The Smattering Podcast 71: What Are You Most Afraid You're Wrong About?

The Smattering Podcast 71: What Are You Most Afraid You're Wrong About?

Note: Transcripts are lightly edited.

Jason Hall: Hey everybody. Welcome back to the smattering where we ask the hard questions about investing. I'm Jason Hall joined by Giuseppe Santoro. My good friend, Jeff, the voice of the people. Hey buddy.

Jeff Santoro: Hey, how are you friend?

Jason Hall: I'm fantastic. We had a lot of fun last week with our good friend, Bill Mann of the Motley Fool, the international man of all things weird. That was a great time. Just me and you this week.

Jeff Santoro: Yeah. So sorry, everyone. You're stuck with the two of us, but if you didn't hear last week's episode with Bill, go back and check that out. It was a lot of laughter, a lot of fun and really good insights on. Not only international investing, which was the theme of the pod, but just investing in general, Bill's a super smart guy and glad we had him on.

Jason Hall: Me too. Me too. Jeff, I'm glad you're here. Everybody listening. I'm so glad you were here as well. I want there to be more of you, Jeff. How can we get more of [00:01:00] you's people's listening to our fun little podcast?

Jeff Santoro: So, the best way for more people to find the podcast is if more people who regularly listen do us a favor and give us a star rating and or a review on the podcast apps.

That really gets us in front of other people when they search for investing podcasts on Spotify and Apple Music and all the other players. So, again, we have way less reviews than we have listeners. So if people could do a solid and help us out in that way.

Also, if you're on social media, if you use Twitter and you see us post about the show, if you can give us a retweet, , maybe someone in your network is interested in checking it out. But those are the main ways for people to help us spread the word.

And also, I just want to plug we don't talk about it probably as much as we should. We are better talkers than we are marketers. But we have a newsletter that you can subscribe to. The link is in our show notes and on our social media.

It gets you a transcript of the show every Saturday and it also gets you a [00:02:00] newsletter on Sunday where Jason and I write about whatever the heck we feel like. So if you're interested in that, go ahead and sign up spread that around to your friends and family too. And that would really be great.

Jason Hall: You can one other thing we don't talk about this in very much, but I think we should talk about a little bit more. Jeff is people should print flyers. And give them to their neighbors and take them to church.

Jeff Santoro: Yes, flyers is definitely the way to spread the word for sure.

Jason Hall: Fill, fill your kid's backpack.

If there's any space in your kid's backpack, there should be flyers in there and they should, they should give them to everybody in the school. The kids too, teachers, everybody.

No, I'm kidding. All right, Jeff, we've got a, we've got a kind of an interesting topic lined up. I don't know if it's really going to be a fun topic. I think it's going to be a good, a good discussion. The title for this week's show is what are you most afraid you're wrong about?

Jeff Santoro: Yeah, this will be another financial therapy session for us, but I, I don't, I think if you're not at some point worried you're wrong about some aspect of your [00:03:00] investing, you're probably too confident.

Doesn't mean you act on the worries, but I do think that you should at least question things and have moments of doubt that shows that you're, you have some humility and that you realize that no one has all the answers. So we're going to talk through some of the things that we are most afraid that we are wrong about and we encourage our listeners to, send us an email or a tweet and let us know if they agree with what we came up with, if they have their own things.

So we bucketed these into sort of big ideas and we're going to just go back and forth. I'll start Jason with the first one and you can tell me what you think about it. So when it comes to your investing strategy. Writ large, just your whole strategy of investing. What is the thing that you're most afraid that you're wrong about?

Jason Hall: So first I want to go back and talk about what my investing strategy is. I don't think I've really talked about it specifically in a long time on the [00:04:00] show, but I kind of take a barbell approach. If you watch a lot of our videos particularly the ones I do with Tyler Crowe, I talk a lot about like energy companies and dividend stocks and that kind of thing, and one end of the barbell and from like a dollar amount perspective of my invested dollars, this is the bigger end. It's not a 50 50 balance weight on the barbell, but it's mostly kind of those stable dividend payers, dividend grower stocks, right? Because I know over time they're going to generate a reasonable rate of return. And I'm going to get those cash flows. Those again, not guaranteed at a company level, but in aggregate, the dividends are pretty safe across the companies. And it's a pretty good chance that historically they're going to grow the dividends faster than inflation. And history has shown that that's been a pretty good strategy to beat the markets over the long term. And definitely just a good way to make money.

And like one of the things we talked about on a recent show was,[00:05:00] what's your acceptable rate of return, you know, kind of working backwards from whatever your number is at the end of your financial goal. To what is the acceptable rate of return based on how much I'm contributing, how much I have now over the next five, 10, 20 years. To get to that, to, to reach that goal, what is the acceptable number. It's one of the ways I try to get that acceptable number.

Then the other end of the barbell is more of a growthier side. These are newer companies. These are companies that aren't paying dividends. They have better things to do with the capital, like hiring more employees, building more factories, investing a ton in R&D to improve their products and get, build stronger, durable, competitive moats, all of that stuff, right

. So, so I tend to be far, I tend to take on more risk in this area. I'm more likely to buy companies like Confluent, for example. That's disrupting and bringing something new to the way companies store and use data. They're they've been burning cash like crazy, right? But I still think that they're doing [00:06:00] really great things. And like we talked about on a video we did with CrowdStrike recently, they're going to at some point, they they're going to go from losing money to a cash cow. So I'll take on risk in that area. And it's a smaller is in terms of percentage of dollars that I invest. It's a smaller bucket. So that's my strategy.

