Diversified Index Investing, AI Stocks & Market Downturns

Bob Neugebauer Welcome to the Idaho Post. This is your host, Steve Party. Bob, bringing you something a bit different today, as we have with us, a gentleman from the investment community who manages over four hundred and fifty million in assets and runs his own wealth management company, having spent thirty seven years in the investment business myself, I find his company unique in their approach to investing, and we are going to hear about that approach from Ben Warren, the gentleman who runs Tom Walker Wealth Management right here in Boise, Idaho. So without further ado, let me introduce Ben to our listeners of The Idaho Pulse and welcome, Ben, and thank you for giving us some time today from your very, very busy day. And I know our audience is going to be impressed with your investment philosophy. So let’s go. Let’s hear what you have to say this morning. And, you know, let’s start with your philosophy and we’ll go from there. How’s that?

Ben Warren Sure. So our our philosophy is based on just the long term track record of the, the markets. And so what we’ve seen historically is that stocks have generated ten to twelve percent rates of return historically, depending on large versus small companies. And bonds have averaged, you know, in the neighborhood of three to five percent per year. And so if we take a step back, ultimately, the only thing that matters to us as investors is our rate of return after inflation and inflation has averaged about three percent. So if we take inflation off of those numbers, let’s say ten percent for stocks start take that three percent off. We’re left with seven. Uh, start with five percent for bonds. Take the three percent off. We’re left with two. And it looks like historically stocks have been about three and a half times as good as bonds at building our real wealth. So for long term investors, we want to have a very diversified portfolio of stocks for their for their investment portfolio. The problem with stocks is that they’re very, very volatile. And in the short term they’re very unreliable. And so we have to have another part of the portfolio that we can draw the income people need from. Even in the midst of stock market downturns. And so that’s where we would hold very short term, very conservative bonds so that we can weather those kinds of storms that the stock market throws at us. And I can I can keep going, Bob, for, for just hours and hours. You tell me how deep into the weeds you want me to go.

Bob Neugebauer I want you to tell us how you reduce the risk in your portfolio, because I see that you spread it out quite widely and in

Ben Warren Yeah.

Bob Neugebauer many different areas. Uh, I think that’s important for people to understand most, uh, funds that have been traditional investors in stocks, purely stocks, um, have gone by the wayside when you look through the history.

Ben Warren Yeah.

Bob Neugebauer Uh, so tell us how you’ve changed that and

Ben Warren Yeah.

Bob Neugebauer how you actually look at somebody’s background, what they want, what they need, and why you do this diversification.

Ben Warren Yeah. And I think that last word you said there is the key. When we’re building portfolios, we we don’t want to bet on anybody’s genius. It’s not that those there there are not geniuses out there. It’s just that they are extremely difficult to find, especially in advance. And so, um, we want to have diversification. So when we build diversified stock portfolios, we end up owning over thirteen thousand different individual companies. We’re essentially owning all of the publicly traded companies that are out there with the exclusion of things like penny stocks. And so that’s how we would build a stock portfolio. But to, to determine how much of any individual person’s portfolio should be in stocks or bonds, we really have to, to start with a very rigorous financial planning process. And so we want to understand every relevant detail of our clients financial lives. We want to make sure that we have a very thorough understanding of what their financial life is, is going to look like in the future. We map out a year by year cash flow analysis of every inflow and outflow that we’d expect from their into their portfolio and out of their portfolio for the rest of their lives. And our rule of thumb is that we want to make sure that this is how we mitigate the ups and downs. We want to make sure we have the next five years worth of portfolio withdrawals as far away from the stock market as possible. Because like I said, in the short term, the stock market’s just not reliable. And so we need to have a portfolio, a part of the portfolio that we can draw from. Even in the midst of the really ugly moments that the stock market has about every four or five years. And so that’s where we would hold bonds. We would want to forecast exactly how much income client needs to take from their portfolio each year. We’d want to make sure that the upcoming five years, that amount of money is as far away from stocks as possible, and we usually hold that in very short term bonds and cash in order to make sure we can live through those downturns without ever needing to sell stocks while they’re down.

