Investing Unscripted Podcast 131: Market Rally 2025 (Euphoric Music)

In partnership with

Invest Alongside Top Politicians And Famous Hedge Fund Managers

Tired of sitting on the sidelines while politicians and hedge funds have all the fun?

On Autopilot you can invest alongside top politicians and famous hedge fund managers right from your phone.

Over $380M dollars invested and 900,000+ investors love using Autopilot and here’s why:

It’s simple. Just connect your own brokerage and choose the pilot you want to Autopilot like Nancy Pelosi, Michael Burry, Buffett, and many more.

Join Autopilot Today

Note: All transcripts are edited for clarity. We may earn commissions from some (not all) links. Thanks for the scratch.

Jeff Santoro: [00:00:00] Listen up folks, time could be running out to lock in a historic yield at Public.com. You can lock in a 6% or higher yield with a bond account. Here's the thing, the federal reserve just announced a big rate cut, and the plan is for more rate cuts this year and in 2025 as well. That's good news if you're looking to buy a home, but it might not be so good for the interest you earn on your cash.

So, if you want to lock in a 6% or higher yield with a diversified portfolio of high yield and investment grade bonds, you might want to act fast. The good news. It only takes a couple of minutes to sign up at Public.com. And once you lock in your yield, you can earn regular interest payments, even as rates decline, lock in a 6% or higher yield with a bond account at Public.com/InvestingUnscripted, but hurry. Your yield is not locked in until you invest brought to you by public investing member FINRA and SIPC. As of 9, 26, 24, the average annualized yield to worst across the bond account is greater than 6%. [00:01:00] Yield to worse is not guaranteed. Not investment recommendation.

All investing involves risk. Visit Public.com/disclosures/bond-account for more info.

Jason Hall: Hey everybody. Welcome back to Investing Unscripted, where we ask and answer the hard questions about investing. I'm Jason Hall joined as usual by my good friend, the voice of the people, Jeff Santoro, Hey, Jeff. Hey, hey, how are you? I'm good. I'm tempted to like, ask you how Thanksgiving was and then we could just make up a bunch of stuff.

So this will be that post Thanksgiving episode, but we're recording it before Thanksgiving. 

Alright, let's, let's pretend. 

Jeff Santoro: Hey man, how was your, how was your Thanksgiving? 

Jason Hall: Ugh, God. Airports suck. Family's exhausting. I'm so glad to be home. 

Jeff Santoro: Yeah I didn't fly anywhere, I drove but I'm also happy to be home.

Jason Hall: Yeah, traffic was tough this holiday. 

Jeff Santoro: I can't even do this. 

Jason Hall: This is dumb. We're leaving it in though, it's fantastic. 

Savvy Investors Know Where to Get Their News—Do You?

Here’s the truth: there is no magic formula when it comes to building wealth.

Much of the mainstream financial media is designed to drive traffic, not good decision-making. Whether it’s disingenuous headlines or relentless scare tactics used to generate clicks, modern business news was not built to serve individual investors.

Luckily, we have The Daily Upside. Created by Wall Street insiders and bankers, this fresh, insightful newsletter delivers valuable insights that go beyond the headlines.

And the best part? It’s completely free. Join 1M+ readers and subscribe today.

Jeff Santoro: Anyway, [00:02:00] moving on to the podcast.

Jason Hall: So, yeah, we have a, we have a fun show that we're doing and this is one of those kind of thought exercise episodes. And a little bit of an inverse. Of the episode that we did a few weeks ago that we titled clickbaity intentionally and also tongue in cheek Market Crash 2025, (Ominous Music), which I thought was a wonderful title that you came up with.

So we're inverting that a little bit. Yeah, we're talking about the bull market of 2025 that never ends. 

open parenthesis, play your favorite happy movie theme song, close parenthesis. 

Jeff Santoro: Yeah, we'll have to come up with the right title that mirrors the show we did a couple episodes ago. But yeah, we wanted to, we use that episode to talk through the mindset around and how to prepare for and how to deal with a potential market crash.

Because even though we, we did choose the click baity headline of market crash 2025. Yeah. We don't know if there will be one in 2025, we just know that there [00:03:00] will be one eventually, but we were both struck by a post on Blue Sky, which by the way, we are now on if anyone is on there and wants to follow us, please do, but we were both struck by a post by a colleague of mine.

Of, of yours, someone, you know, from years ago at the fool Jeff Fisher who wrote on blue sky, it should be clear to all of us that valuations are currently generous, but what stocks will do next is never clear. The status quo can persist for months. A miracle could even let stocks grow into their new higher valuations over a few years, though, I doubt that.

But basically he's saying, yes, at some point we'll get a crash, but it could be months or years until we do. So we figured we'd do an episode talking about how to deal with the potential of 2025 being another crazy good year for the stock market. 

Jason Hall: Yeah, I think it's important. To, to do these mental exercises I've talked about, you know, and I want to go back to an anybody that listened to, um, episode 128, you know, that it was more of like a [00:04:00] thought exercise. We weren't actually predicting a market crash just like right now. We're actually not predicting. solidly above average, super great bullish year. Um, it's not our game.

There's plenty of other people out there that they're selling you something and they're making a prediction and the prediction is not the point. The point is to feed however you feel. So you'll buy from them. And we're going through this as a kind of a thought exercise. I want to start Jeff with, I've talked about this before.

I always expect a recession. Like I always expect the economy is going to get bad in the next year and the market's going to tank. Like I just, I'm, it's baked into my brain that I just, I always think that way. So part of my framework is built to keep me from screwing up my portfolio. Doing things that are against my own best interest, because We know that generally the market goes up like most years, most days, most decades market goes up.

When it goes down though, it goes down really fast and it goes down a lot. When we get the big sell off. So that's kind of [00:05:00] how it happens. This particular post from Jeff really resonated with me because this is one of the investors that I respect most in the entire world in terms of people who, number one are extraordinarily talented investors that are good at finding opportunities. That are good at generating alpha. Market beating returns. Are good at building portfolios and structuring to generate positive returns across market environments. Jeff's really, really good. So this really resonated with me when somebody that I, that generally is pretty accurate with their thinking about the market.