And Jeff, I think the best way to, to, to answer the question is what am I most afraid that I'm wrong about is I'm, I'm afraid that I'm going to be wrong with interest rates having gone up so much that I'm going to be wrong about those dividend stocks that high yields and fixed income is going to cause like all those dividend stocks to be underperformers because the prices are not going to go up as much because there are safer yields investors can get so that that's going to underperform and then that on my growth side, those high tech companies that are still burning money or may need to raise more capital because the cost of capital has gone up. [00:07:00] That they're going to underperform.

And that I've just, I've missed the signal and this change of cap- because, my entire investing career essentially has been in this free money, cheap money environment is that I'm just going to have gotten it wrong about where the opportunities are.

Maybe I need to be looking for deep value and I'm not really a deep value kind of investor. That my two strategies that I feel like are complimentary are both going to be bad for the next 10 years. That's my, that's my worry.

Jeff Santoro: Yeah. That's interesting. I, I kind of have that worry too, but it's not the one. It's not this. It's kind of the same thing, but a little bit different. So I'll go over my strategy real quick too.

So the vast majority of my investment dollars and my wife's investment dollars are passive. It just goes right to index funds in our retirement accounts and we don't think about it or do anything with it. Somewhere between 10 and 15 percent of my total portfolio is in individual stocks.[00:08:00] 

That's what I focus on all the time. That's the fun part. And I have sort of a barbell approach with that part of my portfolio as well. I have a bunch of stocks that I consider to be my core growth stocks, and I have a bunch of stocks that I consider to be my... They used to... I started that part of my portfolio to be my beat my mortgage rate portfolio.

The whole idea was, can I put together a basket of stocks that can earn more than the, I don't know, 2. whatever I'm paying for my--

Jason Hall: Back when money was free. Right, right. And we thought it would stay free forever. And we were, we were wrong. So you, you've for good reason, you've shifted the focus of those investment dollars.

Jeff Santoro: Right. So I, what I ended up do- ended up doing it for that reason, but what it ended up being was sort of the safer side of my portfolio, just like the barbell. It's a lot of dividend paying stocks. It's a lot of more reliable blue chip kind of companies. All my REITs that I own are in that [00:09:00] that basket.

So, it's actually done better as a, as a group than my other one, but that's partially because it, it really held up better over the bear market than my other core portfolio did.

So the thing I probably think the most about, and I'm probably most afraid that I'm wrong about, is my basic strategy of dollar cost averaging into stocks every single week. And going back and forth between that core portfolio side of the barbell and that more reliable dividend paying side of the portfolio. And so I have a way of figuring out like over the course of a month, more money goes towards the growthy ones than the safer ones.

But I buy every week. So I'm constantly trying to think like, okay, what's, what's, what makes sense to buy today? I do second guess it sometimes because when I look at something that really ran up and, I say to, of course, I say to myself, well, that purchase I made in [00:10:00] January of 2023, if that had just been a, you know, a percentage of my portfolio, that would be up 120 percent and not, all these little bits of purchases I made across the side.

But then on the other hand, when it goes down, I feel better about myself. So, but I could be wrong. If I end up finding out 25, 30 years from now that I'm actually a really good stock picker then I'll be mad at myself for not having had a little bit more guts and

Jason Hall: Narrator: He wasn't a good stock picker.

Jeff Santoro: If I end up being average, I'll be happy that I was a dollar cost averager. So

Jason Hall: it's interesting, Jeff, because you know what that reminds me of? It's like, it's, it's like the, the, the, the eating, dieting, weight loss theory. You remember you go back, I don't know what it was, maybe 10 or 20 years ago, there was this idea that you should have, you should eat like small meals, like every hour or two, you should be like little small meals. And now what is everybody talking about? It's it's fasting, right? It's it's, what do they call it? [00:11:00] What's the intermittent fasting, intermittent fasting, right? And that's actually, I do that.

I've been doing it for years just cause like I've never been a big breakfast eater during the week anyway. So it just works out. It's like, you know what? I don't need to eat after eight o'clock because-

Jeff Santoro: Isn't intermittent fasting, just sleep?

Jason Hall: Yeah, that's basically it. It's basically, well, it's no, it's, it's how we evolved. It's like we went to sleep, so we stopped eating and then we got up and well, we ate all the food before, and now we got to go find food, right? So, yeah, yeah, yeah.

But it's like, you're trying to figure out Jeff. Cause you know what, right now you're, you're, you're, you're the old fad of eating little tiny meals all the time, and maybe you need to be an intermittent faster investor.

Jeff Santoro: Yeah. I don't know. We'll see. I have a feeling it'll evolve over time. The other thing I'll just mention real quick, and it's tied into the second half of our show. We're going to talk about cash after our break. So stick around. We have a nice discussion about how much cash you should need coming up later.

But the other thing I do think that's related to this whole buying every week dollar cost averaging strategy that I [00:12:00] have is, should there be some weeks where I just don't buy something because nothing's compelling or I feel like everything I want to buy is overvalued. And maybe I should just park that cash and buy twice as much next week or, or three times as much three weeks from now when I don't feel like there's a really compelling thing I want to go buy.

So, that, those are the kind of the two things I think of the most in terms of I'm wrong about something about my strategy.

Jason Hall: So I, I like that a lot, Jeff, because it's, it's interesting because, you know, you've kind of, and we've almost branded you a little bit on the show is the guy that buys something every week and your process has already evolved.

You've talked about it in the past couple of months here on the show that you would buy several things, right? You take these itty bitty tiny bites of multiple stocks and you've started to find more of your own conviction and now you buy a stock, right? Generally, it's you're, you're putting more, you're risking more capital with each decision, right? So you're finding that [00:13:00] already.