Bob Neugebauer And if you had somebody coming to you to set up a portfolio, what do you look at as far as their history goes and where they want to go? I mean, do you spend the time looking into their past and into what their future currently looks like? Or do you just kind of make a determination from where they want to be with retirement?

Ben Warren So it’s a little bit of both. We very clearly need to understand their goals, and we need to quantify those goals. We need to figure out exactly how many dollars they’re going to need each month from their portfolio in retirement to have the lifestyle that they need. And we can, you know, most people don’t just have that number off the top of their head, but we can help people back into that in usually ten to fifteen minutes or so. It’s not a not a terribly involved process, but we can we can get there. But the other part that really does play into a person’s investment life is their behavior. So most of the time, uh, Warren Buffett’s mentor, Benjamin Graham, famously said that an investor’s worst enemy is, is, uh, is likely to be himself more often than not. And that’s really true. So what tends to what tends to happen is that people shoot themselves in the foot. They may have built an incredible portfolio. They may have hired a financial advisor that has a wonderful portfolio. But if they panic out of good investments at the worst moments in the stock market, then they’re going to end up with a bad investment return. So their history, their mindset, their, their biases is really, really relevant. So we need to flush those out, flush those out in the in the onboarding process. We need to understand their experience with it. Have they had significant assets in the market in the midst of downturns in the past? How did they react to that? Do they understand the pros and cons of the of the reactions and the behaviors that they exhibited in those moments so that they’re if they did did have a mistake in the past, then that they’re not likely to repeat it, they’re not liable to repeat it. So, so yes, it’s both, we need to look at their past and we need to very clearly quantify their future.

Bob Neugebauer So when you look back at what’s been going on over the history, oh, let’s say of the last hundred years, um, and you look at the investment companies that have gone by the wayside. Do you think that your policies and the way you are investing your, uh, your client’s money is going to survive, as so many of the others have not survived. And why?

Ben Warren Yeah, it’s a it’s a great question because there’s been a tremendous amount of that. The reality is, is that, um, mutual fund companies go out of business all the time. Uh, mutual fund companies get or mutual funds themselves or exchange traded funds get closed down and their assets get folded into other funds because their performance wasn’t, wasn’t what the sponsor wanted it to be. So there’s, there’s a real risk with that. And I think that our approach helps mitigate that because we’re not betting on any, any one person’s genius. We’re not betting on my gut feel of the market. We’re not betting on a fund manager’s ability to read the tea leaves of the market or the economy. We’re not betting on those kinds of things because we are as diversified as we are, and we’re using index funds to get there. Um, those funds are just owning a list of the investments that are out there that are available. So, uh, you know, the best example of that, Bob, you, you know this, but maybe for your listeners sake, uh, an example would be the most famous index these days is the S&P five hundred. All that is, is a list of the largest five hundred companies in the United States. So if you buy that a fund that is tracking that index, then you’re just going to own those five hundred companies in in a very broad sense, that’s exactly what we’re holding. We’re holding index funds to get the full exposure of the entire stock market. That thirteen zero zero zero plus companies all around the world, every different industry and sector that you can imagine. And so we’re not betting on that index provider being a genius. We’re not betting on them being able to to see the future. What we’re betting on is that that they’re going to be able to help us get exposure to all of the publicly traded businesses that exist out there. And that’s a strategy that is really tough to do wrong. It’s really tough to fail at that. It’s very simple to understand what companies are out there. Let’s invest in those. So yes, I think that our investment strategy helps protect us against the, the possibility of, of funds going out of business. Uh, fund managers retiring, those kinds of things. Absolutely.

Bob Neugebauer So while you’re diversified through many, many different index funds, how many do you actually deal with right now?

Ben Warren Yeah. So in our stock portfolios, we use for mutual funds and through those four funds, and they’re actually exchange traded funds, but, um, through those four funds, that’s how we get exposure to those thirteen zero zero zero individual businesses all around the world. So we’re only managing four funds, but that gets us that really, really broad diversification.