And again, the way he's laying it out is, is really clear. It's like no binary calls here, but let's think about probabilistically. What is going to happen? Market's expensive. Right. We're saying that the market's expensive. We don't know what's going to happen. We know what's probably going to happen is things are going to continue the way they're going for some period of time.

Eventually the market's going to [00:06:00] return to more normal historical multiples. What we don't know is whether that's going to be earnings growing and catching up to the current prices or prices coming down to the current levels of earnings. We know which that generally is, Jeff. 

Invest with the art investment platform with 23 profitable exits.

How has the art investing platform Masterworks been able to realize an individual profit for investors with each of its 23 exits to date?

Here’s an example: an exited Banksy was offered to investors at $1.039 million and internally appraised at the same value after acquisition. As Banksy’s market took off, Masterworks received an offer of $1.5 million from a private collector, resulting in 32% net annualized return for investors in the offering.

Every artwork performs differently — but with 3 illustrative sales (that were held for 1+ year), Masterworks investors realized net annualized returns of 17.6%, 17.8%, and 21.5%.

Masterworks takes care of the heavy lifting: from buying the paintings, to storing them, to selling them for you (no art experience required).

Now, you can SKIP THE WAITLIST when you use our exclusive link to get started.

Past performance not indicative of future returns. Investing Involves Risk. See Important Disclosures at masterworks.com/cd.

Jeff Santoro: Right. But the other thing that I keep thinking of too, is You know, we did a whole episode about market crashes and now we're going to talk about prolonged bull runs, but there's also the scenario where the market cools off a little bit at some point, maybe even before the end of this year or early into next year, nothing crazy, not necessarily a crash, but maybe just a slow, uh, slow decline where you look back after three months and the market's down five percent, but like a really slow kind of, and then it equal liberalizes or whatever and then takes off again, right?

It could be any one of these scenarios. But no one really knows if and when, but it does feel right now like we're in one of those, it's going to go up forever. [00:07:00] Vibes and I think it's worth thinking about how to handle it when the market's going up, maybe for longer than you think it can or should.

Jason Hall: Yeah, no, that's, that's exactly right. And, and that's why I wanted to take the idea and we've talked about this and kind of invert what we did before and talk about. Some of the things, I mean, we talked about some of the things that could, you know, undermine the economy before, let's talk about some of the things that could continue to support the economy, which generally will support the market.

Jeff Santoro: Yeah. 

Jason Hall: So let's kind of start off maybe there. We'll just go through a few things that we each identified that could support the market, continue to keep stocks, um, at levels that we're at right now. 

Jeff Santoro: So the thing I keep thinking of when I, I think the biggest reason I think there could be a sell off or some sort of crash or even a mini crash is just.

And I talked about this on episode 128, uncertainty, just, you know, and I, maybe I talked about it last week to no one really knows exactly how the new administration is going [00:08:00] to be in practice, because we're still a few months away from that. So there's a lot of noise and speculation right now, and there's announcements and it could be something that will happen or it could be posturing.

So it's a lot of hypotheticals right now. So. It kind of makes sense where if you were to bet like, Oh, we're going to see a little downturn because the market doesn't like uncertainty. But when you look at the actual economic data, it feels to me like, and I'm not an economist, so feel free to correct me if you think I'm wrong or if anyone's listening and wants to yell at me on, on blue sky, they can.

It seems to me like. We're still in the slow recovery that has resulted in this mythical soft landing that we were all hoping for a year ago, you know, unemployment is still relatively low businesses seem to be doing okay, even around what they're reporting as can, you know, softness with the consumer and pull back on discretionary spending, but people are still spending gas prices are near recent low, you know, they're, they're not sky high anymore.

Inflation's coming down. [00:09:00] It seems like every month we get the new. Inflation report. It's a slight improvement. We're expecting more interest rate cuts in December and maybe into 2025. So when you look at this, the big headline economic numbers, it feels like we could be in for several months or quarters of continued good news, barring any.

Drastic policy changes that upend the market. So to me, I see in my naive non economist point of view, a lot of things in place that could help the stock market continue to do well for a while. 

Jason Hall: Yeah. It's, and it's interesting because, you know, I think there's some, there's some truth there, but I think what's also happened, Jeff, is we've, we've gotten the soft landing it's you, you're, you're right this, but I don't think it's just that we think we've got, we've, we've gotten it.

And do you remember back during the pandemic they were talking about when we come out of this looking for a V shaped recovery where it just crashes and shoots back up [00:10:00] and they were talking about the K shaped recovery, right? Where you've got to go and back up and then you see this other segment of the economy that it's like this keeps going up, this is going down and you know that we're seeing that right now you look at how different businesses are doing.

And like Walmart's doing really good because it seems like people that are feeling pinched might be shifting away maybe from the targets of the world. And they're moving to Walmart where they can find more value. And at the same time, you see cruise industry still doing really, really well. And some of the higher end stuff is doing really well.

Housing demand is still massive. There's not enough inventory. That's why housing sales are down is because there's no inventory. Uh, we're seeing pockets of softness here and there. But the key is that we have, you know, the halves are doing fine and still have discretionary disposable income. Of course, there's that pocket, the pockets of the economy that always are going to get pinched.

So we definitely have kind of seen overall the soft landing. But what's happened, Jeff, is the market's no longer talking about that because it's happened [00:11:00] The market's looking forward. So the pundits are looking forward. All of the, the, the media is looking at what happens next. And of course, what happens next is in January, we've got the Trump administration coming in.

And one of the big things that the Trump administration should talk, talk about. One of Trump's, uh, campaign promises is lowering corporate taxes. That's a big thing. That's, I think, the thing that probably sent so many stocks up so much right after the election. Yeah. Yeah. When corporate taxes go down, you know what goes up?

Corporate earnings. Corporate profits. Right. Exactly. So, so that's one of the things I think the market is maybe, you know, Predicting. And it's interesting because you look at a lot of other companies that might be negatively affected by some of the, the the, the Trump campaigns platform tariffs things that would maybe hurt the consumer would certainly affect like the best buys of the world.