So, I think it's really important because it would be really easy because you've publicly, you know, you've put your, your flag on the hill of the guy that buys every week. And you've already started to evolve that, right? And I think that's, that's really healthy because you have to do that because if something's not optimized, you need to change it, right?

You can't not change it just because it's the way we, the biggest mistake we always make is doing something because it's the way we've done it.

Jeff Santoro: And I think the big, the biggest reason I buy every week is not because It's not, it's actually less that I'm scared to make a decision and, and go, go into a stock with a little bit more conviction or a little bit more capital. It's that I feel like it prevents me from feeling like I have to time the market. Right. I feel like if I, if I afforded cash-

Jason Hall: You, you tend to, I believe you've told me like you prefer to stay invested, right versus

Jeff Santoro: keeping large amounts of cash.

And I'll talk [00:14:00] about that later because I do have I do have like a cash strategy in my back pocket that I have used before, but I'll save that for later.

So let's let's go on to the next thing. All right. So we talked about just our strategy sort of. Overall, big picture. What about when it comes to allocation? When you think about how you make allocation decisions, is there anything you're afraid you're wrong about?

Jason Hall: Yeah. And it was, we talked about part of it in the investing strategy, but I, I buy individual stocks. That's a hundred percent of my, and, and my wife's invested wealth is in individual stocks. No index funds.

No bonds, which probably going to change because partially because of age and, you know, getting closer to some financial goals. And the fact that bonds are a lot more useful as a, as, as a wealth building tool now than they were even a year or two or two years ago, certainly. So my biggest concern is that, you were making [00:15:00] the joke about finding out in 20 years, whether or not you're a good, a good stock picker to a certain extent, kind of the same thing, because I've certainly evolved as, as an investor.

Like again, this spring, not to keep bringing up this old saw about me buying bank stocks, but yeah, I don't know.

That's wake up, Jeff, wake up, wake up, Jeff. Okay. There you go.

But I don't know that that's the kind of thing that I would have done four or five years ago. I don't know that I would have seen that opportunity and I'm pretty sure that it's going to prove out to be an opportunity. But maybe the reality with rates having shot up so much and the, like the cost of capital impact on banks is there too, right?

We think it's like rates are higher. It's going to be good for banks, but you know what, if you're a JP Morgan or you're a Truist or one of these other M&T Bank and you got a bunch of low yielding 30 year mortgages that you have sitting on your books and you've been getting away with paying shit to your depositors and yield [00:16:00] for 20 years, and you're starting to see your depositors leave because they can go to a really good online bank that has all of the bill pay and all the same stuff that you do. And only actually get real yield, maybe I'm wrong, right? Maybe I just missed that signal so much that what I think is deep value is, is not going to be right.

That I'm just, I'm afraid that, that my approach is just going to, is going to be a mistake. I've benefited greatly from that low interest rate environment. It's more of a stock, it's more of a stock pickers market right now. So I'm also going to find out whether or not I'm as good of a stock picker as I like to tell everybody I am.

Jeff Santoro: Yeah, I was interesting, I think, definitely for me, but I think to a larger, to a large extent for you as well, even if maybe you're not super conscious of it, I completely grew up over the last three years in the world of like an [00:17:00] understanding investing. In, in this crazy time where it was, everything was great, zero, low interest rates, pandemic, pandemic recovery, bear market, interest rates rising.

But I think to some extent that's true for you as well, because... Prior to this last year or so, interest rates were pretty low for a really long time.

I mean, not zero, not where they got.

Jason Hall: No, I said, I mean, I said as much right before this, right? It's absolutely true.

Jeff Santoro: So that's where, so that's, for me, it's like, I finally started to understand like how much, how much do I want in stocks? Do I want bonds? If I do, how much, how many, where do I want to keep cash? I feel like I finally figured all that out and now it's all being thrown into question.

So I think I'm worried about allocation in the same way you are. Just as an example, my, my retirement account, the passive piece is in four index funds. It's heavily weighted towards stocks, but there is some bond index fund exposure, both international and US bonds.

And you and I had a [00:18:00] conversation about this a couple of weeks ago. I chose that allocation at the worst time, basically right when bonds started being a terrible investment along with stocks over the last couple of years. And now I'm, of course, I'm in that position of was I wrong? Am I just, is this just bad timing? Will this all shake out later?

So that's something I, I do worry about. I, that I could be putting too much or too little in bonds. I'm pretty comfortable with the amount of having cash right now because that's like a secured yield. I know what I'm going to get at least right now for that. And if that changes, I can switch it.

And I guess the other thing is just the amount of money I put into the passive part versus the amount of money I put into the active part of my portfolio is something I think about a lot. I leave it more weighted towards the passive as a hedge against myself. But again, as I learn more and I, I feel like, am I leaving some potential gains on the table because I know the passive part could potentially underperform my stock portfolio if I do a good job at the stock [00:19:00] portfolio.

But again, what if I don't do a good job with it? So, yeah, those are the allocation things I struggle with.

Jason Hall: Yeah, it's, it's just, that's an interesting environment that we're in right now. And I've, I keep pretty decent records. I've kept very good records really since 2011, 2012, and I've been able to pretty consistently outperform the market and I don't want to, I don't, this is, of course, this is going to sound a little bit like bragging, but like, if you think about the returns of the S&P over the past, 10 or 12 years. It's been a wonderful period, like compared to historical averages, like total returns, 13, 14 percent compared to around 10 percent historical. That's that's like 35, 40 percent better than the market's average, right? That's incredible. And I've been able to do just a little bit better, not a ton better, but a little bit better.