Bob Neugebauer So you’re not actually looking at tens or twenties or thirty or forty different companies. You’re looking at four

Ben Warren That’s right.

Bob Neugebauer that,

Ben Warren Yes.

Bob Neugebauer that are, that are doing the managing. And I would presume that these have been reasonably successful over the years and have a good track record.

Ben Warren Yeah, we’re really pleased with it. Uh, we I mean, index funds are just going to they’re going to deliver you the return that the portfolio or that the index, the underlying index gets. Um, so, so our core of our portfolio is pure traditional index funds. And that is, uh, it’s just delivering exactly what we would expect. Of course it does. There’s no way for it to not do that. And then surrounding that, we use what I would think of as kind of an index two point zero or a, they’re called smart beta funds or things like that. Um, they’re just factor based funds where they’re trying to bias the, the, they start with the same kind of a list, but then they bias the portfolio toward parts of the market that have historically outperformed. And what we see historically is that smaller companies tend to outperform larger companies by about two percent per year. Not quite. Uh, and then value companies have historically outperformed growth companies by about two, two and a half percent per year. And then highly profitable companies have outperformed those that are less profitable by almost three percent per year. So we want to start by we use those funds that start by being very, very broadly diversified. And then they just bias towards smaller companies, value companies and highly profitable companies in order to capture those dimensions of outperformance. And, and that has been, uh, every one of those, those dimensions of, of performance ebbs and flows. Nothing in, in markets works all the time. If it did, no one would ever do anything else. And so they’re cyclical. Absolutely. So as an example, value stocks have been uh, have beaten growth stocks over the long term. But in the last three, four, five years, technology companies have really led the way. They’ve dramatically outpaced value stocks. But this year, that’s very much reversing. So we’re seeing value stocks outperforming by about, you know, eighteen percent versus growth stocks this year in the large cap space. And so, uh, it ebbs and flows, but we capture those long term dimensions and we’ve been really pleased with it over the long run.

Bob Neugebauer Let me ask you this. We we’ve seen this tremendous movement in the AI end of the business and technology and

Ben Warren Mhm.

Bob Neugebauer the companies that are literally spending billions and billions of dollars to

Ben Warren Right.

Bob Neugebauer produce this new technology. Um,

Ben Warren Yeah.

Bob Neugebauer have you, uh, looked at this and do you invest in these types of companies or have you shied away as they have risen to these, uh, parabolic levels?

Ben Warren Yeah. So, um, we’ve, we’ve definitely looked at it. The fact that we are as diversified as we are means that we are at some level invested in these AI technology driven companies. But the value bias that we have been really pushing hard on has meant that we are under technology. Stocks are underrepresented compared to the broad market in our portfolio. And that’s on purpose because some of the valuations for these these AI companies just I don’t understand it. I certainly hope that they are able to deliver on all of the promise and the hope that is built into their prices. But I find that that is are I, I believe that that’s going to be a very difficult challenge for them. So, um, I worry about that. I worry about the, the profits in these businesses. I worry about the kind of the circular nature of companies like Nvidia investing in open AI open or ChatGPT open AI, and then OpenAI and ChatGPT buying Nvidia chips. And, you know, I worry about the circular nature of that. I worry about the future of it. Uh, it feels vaguely reminiscent of what was going on in the late nineties when anything that had a dot com on at the end of its name, the stock price just shot through the roof. So I worry about that. Um, but at the same time, I believe that with a diversified portfolio, especially the way that we’ve approached it, we’re going to be able to weather whatever kind of a storm might come at us. So yes, I definitely a part of the portfolio, but it’s a, it’s a smaller part than the broad market on, on purpose.

Bob Neugebauer I’d like to get into a little bit of perspective on where this AI technology is taking us, as compared to where the last technologies took us. And if you look back in history, uh, we have seen, uh, literally, uh, the money makers, the money people of the country who have spent money on railroads, on electricity,

Ben Warren Right.