Some of those retailers that are very discretionary focused already have thinner [00:12:00] margins where the prices of their goods are going to, their costs are going to go up. Their prices are going to go up. And they're going to get squeezed, but, part of my thought process is the longer term, maybe some of the things that the Trump administration is talking about doing, you know, to really push harder for more free trade.

Like the idea of some of these tariffs is just that it's, we're, we're dealing with. Uh, countries that are already breaking free trade agreements by subsidizing domestic production. We've dealt with that with heavy industry, the steel industry solar panel manufacturing. We've dealt with that with for years with China and other countries illegally subsidizing their industries and breaking free trade agreements.

So I'm, I'm gonna, again, Making the case while the market keep going up, I'll make the case that there could be some short term pain, but in the long term it could strengthen trade and strengthen American companies in, in some of these key industries and help them be more profitable over [00:13:00] time. 

Jeff Santoro: Yeah.

And look, we're not here to. I'm not saying I believe it. Well, yeah. Look, we're not, we're not here to defend or disparage any potential policy decisions because again, like I said earlier, the reality is we don't really know yet a what's actually going to happen and be what the actual impact is going to be.

I am of the opinion that when push comes to shove, it's unlikely decisions will be made that will have obvious negative impacts on the stock market. Because any administration, 

Republican or democrat wants the stock market to do well and doesn't want the economy to crash. Right. Yeah, while you're hearing economists and pundits say things like if this happens the economy will crash if this happens The economy will whatever Yes that that all could be true And I, maybe that is what will happen.

That would be a break from pretty much every other administration that's ever existed. There's a reason that when you go back and look at the economic data for [00:14:00] different administrations, it's largely up into the right, barring things like pandemics and nine 11 and the great recession and things like that.

Yeah. So I, I have the reality. Go ahead. Go ahead. I was gonna say, I have a feeling some of the worst economic. The thing some of the things that are the worst for the economy may end up not happening or happening less than Some lesser degrees because someone will grab Grab trump and be like hey, this is gonna crash the economy.

Don't do that. So anyway, this is all to say I think There's it's not unreasonable to think we could see another several months or maybe even a year of, of good market gains. 

Jason Hall: Yeah, no, I agree. And the key thing I want to circle back around to Jeff's post um, "the status quo can persist for months." And it gets back to the, the famous quote from Ben Graham that the market, the market can remain irrational longer than you can remain solvent and [00:15:00] generally that's, that's, that's talking about when you're making bets against what the market.

is doing. Um, and I think that's the point. 

Jeff Santoro: Hey everybody, we'll be right back, but first a word from our sponsors. FinChat.io is the complete stock research platform for fundamental investors. They have all the standard financial data on more than 100, 000 stocks globally. But beyond that, they have company specific segment end KPI data on around 1, 800 stocks.

So for example, do you want to see Nvidia's data center revenue growth? They've got it. Do you like to track Apple's iPhone sales? They've got that too. Or how about nights and experiences booked for Airbnb? You guessed it. They've got it. And they just added around 8, 000 ETFs and mutual funds to the platform.

The breadth of FinChat's data is truly one of a kind. I use FinChat every single day as I'm researching the stocks in my portfolio, specifically when I want to see how they're doing on KPIs that FinChat is famous for. [00:16:00] So to get 15% off any paid plan, go to FinChat.io/unscripted. That's FinChat.io/unscripted to get 15% off any paid plan today. The link will be in the show notes.

Hey, Investing Unscripted listeners. This episode is brought to you by our friends at Yellowbrick Investing. Yellowbrick is an aggregator of the best stock pitches across the internet. By tracking thousands of blogs, newsletters, fund letters, podcasts, and more, they're able to collect and summarize the best stock pitches from all over and bring them to you in one single place.

Think of it like a modern value investors club. I have to say, this is pretty cool. I can just type in the company I'm interested in and get a bunch of different stock pages from across the internet. It helps me think through new ideas and find opposing points of view on the stocks I'm interested in.

And the best part is access to Yellowbrick is completely free. Try it for yourself. Simply go to joinyellowbrick.com and search a company or ticker you're interested in. You're bound to find a great report on just about any company. That's joinyellowbrick.com.

[00:17:00] yeah. And I think that's a good segue into the next thing we want to talk about, which is using frameworks to sort of navigate this potential year of up upward gains, because I've heard people say, and I know people who have done things like, Oh, I think They say, I think a recession is coming or I think this is going to happen.

So I'm not going to do X and that could be smart in certain situations, right? Oh, I'm six months away from retiring and I think there's a recession coming. So I'm just going to stay in cash and bonds or whatever, right? I understand why people do things like that. But to that, to your point about the market being able to stay irrational longer than you can say solvent is you might miss out on three, six, nine months of An outstanding run in the stock market, if you're always or 15 years, if you stayed in cash in 2009.

Yeah. And I've thought about that too, with, so you can even take it to a stock level. And just to illustrate the point, if we talk about Nvidia as a stock, right, there [00:18:00] was very good reasons over the past two years. I guess pretty much two years to the day, I think it was in 2022 and in the November reported quarter that we started to see the huge data center jump from all the AI spending.

You could have made the argument then, and you can make the argument now that Nvidia will continue to do this and you should buy and the valuation will make sense because it'll continue to do this. Or you could make the argument that it's too expensive and you should sell. And I wouldn't have argued with either one of those over the course of any conversation.

Any of the last two years, but if you did sell over the last two years, you left money on the table in, you know, looking back with hindsight. And I think you can extrapolate that to the larger market, right? You can look at the market and say, there's no way this can continue. I'm going to sell or buy less or keep more cash or move to bonds.

And then you could look back 12 months later and go, well. I just missed out on 30%, you know, right. Yeah. So, [00:19:00] yeah. So how, so let's talk about frameworks. Like what, what are some of the things that you're thinking as we, as we want to kind of prepare for the possibility of, of this kind of a market? 

Jason Hall: Yeah.

So just as a starting point for anybody that might be new to the podcast, the way that we use frameworks and think about it is frameworks help you make better decisions. They give you a way to think. Instead of rules, which just tell you what to do and usually rules are just tropes and they're not necessarily based in the best thing for you and having solid frameworks are going to do a couple things, right?

