not acting quickly with a little sell off like that is the right move.

Most of the time. It's the right move. [00:40:00] So it's definitely a case of process over outcome where historically you get a sell off like that. And all of the concerns that were there are still basically there. Stock valuations are still pretty elevated. Like all of that stuff hasn't really changed. coming to the right conclusion about those things, I think is really important.

And the one last thing I wanted to say about thinking about valuation is There's two different buckets when I think about valuation about when to act and when not to act. And that's when it comes to these really high growth businesses where paying the perfect price is only in hindsight going to have been a perfect price.

If the business really executed well, if the business doesn't execute it, it doesn't really matter what you paid, right? The returns are driven more by the business. And then there's the More of a, it's a steady stable business that's growing at a much lower rate where the price you pay matters a lot.

And that's a case where you need to be more precise about valuation. Whereas in the former case, the high growth sort [00:41:00] of things, you want to just be, be directionally within the realm of what you want to pay, right? Not being too disciplined about the price when you know, you want to own the business. And be happy with close enough.

But if it's say a Starbucks you may want to be more disciplined, right? Because the growth rates are slower and, the difference in 5 percent of the stock price can mean the diff can half your returns, over a five year period. Yeah, for sure. 

Jeff Santoro: All right. So that's the end of almost the end of our mailbag, Jason, but I've saved the best for last.

Jason Hall: Absolutely. 

Jeff Santoro: It is time for the spam question of the month. So we get tons of spam, mostly on our Twitter account. Thanks, Elon. So we have resolved starting last month, we, we resolved that we would always answer one spam question. So this one's for you, Jason. This came from A person on Twitter with a very attractive photo.

I'm sure it's a real person and the, um, Of course. Yeah. And here's the question. I hope you are doing good. I am from UK. [00:42:00] May I know where you from? 

Jason Hall: Yeah. So our social media intern actually replied to this DM and I thought it was great. 

Jeff Santoro: Our social media interns response was very funny. 

Jason Hall: It was fantastic.

I am a podcast. I am from the future. It's very good. 

Jeff Santoro: And I noticed there was no reply. So I guess that's not the answer. That this avid listener was looking for. 

Jason Hall: I think we blew them away. Yeah. So good, good job by our intern there. Where am I from? I am from a place long, long ago and far, far away.

Jeff Santoro: What about you? Do you have an answer? Oh, I'm from the future for sure. 

Jason Hall: Yeah, no, you're not. You're from New Jersey. Come on. 

Jeff Santoro: New Jersey is the future. 

Jason Hall: It's the end.

Jeff Santoro: You should come here. I think you would like it. I think you would enjoy New Jersey. 

Jason Hall: Oh, the best two parts, getting there and leaving. 

Jeff Santoro: No, no. I mean, look, let's compare it to where you grew up. We have plumbing. Um, indoor plumbing. Well, so I was going to say we have plumbing. We have consistent electricity.

And you clarified. It's like, okay, I got nothing now. We have consistent [00:43:00] electricity. Most of us have our teeth. Except for North Jersey. You get up to like Sussex County and 

Jason Hall: you're, you know, you're doing a good job just making everybody mad at you, Jeff. I am here for it. I mean, 

Jeff Santoro: we've, we've, we've bantered enough.

Jason Hall: Yeah. We've gone, we've gone far enough. This is great. I hope you guys enjoy the nice short episode here. Thanks for the questions. Gonna ask again, continue sending them in. This asynchronous communication is wonderful. You don't have to wait for the call out. When you get the question, send it to us.

So reminder, if you're listening to us on Spotify, you can actually send us your questions on there at the end of the episode.

Where is it, Jeff? I don't use Spotify. 

Jeff Santoro: There's a, there's always a question prompt, but it's usually just generic, but usually on the mailbags, I make it say, do you have any questions for the mailbags? So you can, oh, you can click on that after any episode and ask us a question or tell us how we're doing.

And actually now Spotify lets us reply. So I can. I can give you a little heart and say, thanks for listening. 

Jason Hall: Yeah, we won't answer it. We'll answer you on the podcast. 

Jeff Santoro: Click the button. 

Jason Hall: Next month. There we go. [00:44:00] Okay, Jeff, that's it. I think we've said it all. 

Jeff Santoro: We said it all. 

Jason Hall: Said it all for September. For a podcast episode. This is not the last episode of September unless it is. All right, friends, as always, we love to give our answers to these hard investing questions, whether they're questions we come up with or questions that you get to us. But our answers are just a starting point. It's up to you to find the end point and to answer those questions for yourself.

You know what? You can do it. I believe in you. All right, Jeff, we'll see you next time. 

Jeff Santoro: See you next time.