Bob Neugebauer on canals, on you name it. They

Ben Warren Television.

Bob Neugebauer built.

Ben Warren Air. Air. Air. Travel? Yes.

Bob Neugebauer Yes, they they

Ben Warren Mhm.

Bob Neugebauer built the movement. Okay.

Ben Warren Mhm.

Bob Neugebauer That eventually produced an economy far beyond anything anybody ever thought was possible.

Ben Warren Yes.

Bob Neugebauer And as I look at things now, I see a new industrial revolution coming. And that industrial revolution is not going to be, uh, from the hand labor, but from the mind labor.

Ben Warren Mhm.

Bob Neugebauer You know, we are looking at exponential, uh, changes that may displace a lot of jobs, but will create new ones and better

Ben Warren Right.

Bob Neugebauer ones

Ben Warren Right.

Bob Neugebauer and things that will move this country forward. Um, that’s kind of where I’m at right now. And even at my age, I see these things happening because I have that history. I have seen it happen before.

Ben Warren Right.

Bob Neugebauer We are looking at a transition that I believe will take place within the next five to ten years that will be insurmountable. When most people look at it, a lot of complaints right now, okay, about the economy, but

Ben Warren Yeah.

Bob Neugebauer I’m sure you get it from the people that you talk to, uh,

Ben Warren Sure. Yeah.

Bob Neugebauer your

Ben Warren Both sides.

Bob Neugebauer investors. So, so I mean, where do you stand when it comes to looking to the future because

Ben Warren Yeah.

Bob Neugebauer of that, that is of course going to, um, it’s going to help you make your decisions about where to invest your, your, uh, your money.

Ben Warren Yeah. Yeah. Absolutely. So I would say from from a foundational standpoint, I don’t think you can be a successful investor in the stock market without being an optimist. Um, or at least a realist. I mean, the, the, like, you talked about the trajectory of our economy, of our economic life, uh, from one hundred years ago, one hundred and fifty years ago to today. It’s just, it’s an, it’s an absolutely incredible achievement that has happened in this country and it’s. And around the world, but it’s been driven by the United States. So I think I think you have to have some optimism there. Um, I think it’s useful to, to know the history of, of how these kinds of things have happened in the past. Because you’re right, this isn’t the first time that this has happened. We had, you know, the, the revolution of the automobile. We had the revolution of, of air travel, the revolution of radio, the revolution of the internet, and now the revolution of AI. So these kinds of things, we keep moving forward. And, and from an investment standpoint, uh, I think it’s really interesting to see that, you know, today we’ve got a handful of car companies. Well, one hundred years ago, there were a thousand car companies in the United States. Um, that revolution kind of created a gold rush. Lots and lots of people jumped into the let’s build a car. Uh, part of that revolution. And it eventually the industries consolidated down to just a handful. But in the meantime, car travel and freight trucking. Those kinds of things have affected essentially every other business out there. The same thing with air travel. Same thing with the internet. How many businesses today can even exist without operating at some level on the internet? And I suspect that the same thing will be true with AI, that eventually it will be ubiquitous. Eventually, it will help companies that are as unrelated to it as can possibly be imagined, like Coca-Cola or John Deere or any of those kinds of companies will ultimately be affected and will utilize this new capability of AI to accomplish more with less. And it will be amazing to watch it. I think that it’s dangerous from an investment standpoint to put too much of your eggs in one basket. I don’t want to bet on. I don’t want to tilt our portfolio toward AI or towards that, that revolution, because I think that with a diversified portfolio, we run less risk. Um, and then we’re also going to capture it in the long run. You know, a diversified portfolio in the late nineties, um, would have benefited from the, the internet revolution because eventually it has helped to make every, every single company more efficient. So that’s how I have, I’ve thought about it so far.

Bob Neugebauer I just want to get your take on what’s going on currently within the economy. Uh, not just here, but around the world as we see this oil crisis that has taken place, uh,

Ben Warren Mhm.