The purpose of your investing frameworks should be you figure out what your goals are and when your goals are. And by the way, beating the market with your stock picks is not a goal. That's an aspiration. Having enough money to retire, having enough money to put your kid in college, building a portfolio to generate X number of dollars a year in income. Those are goals, right?

Those are things that you can actually write [00:20:00] down and specify. When it's going to happen and directionally what the number needs to be. Those that's a goal, right? So once you know those goals, then you can build a framework. And the idea of the framework, Jeff, is something that's going to kind of supercharge the stuff that you're good at doing while creating massive amounts of friction for the things that you're bad at, or the things that you are inclined to do that Cause portfolio harm, in my instance, the fact that I kind of, I'm long term bullish, but I'm always short term bearish. That's a terrible position to be in because there's so many people that are that way, you can always, always, always find a reason why something's going to screw up the stock market in the next year.

It's easy to do. You can always do it. And it's kind of like building an investing thesis. You can be, have a million reasons why you're right, but all it takes is one reason why you're wrong and it blows up, right? And that's why when it comes to those, those near term things, [00:21:00] this is where you start thinking about.

Applying the right tools out of your toolbox to, to do the right thing. So you've got your investing framework to supercharge your decisions and, and friction to keep you from doing the stupid stuff. And what that makes me do is stop and look and say, okay, what are my near term goals where I really want to make sure that I'm making the right decisions with my investing over the next year..

Jeff Santoro: Yeah. And so here's an example. I think of when I hear you say what you just said, I was a little bit more of a rules based investor earlier on when I first started buying stocks. And yeah. Ended up being a bad thing more when I was going through the super bull run of 2021 because that was back when I was buying every single week and usually on Wednesday and I found I would buy something on Wednesday, whether, whether it was the right [00:22:00] time to buy something or not, you know, the market was overvalued or undervalued.

I bought something on a Wednesday and that was like a rule I followed and I feel like that made me. Think less about what I was actually buying and what I was paying for it and valuation, and I just bought, cause that's, that was a rule I followed. What I've tried to do since then is have a framework. I still buy once or twice a month when the money hits my account and I have the time to sit down and think about it, but I don't feel compelled.

I don't carve out a time in my day on a specific day to make sure I do it. I just, I wait for my schedule to sort of come to me and I have the time to devote to it. Yeah. And there's times I just pass. I just, I, I might sit down and look at everything and I don't really see anything that's compelling right now.

I'm just going to wait. And maybe, maybe next week. I will find something I feel is compelling because with certain stocks, something big can happen over the course of a week and a buying opportunity might present itself. And I think that's something I'm trying to remember now. I'm [00:23:00] finding that framework is helping me be more patient now when I don't feel like I'm missing out on too much because everything feels a little expensive.

I'm hoping it serves me well next time we hit a downturn. I hope it doesn't, the other side of it doesn't happen where I'm like, everything's on sale. I need to buy constantly. That's one way that I have navigated bull bull run markets to, I think, make better decisions. If that makes sense. 

Jason Hall: Yeah, no, it does.

Um, and as a couple of key things, I think number one, that being patient across the bull market and also the bear market, I think is, is really valuable. Because it positions you to also be decisive, right? So when you know what good looks like, when you know what the price you want to pay for a particular business is, you have the number one, you have the resources to deploy because you didn't spend them last week on something that you felt very, you know, [00:24:00] not, not necessarily highly convicted about, or last month or whenever the last time you made an investment is. So you're, you're positioned to move quickly. With, with decisiveness when the time comes, but at the same time, we're not talking about depleting our portfolios and shifting large amounts of assets to cash, because again, stocks, we don't know what the market, like Jeff was saying, we don't, we don't know what the market's going to do in the next few months or, you know, even few years, we, we do know that over the next few decades.

It's probably going to be the best game in town, in terms of creating wealth. So not messing that thing up because of our vibe about the near term or even like our facts about the near term, the market's expensive right now, Jeff. And a lot of that expense is tied to expectations around AI, which may or may not pay off in the next year.

I think they'll pay off in the next decade. We don't know if they're going [00:25:00] to pay off in the next couple of years. So there's speculation built into the multiples that. That is a perfectly valid reason for a lot of people to really seriously be considering reducing their exposure to, uh, to equities.

But those people need to be the people that their exposure to equities is, is wealth that they're going to need to deploy in the next few years. 

Jeff Santoro: Right. Well,So there's two pieces I want to ask you about. One is thinking about our individual portfolios in a time where the market's on a big run. But also I want to talk about cash because you mentioned it's not like we're selling our portfolios and going to cash. But I do want to talk about cash, thinking about cash in a time like this.

So I know we don't have to go into it. In fact, I don't think we should because it's not super relevant, but I know you have a whole system. Again, it's a framework, a little bit tilted towards rules, I think, about how you deploy cash in a downturn. But I'm curious what you think about this idea, because I was thinking about this for my own portfolio.

I've yet to do it partially because I don't know [00:26:00] if I want to. And partially because I don't think I have the discipline to do it, if I'm being honest with myself. And that is, and I don't know if I would want this to be based on actual numbers or just sort of vibes and how I feel about that market generally.

Instead of spending every dollar that. Gets transferred into my Fidelity account each month that I earmark for investing, taking only 80% of that dollar amount to buy when I do purposely leaving 10% aside with the idea being that us or 15% or whatever the number is so that let's just say it's six or nine or 12 months from now where the market does reverse and start heading back down.

I then have some amount of cash built up to deploy when it's more. advantageous and I don't feel like I've had to miss out on investing through the bull run. I'm still taking 80% of that money and I'm putting it into the market. I'm just holding a little off to the side. [00:27:00] So I want to ask you about other stuff, but what do you think about individual investors thinking a little bit more about.

Squirreling away a little more extra cash when the market is doing what it is now. 

Jason Hall: Yeah. I think it, it, yes, yes. And, or yes, but depending on how you want to think about it, cash is a great tool but it's also can be a detriment. So if you fall in love with cash and, and having cash, it keeps building up and building up and building up and building up.