Also largely not owning Apple, I owned Apple for a few years [00:20:00] at one point. I own Tesla for a very small part of the early part of its run. I've owned Alphabet a couple of times, never for an extended period of time. I've never owned Microsoft. So you look at the biggest stocks by market cap, the ones that if you bought the index funds, you, you did really well, largely because they really lifted the market. They were a lot of those incremental gains.

Now I've been able to do a little bit better in the market, not owning those particular stocks. And like, I wonder if like continuing to not own those particular stocks, because we see how incredibly profitable those businesses are, like in terms of not allocating to those mega caps that have been huge winners. Is that's, that's clearly been a mistake, even though I've done better, it's been a mistake. So is it going to continue to be a mistake to not, to not allocate to them? I continue to wonder about.

Jeff Santoro: Yeah, I, and that's where I'm in a different boat because I don't own a lot of the mega caps. Well, actually, I own probably more than I'm [00:21:00] making it sound like.

Indirectly because of your, your. No, that's what I mean. The reason I haven't. So, the reason I've stayed away from them as individual stock purchases is because I know I have enormous exposure to them in, in all of my other index funds. Anything that's a stock based index fund.

Jason Hall: I think you have adequate exposure to them.

Jeff Santoro: I mean, if you, I did the math once. I mean, unless I, unless the math doesn't work like this, but if you take like the dollar amount of the index fund and divide it by the percentage of the index fund that is Apple as an example. That's a way bigger exposure to Apple than I have in actual Apple stock.

Jason Hall: Well, there's a multiplier you also have to use. So it's not exactly the number.

Jeff Santoro: But I think it's directionally correct. So anyway, yeah, I, that's something that I, and I, the other thing too, that I mean, I thought about, it's a little bit related as you were talking. We've talked earlier about, you know, the degree to which beating the market matters. And ultimately, I guess, if you reach your financial goals, it doesn't .Like if you can retire comfortably at the age you want and live a happy life and underperform the [00:22:00] market I guess you still won.

But one thing I do wonder is if we're going to, if the next 10 years that market averages 2 or 3 or 4 percent a year annualized versus what we've seen in the past 15, 20 years. Does that make your ability to beat the market even more important? You know what I mean? Because you're going to get less of a return.

Jason Hall: Exactly. Well, and you know, speaking of allocation, you know, part of, part of my strategy is around cash and like that 5 percent number has historically been my number. And I'm steadily moving that like in my head to, and again, this is cash is a percentage of my invested wealth, right? I'm really feeling like 10 percent is the, is the number that I want to be going forward because I am a little concerned about below average returns for the market in general.

And the reality is that as much as it makes your outperformance that much more important, if the market generates seven or 8 percent [00:23:00] returns over the next 10 years or 5%, even let's say that's just, it's a very below average period, which historically is not that uncommon coming out of really, really good bull periods. Getting an extra three or four percentage points a year you're still looking at underperforming the market's historical returns.

And thinking about having more cash. So you're talking about yourself with your, your investing strategy, thinking about keeping more cash. And maybe instead of being the guy that buys every week, sometimes you buy cash that week.

And then once a month, or, you've got that spare capacity. When you do see the opportunistic buys, the deeply discounted, whatever you, you stumble across those little more rare opportunities that can really impact your total returns over time. That's the sort of thing where having extra cash can be really useful. And in this environment, you can get something for the cash.

But here's the thing, sure. It's 5%. That sounds great. [00:24:00] And that'll be great if we see a below average period for the market, and we do see some opportunities to deploy deeply discounted prices, if we get market declines or whatever, but still 5% is half the market's historical returns.

So I'm trying to avoid the mistake of falling in love with cash at the same time.

Jeff Santoro: Yeah. Yeah. All right. So what about when it comes to the way you approach investing with your emotion, your mindset about investing? Is there anything when you think about that, that you're afraid you're wrong about?

Jason Hall: Yeah. And one of the things that, that like, this was the, to me, as I've been thinking about this episode, since we've, this was, we put this on our radar months and months ago, really started to plan it out in the past week or so.

But one of the things that I came to realize is that there are generally two periods of time that people, investors are absolutely sure they're right [00:25:00] about the market. And one of those is when they're absolutely wrong. When the market tends to be at its highs, the, the animal spirits are in control and sentiment is really high. Like you look at headlines in the market, market at all time highs, how much higher will it go? You see those, those headlines, the correlation of those bullish headlines near market peaks is very, very, very high, that you get a decline.

But I think one of the things that happens too is the more seasoned you become as an investor, you convince yourself more and more often that you're, that we're at, that we're at a peak, you know what I mean?

You can, because you always see the reason for the decline and you're like, you just talk yourself into it.

And my biggest fear is that I'm going to, that the thing that I'm going to be wrong about is I'm going to shift to a higher cash [00:26:00] allocation strategy at exactly the wrong time and the market's going to recover and we're going to see things like AI and more automation and reshoring and like the second wave of, of economic growth as Bill Mann mentioned, Mexico, right? As we start to see some of these developing economies that are just kind of on the cusp, just roar to life. And I'm going to miss those opportunities because I'm going to be so focused on the same boring stuff.

Jeff Santoro: Yeah, I think for me, I will always be second guessing everything. I mean, go back and listen to the, I don't know how to invest anymore episode back from, I want to say it was like January or February and we just did a show where I was like, everything is wrong and I'm terrible.

And I worry that at some point I'll think that and then make a decision based on it. Like I hope, like a bad decision. I hope I don't do that, but I'm worried that at some point maybe I'm so lost that I do. [00:27:00] But I think the, when it comes to like how I manage my emotions, one thing I do worry about is having learned so much in the last couple of years about valuation and being careful and price matters and all that kind of stuff.