Bob Neugebauer with the Straits of Hormuz being closed, the war with Iran and what have you. Um, I see our country, uh, becoming more and more efficient, uh, although we don’t have the refineries in terms of bringing more energy into the country,

Ben Warren Yeah.

Bob Neugebauer even though

Ben Warren Mhm.

Bob Neugebauer we don’t have the refining capacity. But how do you see that affecting us and your investment decisions in the future? Because I see America as a rising entity in the world order. And I think that’s kind of where we’re heading. You see what’s happening with Venezuela, with Greenland, with where we’re moving in the direction of trying to consolidate this hemisphere that we live in.

Ben Warren Right? Yeah. I, I, I would argue that, uh, um, that the Trump administration, whether you like them or you hate them, has really done a phenomenal job of, of protecting and enhancing, uh, the, the economic interests of the United States. Uh, you know, when, when we came, when he came into office this time, I think we, we were influential through NATO in two of the, of the seven key shipping lanes, uh, the kind of choke points in the shipping world that existed out there. and now we’re influential or own or control all seven of them, um, through just directly or through NATO. And so that’s like the Panama Canal, the Straits of Malacca, the Strait of Hormuz. Like there’s, there’s seven of them out there. And now we control all of them. So that is unquestionably a good thing for the United States economy. And so, uh, yeah, I think that the, the reality is, is that we’re getting, uh, whether that’s oil or it’s any other form of shipping that, that we’re in a better position. The fact that we have negotiated essentially, um, well negotiated, that’s an interesting term, but for the Venezuela control of the Venezuelan oil fields, uh, that’s, that’s another really strong kind of asset in the United States is quiver because that gives us even more negotiating leverage with Canada. Not a lot of the oil in the world, um, come that goes through the Strait of Hormuz actually comes to the United States. But the Venezuelan oil. That control gives us much more negotiating leverage when we’re negotiating with Canada. So the United States is is really be getting positioned into a very, very strong kind of Fortress North America situation. And that that can’t be anything but good for us. So I’m optimistic for the United States. I’m optimistic for what we can do. I think we want to keep keep doing those kind of things. I love that the, the the push for lower taxes. I love the push for lower regulation. I love the push for all of those things. All of that will be good for business. And so I’m, I’m excited about those kinds of opportunities in the US going forward.

Bob Neugebauer Well, it’s nice to hear a positive voice every now and then. Um, you know, when I’m on the radio, I listen to so many of these naysayers, uh, who say I can’t afford gas. Uh, but they’re driving around in an eighty zero zero zero dollar diesel truck that they’re paying five hundred to one thousand dollars a month on. that

Ben Warren Yeah.

Bob Neugebauer drives me absolutely crazy.

Ben Warren Right.

Bob Neugebauer Uh, if they were smart, they’d be driving a a Prius or some, a reasonable, uh, truck that they could afford to buy and wouldn’t have big payments. The

Ben Warren Yeah.

Bob Neugebauer Americans have become, uh, very jaded in many ways.

Ben Warren Yeah.

Bob Neugebauer I think social media, I think the fact that, uh, we have a liberal media out there that has been pounding for years on us

Ben Warren Sure.

Bob Neugebauer and, and I find you to be, uh, a spark of brightness in this world of turmoil. Uh, and it’s nice to hear that, uh, somebody’s doing well and has a outlook on our future that is

Ben Warren Yeah.

Bob Neugebauer not like many of the curmudgeons I wind up listening to, uh, have. So

Ben Warren Yeah.

Bob Neugebauer once again, I, I appreciate the fact that you are doing what you’re doing, that you do have a methodology that actually is working because

Ben Warren Yeah.

Bob Neugebauer there are so many out there. You know, a rising tide raises all ships.

Ben Warren Right.

Bob Neugebauer But there are there are several different types of ships. I think you have one of those luxury liners that most people don’t realize yet, but will only realize that when it comes time to retire.

Ben Warren Mhm. Yes.