And you're like, A dragon sitting on your pile of gold, you know, it's an unproductive asset. Uh, we're lucky right now that we can actually get a yield on cash. That's a little bit better than inflation. Historically, that's, that's not usually been the case. Certainly not over most of the past 15 years.

So right now having cash a little bit better because you actually are gaining a little bit of spending power versus inflation, not much, but just a tiny little bit, It gets back around to the most important thing about any investment strategy and that is having one that you can stick to. I love that [00:28:00] idea for people that are trying to figure out how to hold more cash because it's a way, you know, you can almost think about like, I'm going to buy a little cash this month, but I'm also going to mostly buy this stock that I like.

Um, I do think, I do think it makes sense. And even for investors that are dollar cost averaging in. To stocks or dollar cast averaging into, uh, to index funds. You know, if you just have that rules based thing where you buy 500 in a Roth of, of VOO or whatever every single month, make it four 50 and put 50 in cash.

Yeah. I think that's a perfectly reasonable approach. Particularly as you're starting to get closer and closer to those financial goals, um, even if you're 10 or 15 years away, you know, start kind of stretching those cash and fixed income muscles a little bit. Because something we'll talk about here in just a minute is something that I've really finally started to embrace only in the past couple of years about how you can juice your returns over the longterm [00:29:00] while reducing volatility.

Uh, using things like cash and bonds and other fixed income tools. 

Jeff Santoro: Yeah, that's, that's kind of, I agree with you. You don't want to fall in love with cash. To me, it feels like the way I would do it is whatever the dollar amount is I have in my account to invest with just never investing more than 80% of it.

And then, but just constantly doing that and then watching it build over time. And then I, I know how I am. I There's no way that would build up. Like I would not fall in love with cash. If it's in that account, I want to buy a stock with it. So I'd have the opposite problem. I would probably deploy it. As soon as we had two red days in a row, like this is it, it's time.

And then a month later, when the market's down another 15%, I'd be mad at myself. All right. So I want to ask you a different question. So, cause you mentioned this too, we talk a lot in terms of frameworks about, especially during mailbags, because inevitably in every mailbag, we get some question that is along the lines of how do I know when I should buy or sell or hold, right?

Like some variation of that theme is a question we get. [00:30:00] And the thing we come back to. As an answer is you got to know why you own it and what you're looking for in the company. And don't let it be, don't let the tail of the stock price wag the dog. And so one of the things I've been thinking about as I've gone through now, I've been through all the companies in my portfolio that have reported for Q3 and I've updated my spreadsheet and kind of looked at how they've done.

The question I'm asking for the companies that are doing really well, the ones that have, where the stock price has appreciated a lot over the past several months is that question of, is this multiple expansion? Is this because the business is doing well or is this both? So I've never really done this mathematically, so you can tell me if I'm completely off base here.

Jason Hall: You're completely off base here.

Jeff Santoro: Thank you. Thank you for doing it now and not even waiting until I explain it.

Jason Hall: Saving our listeners some time. 

Jeff Santoro: Appreciate it. But I, there is a way I think you can do that. Like if you look at the growth of free cash flow or the growth of earnings. And [00:31:00] then compare that to the growth of the stock appreciate, like the stock price, you can kind of get an idea of where it is versus, you know, multiple expansion versus growth of the business.

I know that's an imperfect comparison, or at least I think it is but I might directionally be correct. So I guess that's my question. Like, how do you, what do you look for when you look at a company that's, let's say it's gone up. 100% in 2024. And you're looking at the results and trying to determine, is this justified?

Because this company is just crushing it and has years of growth ahead of it, or is this multiple expansion or is it some combination of the two? 

Jason Hall: think the key thing there, Jeff, is using that near term information, but also not being myopic. Because it's really easy to, SoFi, as an example, stock has just gone on an absolute tear this year, it's more than doubled from the lows and it would be very easy to look at it and say, well, that's multiple expansion. I'm taking my money.

I'm selling [00:32:00] half, whatever. Without pulling back and like looking, okay, what's the real opportunity? What, what can this business be? What is the opportunity to grow with total deposits and it's, you know, asset base and then turn that into, you know, net income and free cash flow per share. So I think it's really important to continue to.

Like understand why it happened, but then also apply that to what is your thesis? What is the long term potential for this business? And then, and then reevaluate it. Yeah, I think so far is just, is a good example because it's like, I don't know, maybe 20 billion in total assets, which is a massive move from where it was, you know, five or seven years ago, but.

It's still compared to even the, the medium size of the larger regional banks. It's still you know, we're talking about banks with, you know, a hundred billion dollars in assets. So tons of tons of room to continue growing. And it's easy to lose track of that because of how much the stock has gone up.

Like lemonade is another good [00:33:00] example. The stock's gone ballistic just in recent weeks. And it'd be easy to say, well, yeah, it's, it's time to move on. And then you could also look at it and say, well, it's Really, you know, expensive to look at it, you know, price to book value and it's books value still declining because they're not generating net income.

But then you realize, well, here's why they told us why they're spending a lot of money to grow so that book value is going down because they're showing losses, but they're generating positive cashflow. They're just trying to get to a certain level of scale and they get 10 X the business and still be 25% the size of Allstate, for example. So again, look at what it's done. Yes. But then say, okay, well, here's what they're trying to do. Now you might reach the conclusion. You can't 10 X your business in whatever they're trying to do, if they're trying to grow at like 30% rate. So what does that five or six years to 10 X the business? I mean, it's a crazy big number. You might say you're not going to be able to do that. The stock's expensive. I still want to own [00:34:00] some, but I've, I've, I've earned five years of returns this year. Right. I'm comfortable owning half as much of this because I think it's going to be really volatile and I want to reduce my exposure.

That's a reasonable conclusion to come to because you're thinking through this and you're not, you know, some dumb, you know, this is house money. So I'm selling half because it's double bull crap decision. You're thinking through and you have a process and that's what matters. 