I do wonder if that's going to keep me from missing out on some of those high flying stocks that are never cheap. If you go back and look at, you know, a lot of big winners, you can find points where you could have bought them at what were considered or what would still be considered lofty valuations. And because the companies were so great, it worked out.

Now you have to be right, it has to be the right company. It's not every company I'm speaking in very, I don't want people to overgeneralize what I'm saying. But I think the, the downside of learning more and being really careful and understanding valuation and things like that is you could end up actually being too conservative in certain things.

So I do worry about emotions in that sense. And I also, [00:28:00] I've wanted to do an episode for a while about trusting your gut. Or not trusting your gut. We should think about doing that in the future. I think it'd be an interesting conversation.

But I think when I started, I was a little bit of a, more of a gut investor. And that came from a point of having no actual knowledge. And so then you, you, you tell yourself, ignore your gut, use your brain when you learn more. But I don't know, there's been a few times, and this is completely anecdotal, but there's been a few times where my gut has told me to buy something and I didn't for whatever reason.

Then I go back and look. Six months later, and it's up 80%. So I'm like, man, I should have trusted my gut. Now, what I don't do is the opposite, which is remember where I thought I should buy something, go back and see that it was down 80%, but I, I don't know, it's just that whole balance between like your brain and your gut and what you've learned versus how you feel about something. I think that's...

Jason Hall: Yeah. One of the things I've [00:29:00] had to deal with my entire investing career is that I'm very optimistic about people and about humanity, and I'm very pessimistic about markets. So, having to like blend those two kind of built in biases that are emotionally based, I guess, is, you know, I just hope I can continue to kind of find the balance there.

Jeff Santoro: Yeah. Yeah. So one of the things we had on our list here was, you What are you most afraid you're wrong about when it comes to beating the market? But I think we covered that in the earlier answer. So I'm gonna pivot to something different. What about specific stocks or sectors or parts of the market like if let's get down to that level.

Are there any specific stocks that you are afraid you're wrong about that, you can think of off the top of your head?

Jason Hall: Well, I mentioned banking, right? So I've already, I've already talked a little bit about that and you can go for those of you that just listen to podcasts that don't watch this on YouTube, never been to our YouTube channel, but I've done a couple of videos recently with [00:30:00] Tyler Crowe.

I've followed the renewable energy space for a very long time and kind of the realities, like the solar panel makers and a lot of like the solar companies have been very bad investments over the longer term, like the past 10 years. And we've just seen a recent shift to where the industry is starting to consolidate and there's opportunity there.

But the one area that's always been really appealing to me is these yieldcos. These are companies that they, they, they invest in and own and develop like the renewable energy assets. So like the, the wind farms and the solar farms sign these long term contracts and sell the power. Yield is that you own them for the dividend that they pay and they grow the dividend over time, right? That's the whole like the thesis.

The, the cost of capital for those businesses has gone up tremendously with interest rates having gone up. Part of the thesis for owning them again, the dividend yield. There's safer yield people can get now with T bills, you can get a 30 day treasury giving you over 5 percent yield and that's as safe as it gets.

And as a [00:31:00] result, the stock prices for a lot of those have fallen just as we've seen with like REITs and other commercial real estate has been undervalued as interest rates have gone up. We've seen the same thing happen with these yieldcos.

Jeff, the problem is for the yieldcos to grow, they, they have to borrow money. Or, or issue equity, right? That's the two ways that they, they raise capital to acquire and to build and develop these facilities. So cost of capital has gone way up. And for some of these that are like subsidiaries of utilities and other companies like that, they're not as useful anymore because their dividend yields have gone up because the stock price has fallen. Interest rates have gone up. So cost of capital is higher.

And I think, I think that the thesis still holds pretty true. Particularly like for Clearway Energy is one that I've talked about a lot and I own a decent [00:32:00] amount of and then Brookfield Renewable, you know, I'm a huge fan of Brookfield. And partly because I think even with cost of capital higher, like the way that they're they're subsidiaries of Brookfield and Clearway is, a subsidiary of a private investment I can't remember the full name of it, but it's a private investor that owns it.

I think that they're like, their thesis is still. But if I'm wrong about that, that's a pretty sizable amount of my wealth that's going to underperform.

Jeff Santoro: Yeah. I thought about this question in two ways, both like sector or type of stock. And also I have a couple specific examples.

So the big one for me is still expensive tech stocks is the best way I can put it. Because so much of my portfolio was tilted towards those during the crazy run up because I was new and everything was exciting and I was buying things at 60 times sales and doing crazy things, which is part of the bubble. [00:33:00] And then everything crashed and I realized I was dumb and bought things that were too expensive and I learned a lot.

But I know it, some of those companies will end up being okay. They'll shake out, I'll buy them at lower valuations over time and kind of shake, shake out my cost basis and I'll be all right. I just worry I'm wrong about which ones I've chosen to discard of and which ones I've chosen to put more money into.

And just, I worry about that expensive, high flying, high multiple tech sector in general, is that, is that just a product of the last 10, 15, 20 years? Is it going to be a disappointing return from here on out, or is this just a dip? So I, I, that's one, like, sector wide thing I worry about.

I have two specific stocks that I just, I can't... I think I'm right. I think they're going to be great, but they're just so out of favor right now that I can't help but wonder, maybe I'm wrong. Maybe everyone is seeing something that I'm trying to ignore, and that's [00:34:00] Boston Omaha and Outset Medical, which are two that are featured in, well, Outset is in my SmatterFolio and Boston, Omaha, I think is the one that you and I chose together.

And I, I go back and look at Boston Omaha, and I look at all of the businesses and how they're doing well and growing and the asset management part of the business is exciting and new. And I'm interested to see where that goes. But it's like every time I open my brokerage account, it's down another 5 or 10 percent and I just don't get it.

There's people we know that are big fans of it. So there's, I have like that confirmation bias going for me. But I think anytime you believe in a stock and the market has it out of favor right now, there's like two sides of how you think about it. One is I'm wrong and they're right, or this is my moment to be a contrarian and it will pay off down the road. And I, I just worry that I'm wrong.

And with Outset it's a different story. [00:35:00] It's still a newer company. They're still building their market of selling these home and acute dialysis machines and. I love the story. I think what they're doing is great. It makes perfect sense to me to find a better, more convenient, and cheaper way for people to get dialysis. Like, I can't see how that's wrong.

But again, it's just down and down and down and down. Even when they put out decent results, it doesn't seem to really jolt the company. So, I, those are two just, I mean, I'm sure there's more if I go digging through my portfolio.

But, I think the general theme with all of what I just said is, when something's out of favor, it's hard to be a contrarian. I mean, I think you have to really have a reason that you believe what you believe, and you have to stick to your guns, or else you just end up missing out on opportunities. I don't know what you think about that.

Jason Hall: So, you know, a couple, a couple of things, Jeff. First of all I can't remember if it was Charlie Munger or if it was Buffett that said it, that diversification is a [00:36:00] hedge against ignorance. And to a certain extent, I think there was, it was kind of like a, meant to be almost insulting.

That, but it's true that the reality, especially it's just like a regular individual investor, we don't have the time. Even me, I can, I do this, you know, for a living, you know, I do a lot of other like writing and I can't research just for stocks I want to buy all the time. I don't have 40 hours a week to do that.

Is that you do still have to diversify and ignorance is a risk. You can't know everything right? It's a known risk and you have to accept it. But I think that the reality is that's one of the reasons why, thinking about it, like from a slugging percentage perspective is more important than batting average.

Not to use a bad sports metaphor for, maybe everybody here doesn't know what I'm talking about, but the idea is that with investing with stocks, let's say [00:37:00] Boston Omaha, the co- CEOs are actually really crappy capital allocators and it doesn't work out right. And that 30%, 35 percent of the stocks down is continues to get worse.

And the market doubles over the next six years, seven years, and the stock loses another 50 percent and it's down 80%. And the opportunity cost of that, cost of that is massive, right?

But out, let's say Outset's the one that they do figure it out, right? And like all the behavioral change and the realities that they're trying to change the way an entire industry does something. And it takes. And they, and they do it. And the stock is up 500 percent over that same period of time that Boston Omaha's down, you know, 80 percent or whatever. That's pretty good return just between those two stocks.

Jeff Santoro: So, yeah, but I think the challenge is like that, I, where I think about that worry is when I decide what to buy each week or where to allocate my money.

Jason Hall: No, I get it. I [00:38:00] totally get it. And, and the reality too, dude, is, thinking about Boston Omaha is a contrarian. Being a contrarian is actually a net loser, right? If you just look and think about the way the market has, has gone up, most contrarians have been looking at things like deep value and, and turnarounds and special situations and what's done well, even with the downturn?

The giant tech companies, that's the thing that's done the best. So being a contrarian is hard. It really, really is.

Hey, Jeff, I don't know about you, buddy, but it's kind of heavy. I need it. I need a break. Let's take a little break.

Jeff Santoro: Let's take a break. And when we come back, we will talk about cash and how much you need and how you should use it or how we use it anyway.

So we'll be right back.

Jason Hall: Hey, everybody. Welcome back to the second part of our show today, where we're going to talk about cash. How much do you need?

Jeff, how much cash do I need?

Jeff Santoro: So this is this will be fun because you and I have absolutely different answers. Cash [00:39:00] strategies. I have almost none. You have a ton.

People have heard yours before so I'm going to go first and I'm going to explain the way I think about cash. And then you can talk about all your crazy triggers that make you spend your cash.

So I stay completely invested in in my investing portfolio. So every week I invest in my wallet, dime that goes out of my accounts for investing gets spent within the month.

And I like that. I want it to be that way. Cause as I said earlier, if I started collecting cash, I would then feel like I need to decide, I need to be a market timer. That's how I would perceive it. Whether that's true or not, that's the way my brain would process it.

And I would inevitably be, have a day where I'd spend a lot of money and think, okay, I did it. I timed the bottom or, and then inevitably the market would fall and I'd call myself an idiot. So my regular buying is a way to [00:40:00] not have to make that decision.

But I do have sort of a, cash strategy that I have employed that I think I would in the future. And that's just to take extra money from my savings account and use it to invest.

So and here's why I do that. So I have a day job, which a lot of our listeners know. And I write and do some stuff on the side as a contractor for extra money. And because I enjoy it, but I have, I get extra money. I don't need that money to pay my bills. It's extra money if I didn't have it. I'd be fine. It's nice that I do have it.

So I save it. Or maybe we take an extra vacation or we go away for a weekend or have a nice dinner and I know, okay, I have this sort of side hustle cash that makes me feel a little less guilty about doing something fun with my money.

Jason Hall: So more of a, it's more of a side procrastination with you.

Jeff Santoro: All right, fine. But regardless, it gives me a little bit more money than I had without it. And [00:41:00] a couple times when the market was really in the depths of the bear crash throughout 2022, I took some extra money out of that kind of slush fund for my side hustle, put it into my brokerage account, and I bought some more stocks than I normally would.