Jeff Santoro: Hey everybody. We'll be right back. But first a word from our sponsors. Heads up folks, interest rates are falling, but you can still lock in a 6% or higher yield with a diversified portfolio of high yield and investment grade corporate bonds on Public.com. You might want to act fast because your yield isn't locked in until the time of purchase.

Lock in a 6% or higher yield with a bond account only at Public.com/InvestingUnscripted. Brought to you by public investing member FINRA and SIPC. As of nine 26, 24, [00:35:00] the average annualized yield to worst across the bond account is greater than 6%. Yield to worst is not guaranteed, not an investment recommendation.

All investing involves risk. Visit Public.com/disclosures/bond-account for more info.

Hey, Investing Unscripted listeners. My name is Brett, one of the hosts of the chitchat stocks podcast. If you love Investing Unscripted, we think you will love listening to chitchat 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 of investor. Follow the chitchat stocks podcast on YouTube, Spotify, or Apple podcasts, and start discovering new investments today.

Jeff Santoro: yeah, I think lemonade's a good example because I've watched it skyrocket in my portfolio from, you know, as I sort my spreadsheet from like the bottom third to now the top third.

And I know they had a good quarter and I know their [00:36:00] investor day was impressive. But just based on results and not expectations. The company is not 100% better than it was six months ago. So six weeks ago, right? Well, that's what got me thinking. Like, how much do you think multiple expansion is really just.

I think of multiple expansion sometimes as the promise that's built into a company and the actual results are the actual things that they're able to do, like everything you just said about lemonade is built Mostly predicated on what people believe that we'll be able to do in the future. And that's what leads to multiple expansion, right?

Cause it's not based in actual numbers yet. And it's based on- 

Jason Hall: Well, the markets forward looking, right? 

Jeff Santoro: Right. But I guess that's my point. I think that's, for me, that's how I think of the balance, right? How much of this, like, I look at the results and I look at the stock price and I'm like, something's off here and it's, Oh, because there's so much expectation baked in.

So I want to. So let's dig into that piece of it. Do you think when you see that, that, well, let's [00:37:00] use lemonade as the example, when you see that happening during a bull market, does that make you want to buy more, buy less, or does that have no impact on a buying decision for that specific company? 

Jason Hall: It makes me want to learn more, um, when stocks skyrocket like that. I really need to figure out what is going on. If, if I don't really like understand it. And the lemonade one was certainly really surprising to me that the stock went up as much as it did as quickly as it did based on you know, the good earnings, the election, and then this, the, the investor day. I will say this.

I want to invert that. What about when stocks fall? Because I definitely sometimes when stocks go up a ton, it's like, do I need to trim this now? And when stocks fall, I'm like the classic, like value trap guy, like by the dip, like I've spent a massive amount of my investing career doing that, you know, buying dips on stocks that a lot, when a stock goes up, it goes up for a reason.

When a stock goes down, it goes down for a reason. Usually the best thing to do is to stop and learn. [00:38:00] Like you said, you're what's your, uh, your new, uh, Catchphrase don't trade learn. Yeah, I think that's exactly right. CrowdStrike is an example that we it's not till today as we're recording this on November 26 at the company's first full quarter of earnings.

Since the massive outage happened, that we're going to get a chance to see, did we see any customer defections? Did they have to maybe cut more deals? Then, then they, they said they would or their legal expenses higher than maybe were expected. Like sometimes it just takes a long time for that stuff to come out. Sometimes you make a, you know, you make a speculative bet and you say, I really know this business, I believe in it, and I think this is an opportunity and I'm just buying.

Sometimes you go in the other direction and say, look, this is, I can't handle this sort of uncertainty in my portfolio. I need to reduce exposure. But again, you're thinking these things through. And you're not just making a decision based on a rule that you've invented or [00:39:00] heard that somebody else uses where you always buy it when it falls and always sell it when it goes up.

You actually learn, right. And, and think through what you're doing and then you can make better 

Jeff Santoro: decisions. So there's one more aspect of. Investing in a crazy bull market that I want to ask you about, and I haven't seen it as much this year as we saw in 2021 if you think of just overall investor sentiment that's heading up into the right being the tide that lifts all boats, it's going to lift your, your better stocks, right?

It's going to lift your NVIDIAs and 

Jason Hall: float too. Is that what you're saying? 

Jeff Santoro: Yeah, but it's also going to lift that crap at the bottom of your portfolio. And I think the difference between now and And 2021 is that in 2021 businesses that were barely businesses were trading for valuations that we haven't even seen like NVIDIA hit over the past two years, right?

Just insanity. And I haven't seen as [00:40:00] much of that this time around. So I don't think it's as much of a concern, but I do think if we ever hit one of those super manic bubbly kind of runs, it's worth, I think. Investors pausing for a second when they start to see. That stock that was down 70% is now all of a sudden only down 5%, right?

Cause it's gone on this crazy run to ask yourself, well, is that because the business is improving and fixing some of its troubles or is that just the tide lifting all boats? So how do you think about that aspect of it? The bottom end of your portfolio? 

Jason Hall: Yeah. I mean, this is one of the big challenges about being an individual stock picker, particularly the more stocks you own.

Like I do I, because I do take that kind of VC approach where I'll take smaller bites of companies that maybe I don't know as well. Like I see something that's clearly there's potential quantum scape, for example, and that's like the most extreme example. It's it's at this point, they don't have a business.

They haven't actually generated any commercial revenue cause they haven't actually manufactured a commercial product. [00:41:00] So hyper speculative there all the way up to. As proven as it gets with Berkshire Hathaway, right? Where you've got dozens of subsidiaries that generate positive cashflow and, you know, three of the best capital allocators on the planet deciding what to do with that excess capital to create shareholder value and everything in between.

So it's, it's, to me, it's really when you do see these runs like this, it's definitely a good opportunity to start going back and looking for more weeds to pull. Because you've maybe recoup some of that. So again, the key to me is like, it's always the business first approach where, what do I own is, are they doing, are they doing the thing that I bought them for?

No. Did I just not understand it? Or do they suck if they suck? Obviously you move on. And a lot of the ways you can find out that they suck is because what they're telling you now is very different than what they were telling you before, but the results are still crappy. Guess what? They suck. Move on.