So on my normal buying day, maybe I bought two or three things instead of one. And I use some of that extra cash. So I think I do have a cash strategy. But for me, it would really take, I mean, we would have to see significant. It's probably the same sort of triggers that you set for yourself. The market's down 10%, 15%, 20%.

I've learned enough over the last couple of years to know that a week when it's down 5, 6, 7 percent may not be enough for me to do something like that. But we go from bear market to bull market or the markets down 20 percent or, or if we hit like a huge crash, like something fast because of a pandemic or something, I think if I, if I had this strategy in place and I was an experienced [00:42:00] investor, I probably would have deployed it in March and April of 2020 probably not at the exact bottom, but a decent way down into the bottom or not too far back up.

So that's sort of the way I think about cash in the short term. And then also in like the extreme environments of a bear market or a big crash. And again, for me, it's not so much for having the dry powder for an opportunity. It's more about It prevents me from feeling like I have to time the market.

So I know you have a different strategy. You keep a lot of cash and you, I joked several episodes ago that you're sort of like a raccoon on meth and you'll, you'll just one day I'll, you'll I'll get a text from you and you'll be like, I spent X dollars or. I deployed 20 percent of my cash and it's-

Jason Hall: I just go on a stock buying bender.

Jeff Santoro: You do, you, you don't, you're like a monk for a couple of years and then you're like, then you're like a bachelor party in Vegas.

Jason Hall: And well, and it's, and it's funny, Jeff, because it, I haven't always [00:43:00] been that way. Five years ago, I was closer to the way you buy. I would buy wasn't, you know, every week, but you know, it was every month or two, I was buying something.

And the problem is that I was also, a lot of times I was selling or trimming something every month or two. I meddled way too much. And part of the solution for that with me is this is one of my needs for cash is by having some spare cash, I leave this, my longs in my portfolio. I leave them alone.

I just leave, I don't mess up a good thing because I'm trying to scratch up some extra money in the couch cushions to, to go get my next stock buying fix. I don't, I don't have to go on that , that I don't have to do those, those things before.

So, so how much cash do you need? That's the question that we have put forward.

And I want to talk about the first part of this first, Jeff. Is there's the cash for investing and then there's the cash for [00:44:00] the real world. And I want to talk a little bit about both because I think it's really, it's really important.

Jeff Santoro: Yeah. We should have started by clarifying that. Yeah. There is a difference between your safety net cash and your investing cash.

Jason Hall: So the safety net, ask any of the personal finance gurus and they're going to tell you, you know, you, you, you want to start, get, get to a months of expenses in savings.

So what's a month of expenses? Food, housing, and transportation, right? What do you need to cover those things? That's, you put healthcare in there as well, childcare and all this kind of stuff. So you cut it down. It's like, okay, I got about a week's worth of savings. Okay. Over the next year, I'm going to build up to a month. And over the next five years, I'm going to build up to six months.

You buy a house, you have kids, you increase it, get to a point where maybe at some point you have a year's worth of cash, in a worst case scenario, your spouse loses their job, you get cancer, you know, some really bad, [00:45:00] bad thing happens. You have a massive uninsured event, you have to replace a car, whatever it may be, right. You have a- the idea is, you have a bunch of cash.

And then, that's just when you're a regular working stiff. The closer you get to retirement, then the real world cash and the investing cash, Jeff, this is something I don't know if enough people really think about the line starts to blur.

Jeff Santoro: Yeah. They kind of merge.

Jason Hall: Yep. They, they do. Because you're, you're invested wealth, you're getting to the point where it's closer and closer to becoming real world money and you have to start stretching it out and thinking about, well, now I need like three years of cash. So I need to sell a bunch of stock.

And you ideally you do that over a 10 year period. You don't do it all the day you retire because, if you retired in, I don't know, March of 2009 when the Dow was down 57 percent from the all time high and it would take another three or four years to recover, that'd be a really stupid time to be raising cash from your retirement account, right? So you do [00:46:00] it over time.

But then there's the, the cash in your investing accounts, right? Your cash for investing. And I think how much you need there gets a little bit squishier, right?

Jeff Santoro: Yeah. And I think that's where, I don't know if need is the right word, like, because I don't think you-

Jason Hall: Oh I need that 5 percent cash.

Jeff Santoro: You do, but I don't think the word need is for, is the word for everyone. It's, it's how much, or maybe we need to add a qualifier. How much cash do you need for you, or something like that.

Cause for me, I don't feel I need any cash in my investing account. I feel like I can be fully invested. Whereas you feel like you need to have that cash. And I think that's just the difference between the two of us.

So maybe I don't know if that's the right question when it comes to the investing cash. I do, you bring up a really good point, though. We're not the people to give you this advice, but with anyone who's close to retirement, I think 10 years, especially five years, you really should talk to someone professional who can tell you, here's how and when and in [00:47:00] what way and how frequently and how far out you should start converting things into cash or at least converting things into safer assets. Maybe out of stocks into bonds or CDs or, things like that.

The other thing I want to say about real world cash, like non investing cash, savings, safety net cash, is this is something I heard on a podcast and I don't remember where years ago and it really resonated with me.

Beyond just saving for emergencies, you lose your job, your boiler breaks, you need a new car, all that kind of stuff. There's a lot of little insurance things you buy along the way that you can not worry about if you have a ton of cash in savings for emergencies.

So like an example I'll give is Apple care on your new iPhone. That's a compelling thing. People buy it, but I, I would venture to guess most people never use it. And that's why it's a moneymaker for Apple. But if you just have, if you had a year's worth of cash in the savings account and [00:48:00] you drop your iPhone off a boat, you can go buy another iPhone and it, that sucks-

Jason Hall: You stop buying AppleCare. You stop buying extended warranties on appliances and like big screen TVs and all that kind of stuff. You stop buying the extended warranty on your used car. That's a total scam anyway.