So, taking the opportunity to, to trim those positions is really good. [00:42:00] But Jeff, to me, that kind of brings me to like a bigger opportunity that more investors have to take these opportunities like this. When we do get to really great years for the market, not just one year. It's the past couple of years have been incredible for.

Socks and that's thinking about rebalancing. 

Jeff Santoro: Yeah. That was where I wanted to go next. Like the, the best case scenario for any investor is to be in a market like this. And start to lose sleep because certain positions are becoming really large parts of your portfolio.

Like that's a good reason to be stressed out. That's a good problem to have. I've not experienced that yet with any individual stocks, but I can imagine, you know, I will say this. Had I put Any sizable amount of money into my NVIDIA that I bought sort of blindly and stupidly four or five years ago. I don't think I'd be at the point of not sleeping, but I would certainly be at the point of considering much more heavily if I want to trim that position.

Because like I said, the, [00:43:00] the couple hundred dollars I invested in, it is up I don't know, 570% or something like that. So when you get to a point where an individual position or a couple of stocks are now an uncomfortably large part of your portfolio, like that can really happen quickly in a time when the market is on a crazy run.

Jason Hall: Yeah. And I want to, I want to step back a little bit and kind of look at this more from like a 35, 000 foot view, and then we'll get down to the ground level of looking at individual positions. So when I think about. The idea of rebalancing, I'm really thinking about is reducing exposure as a percentage of the total portfolio to stocks and increasing exposure to cash and bonds, right?

So this is not a new concept. If you've ever been to a financial planner, this is something that happens. If you own a target date fund and you're 403B or 401k, guess what? Rebalancing happens every quarter. They rebalance to that target percentage of stocks and [00:44:00] bonds. Inside, inside the, the funds, the different funds that make up the target they fund.

And that again, it changes over time. And the, the idea is you go through these bull runs where the market does really, really good. All of a sudden your percentage of stock exposure has gone up, right? If the market goes up just because I'm kind of dumb, if the market doubles and you started out at 50% stocks and 50% bonds, you're now roughly going to be 75% stocks and 25% bonds.

Now it's, it'll be a little different because the gains from the bonds and all that kind of stuff, math's hard people. Um, the, the point is, is that when the stock market outperforms, your balance is no longer there. So you can. Take some of those gains, reduce your equity exposure and shift it over to bonds.

And the, and the, the, the opposite is exactly true too. And this is something we love to talk about. It's like dry powder, right? The idea of the [00:45:00] market's down. I want to put that money to work. You're just rebalancing, right? I mean, that's the idea. So my rule, but I was going to 

Jeff Santoro: say, I've heard financial advisors say that.

Regardless, once a year, once every two years, once every couple years, whatever, everyone should do this exact thing. Not necessarily just when the market's on a run, but like sort of after any meaningful amount of time has passed. Every year. Yeah. Just take a look. If you're a person who has a set idea of how much bond versus stock exposure they like, if you want, if you're like.

old school 6040, right? If that's just the way you want your portfolio to be, you should check that 6040 every year. Like to your point on a year that stocks do really well, it could be 6535, right? You have to check into that. And, and yeah, so I want to also talk about like the different ways you can do it.

Like you can sell stocks and buy bonds or, you know, That's one way. Another way is just change your future [00:46:00] allocations towards the thing that you're light on, right? If you don't want to sell something, you could up your contributions towards the bonds. That's one other way. Turning off. The reinvestment of dividends, right?

If you have a big dividend portfolio not automatically reinvesting them for some number of months or a year and sort of using that cash to go another way. That's another way I've heard of people do it. So there's a couple of different ways to kind of go about it, but I'm glad you, I'm glad you took it back to the portfolio level.

I wasn't thinking that at first. Yeah. I think the other thing you have to be careful 

Jason Hall: about too, is rebalancing is like a no brainer in retirement accounts, right? Because those realized gains don't get taxed. If you have a brokerage, yeah, it's, it's, it's especially the larger your brokerage gets, the more complicated it gets because it's like, okay, the stock market's gone up.

That means I'm going to sell something. I'm going to realize a gain, which means now I have a taxable event. What can I do about that? Pull some weeds, maybe realize some losses too, to try to offset it. And then it's the old, [00:47:00] this is something you and I've talked about before. I think we've talked about on the show too, is you might have a stock that you bought.

And you still have plenty of confidence in the business long term, but maybe it's, they've had a bad year. Something's in the stocks fallen, right? But you still want to own it. So then you have to deal with the selling and you book the loss and then you have to wait 31 days. To make sure if you buy it back, it's not a wash sale where you don't actually get to take advantage of that taxable loss.

So there's, you know, all of those things kind of come into play and it can get more complicated. But I think by and large, more investors probably in this environment, cause here's the thing from 2010 through 2020, 2021, I wasn't rebalancing it because I didn't own any bonds , but it's a different game now, right? It's the opportunity in fixed income and cash is different than it was over most of the past 15 years. So I think more investors should be doing this. And Jeff, it's the kind of thing that I'm probably going to be thinking about.

Maybe on a quarterly basis, but I have time, [00:48:00] right? I have time. I wrote in our, the last, Random Words that I wrote for our Sunday newsletter, I talked about how time is so incredibly valuable and you have to figure out the cheat codes to make the most of your time, to make the most of your money, because eventually you get to the point where you can turn that money into more time.

I D I D I have the time to, to do this, you know, on a quarterly basis. Yeah. To, to kind of leverage better longterm returns and also kind of help out through the downside volatility that I think that it can kind of help protect because I'll use, let's see if I can remember the year I was looking at a chart earlier. So this was one of my favorite investing years in my history of investing. And those of you that are listening to the podcast, I apologize because I'm doing one of those things that really plays well on. Podcasts where I'm sharing a screen. So if you're watching this on YouTube, you'll see it. This is one of my favorite investing years ever.

This was 2011 from [00:49:00] January 1st, 2011 through January 1st of 2012. The market was up exactly 0%. It was down exactly 0%. We never see these kind of years. Like they never happen . 