Jeff Santoro: Right.

Jason Hall: It's amazing, like, when you have money, how much money you actually save.

Jeff Santoro: Yeah, you basically self insure all of that minor stuff. Obviously, you don't want to self insure health insurance. But little stuff like that. So I just wanted to mention that.

But, yeah, so back to the investing cash piece. I don't know. I don't I just I don't know if like how much you need is the right thing, because I think it can vary person to person. I will say this, though, as much as I like to stay fully invested, I'd be lying if I didn't say there wasn't times when I wanted to buy more and I didn't have the cash and I thought about selling something so I could buy something else. So I get the impulse to meddle, Jason. I get it.

Jason Hall: FOMO is, is real. And again, this is, this statement [00:49:00] is obviously not direct advice to anybody. I'm just guy with a podcast. Don't, don't, don't, never assume that somebody with a platform actually has any expertise in what they're talking about.

But no, in, in all seriousness, I think if you, anybody that like, if you find that you are the kind of person that you regularly are looking at your portfolio for things to sell or things to sell some of to raise cash to go buy something else, then you need cash.

Jeff Santoro: Yeah, I would agree with that.

Jason Hall: And you are not retired, living off of your accounts where that's, you're going to be going through that. Like as a retiree, that's a normal thing to go through, right? Then you're exactly right, Jeff. If you're regularly contributing cash and you're still looking for more cash in other places to buy the things you're interested in. Yes.

Jeff Santoro: Yeah. So I think you were that person, right? I think you're, it sounds like your strategy-

Jason Hall: I am that person.

Jeff Santoro: Yeah. And it sounds like your strategy that you have now for cash is an out [00:50:00] growth of the fact that you were a meddler and you were selling things so that you could buy other things.

Jason Hall: Yeah, no, that's exactly right. So, and it's like, so I need cash, right? I think there's, there's no, and here's the key, right? It's the idea, and I mentioned in the first part of the show, trying to avoid falling in love with cash. I think that's really important too. I'm going to say it again here too.

We're getting great yields right now for the first time in most people's like investing lifetimes, my guess is for a lot of people. It, 5 percent is still shit compared to the market's longterm returns for stocks, right? So you can fall too much in love with cash and it can hurt you in the longterm. So finding the amount of cash that gives you the ability to not mess up a good thing, but it's not so much that it messes up another good thing, right? Which is the big, the big gains over the longterm.

Because you're, here's the thing. You go to [00:51:00] 20 or 30 percent cash because you think you're going to get that, when the market falls, you get that next bear market. You're going to go out there and you're going to load up and everything. What were you doing in December and January of 2022 and 2023, right?

What were you doing? Were you blowing through all of your spare cash and investing it? No? No? Then you don't need 30 percent cash.

Jeff Santoro: Well, the other reason just to be careful about falling in love with cash is, and I'm sure this is something you've thought of. You could, I think it's reasonable right now to sit for someone to say, you know what market's still kind of hot. I think there could be a, a recession. I'm just going to go, I'm gonna have a little more cash on hand. Like if I normally keep 3%, I'm going to bump it to 5%. I think that's reasonable, but there is a chance five years from now we are still without recession.

Jason Hall: That's why, that's why, because you know what, Jeff, I think that about the market every goddamn year.[00:52:00] 

Every single year, I think we're going to get a recession. This is finally going to be it. It's going to happen. Let me tell you, I thought in 2022, late 2021, we saw this huge run up and everything, and like all the stimmi money had been, had been largely spent. And they were talking about cutting this stimulus and people were having to go back to the real world and like a bunch of debt, companies had taken on a lot of debt.

You know what we got instead? A raging hot economy that gave us 40 year levels of inflation. That's the, we got the opposite of a recession, Jeff. That's how bad I am at this.

Jeff Santoro: Yeah. So. So it just, just to kind of wrap it up. It, that's why having frameworks, guidelines, rather than hard rules is probably, that's the thing we try to preach on this podcast for people to at least consider and think about.

That's why I like your, I like your system for cash, where it's based on if the market does this, I will do that. And I also like that, for you, I [00:53:00] feels like it's a range. I, I want to have around 5 percent cash. I want to have around 2%, you know, it's never like to the dollar this amount.

Jason Hall: What's when precision becomes harmful.

Jeff Santoro: Right.

Jason Hall: Yeah, exactly. So in those rules, just real quick, real quickly, if we do get a bear market I'm going to deploy half my cash. And because there's, you know what, the market's down 20%, there's probably four or five stocks that I love that are down 30%, right? So.

Jeff Santoro: Or 40 or 50,

Jason Hall: 40 or 50. Right. And you know, if, if we get a 10 percent decline before that, like I'm going to, I'm going to be looking because there's probably something I love that's down 15 or 20.

So it's using those round number, large market declines from recent highs to find better deals because the market gives you those deals during those periods, right? That's, that's. Those are my rough guidelines, right? Yeah. So, yep. Guidelines over rules, frameworks help you think they don't tell you what to do.

All right, Jeff, we did it again.

Jeff Santoro: We did it. We said [00:54:00] words.

Jason Hall: About things. All right, everybody, as always, just remember, we love to give our answers to these hard investing questions, but it is up to each and every one of you to find your answers or to go find an investing professional and give them money. And you can borrow their conviction and their answers. Only use ours if you decide that they're yours. All right, Jeff, do we believe in them?

Jeff Santoro: Always.

Jason Hall: Always. We believe in you. All right, Mr. Santoro. We will see you next time.

Jeff Santoro: See you next time.