Jeff Santoro: It did visit up 8% and down 15 20% at different times. 

Jason Hall: This is the roller coaster year.

Yeah, it peaked up about 8.5% and it peaked down about 9%. So, it's the perfect roller coaster year. It started off going up, had a big hill that went down. And then, well, we kind of ended up right back where we started. Now this is not total return. So it leaves out, you know, that one and a half percent yield for the market.

But the point is, if you got the markets returns and you just rebalance at the end of the year, the beginning of the year, you wouldn't have changed anything and you would have missed an opportunity at the end of the first quarter, the end of the second quarter to lower your stock expo, you know, to bring that stock percentage down, to buy some fixed income.

And then at the end of the third quarter. To buy more stocks at [00:50:00] the bottom and then when the market went back up, you would have benefited from that, right? So it helped you reduce some of the downside. And again, most people might not have the time to do this on a quarterly basis, but you can see the benefit.

And the more you own things like ETFs, the easier it gets. You just have, you know, half a dozen things to deal with instead of 50. But dropping back down to that ground level, Jeff, I just want to say the individual stock level of like reducing exposure as part of a rebalancing mechanism can be a really useful way to like simplify your process.

And also like deal with that. This stock is I'm not able to sleep well at night because of this stock, because if you use it as a rebalancing mechanism, you're not selling all of it, but you sell enough. And some other things too, to kind of help with your rebalancing it's, you're still going to own it for the longterm if you believe in it, but it's also going to help you with your overall longterm goals and more holistically managing your entire portfolio through, through bull markets and also through bear [00:51:00] markets.

Jeff Santoro: Yeah. So. As we kind of wrap up here, I'm trying to think about if I were to summarize my way of handling exuberant markets to use a different adjective, I think I'm a little bit more judicious about what I buy and when I buy, I try to be a little bit more conscious about valuation as it pertains to the idea of what's multiple expansion and what is true business, you know, growth.

And the other thing. I think I'm, I find myself doing a little bit more of is going back to kind of how I used to invest, which is taking slightly smaller bites of the stock pie. Yeah. You know, whereas if it's the middle of 2022 and I have high conviction, I might buy a big chunk of a stock. And if it's now, and I have high conviction, I might buy a little less of a big spot because I'm always trying to hedge against the, the possibility that I'm about to overpay for something.

Yeah. But other than those things, I don't. I think I drastically [00:52:00] change what I do and I think that's, I don't know, of course I think it's the right thing to do because that's what I'm currently doing, but to me, it's like my framework doesn't change drastically depending on what the market's doing.

But it's sort of marginal tweaks, I guess, is the best way I'd put it. 

Jason Hall: I mean, a good, a good framework is going to kind of help you think through and account for the market conditions, right? I think that's a big part of the point of using frameworks to think through those things, because it pulls you back to your goals and emphasizes the things that you're, you know, good at doing.

And again, helps you to think about. Not rules, but what is in my best interest? What is going to make sense for the longterm? If I sit back and look at what I'm trying to accomplish, you know, not what is the market going to do, but what am I trying to accomplish and that's, and that's going to help you and that's going to help you win, I think, is, Maybe the most important thing because it's so easy to [00:53:00] fall into that Precision fallacy jeff of I gotta get this perfect.

I gotta get the right price. You're gonna screw up You're gonna overpay you're gonna buy stocks that go down. You're gonna buy a stock And then within two months, it's going to be down 30%. It's inevitable. It's going to happen circling back around to what is the stock going to do over you know, 30 months or 30 years, ideally, right?

Focusing on that is so much more important. The mindset stuff, that's where you're going to get through these periods. I'm going to say something brilliant. You ready? I'm glad you're sitting down. 

Jeff Santoro: Our 131 episodes in, it's finally happened. 

Jason Hall: Yeah. Yeah. It took me a while. The thing that you do the most as an investor is not buying or selling stocks. It's just owning them. It's just owning them. 

Jeff Santoro: It's not that brilliant, but I agree with you. 

Jason Hall: People don't think about it that way. 

Jeff Santoro: Yeah. if I, if I can pat myself on the back for any growth as an investor, I think it's that. It's the idea that I [00:54:00] finally, I feel like I'm better, not perfect with, but better with the idea of no, nothing is the right thing to do right now.

That's probably the best, the best thing to do. It's just nothing. 

Jason Hall: Yeah. It's just on the business. Just own it. 

Jeff Santoro: Let, let the business do the hard work. 

Jason Hall: Yeah. 

Jeff Santoro: So to wrap up here, I have a question that you were not prepared to answer, but I know you will anyway. That's right. What is- 

Jason Hall: Lack of preparation has never stopped me from answering a question, Jeff.

Jeff Santoro: I know, I know. What's a stock that you would not buy right now under any circumstances because it's too expensive, but you would absolutely Buy a ton of it if it were let's just say 50% cheaper tomorrow.

Jason Hall: Okay, this might be controversial I'm gonna say Mercado Libre. 

Jeff Santoro: You think it's overpriced right now? 

Jason Hall: I think it's overpriced based on some concerns I have about potential financial risk from their lending business. 

Jeff Santoro: Interesting. All right. Mine is Costco. Yeah, I could get behind that. I just can't. I mean, I, I would overpay for Costco, but not like I haven't [00:55:00] looked recently, but last time I looked, it was like 50 times earnings or something insane. I'm not paying that much. every single time I go to Costco, which is. I don't know, once a month, maybe twice a month. I have the same thought. I can't wait for this to drop 50% so I can buy a whole bunch of it. 

Jason Hall: 50 times earnings is just too much to pay for a company growing at 8% a year.

Jeff Santoro: Anyway. All right. A little stock talk here at the end before we wrap things up.

Jason Hall: Love it. Very good. Jeff, I think we're done. 

Jeff Santoro: We're done. We did it. 

Jason Hall: Okay. Friends, as always, just a reminder that we love giving our answers to these hard, complex investing questions. And we hope you like to hear our answers. You have to remember, they are our answers.

You gotta figure out your own answers. You can do it. I believe in you. All right, Jeff. We'll see you next time. 

Jeff Santoro: See you next time.