Bob Neugebauer And I, I find that to be true in many cases. I’ve, I’ve listened to all of the people around the country and even around some of the world that

Ben Warren Mhm.

Bob Neugebauer profess to be the best money managers you could ever find. However,

Ben Warren Yeah.

Bob Neugebauer uh, they produce for a short period of time and they seem to fall off the cliff. Um,

Ben Warren Yeah.

Bob Neugebauer and it doesn’t

Ben Warren And

Bob Neugebauer look,

Ben Warren I.

Bob Neugebauer it looks you’re grounded enough, so I don’t see that happening to you.

Ben Warren Will and I think that the danger in this industry is to believe that somebody has a magic bullet. Um, nobody can tell the future. And, you know, Warren Buffett has famously said that, that he’s not predicting markets. That’s not his goal. He’s not going to try to time when to get in and when to get out. That’s not that’s not his approach at all. And I think that we really run into danger if we are betting our financial future on anybody being a genius. I’m not a genius. I’m not Warren Buffett. I’m not going to be able to do that kind of thing. But what I think we can do is we can make sure that we’re diversified so that we capture the returns that the stock market has always given us. And if we do that, and then we make intelligent, not brilliant, just intelligent decisions all along the way, like save a little bit more every year, like when the stock market’s down by more. Rebalance reinvest dividends, do tax loss, harvesting, those kind of things. When the stock market’s up, be gradual. When you invest into the market. We just do intelligent things rather than brilliant things rather than shooting to do brilliant things. And that kind of thing pays off in spades in the long run. So I really think that when you hear somebody claiming to have some unique insight, claiming to be a genius, claiming to be able to outperform markets consistently, then I think you need to run, not walk away.

Bob Neugebauer Let me ask you the obvious question. Uh, should I say the elephant in the room? Uh, where do you think AI will take us in the investment industry?

Ben Warren Yeah. So I think AI will, um, I have, I think that it will be a really bifurcated result or reaction. What will happen in on the low end is that will, it will replace the worst financial advisors. Absolutely. Um, the AI is going to make. It’s not going to make the stupid decisions that really low end, low quality advisors would make. Um, but on the high end, I have a very hard time imagining like wealthy people, people that have, have been successful trusting a machine in the extremes of the market. Um, and so what I think AI will do on the high end is it will make the most productive, most useful, most successful, most insightful, most hardworking financial advisors, more productive, more insightful, more successful. Um, it’s, it’s a tool in a lot of ways, like the internet, if you remember the, in the late nineties, everything was going up. The internet was, was revolutionizing everything. It was a, you know, fire your broker kind of an idea. And even in those moments, there was a talk. And I think I’m, I’m probably misremembering it, but I want to say it was like time magazine or something was was asking questions like, Has Warren Buffett lost his touch? And, um, what we find out is just like you said, Bob, a rising tide floats all boats. And as Buffett said, that it’s only when the tide goes out that we see who’s swimming naked. So I think that that’s going to be true with AI too, that, um, that it will, that’s the, the, the worry on the low end of our profession is that it will take, take away financial advisor jobs and anybody that loses their job to AI kind of deserves it probably. Um, because AI is a long, long way from being, uh, I would say ready for market in a lot of things. Um, it’s, it’s great with text, but it has a lot of, a lot of problems. We’ve been, we’ve trying to implement it as much as we can, and we want to implement and implement any kind of a tool that can make us better in our practice. And we, we keep trying, we keep trying. And it feels like we have to nudge it along in the right direction at every single step of the way. So there’s a long ways for it to go before it can even replace the low end of the financial advisor world. And I think that the safe end is always going to be safe, or the high end is going to be safe. I just don’t believe that, uh, wealthy folks, uh, people that have meaningful amounts of money, um, people that are betting their life savings on these kinds of things. I don’t think that they’re going to bet on a machine in the same way that I, I really doubt that AI is going to replace accountants or attorneys when it matters most. So those kinds of things I think are safe because, uh, if you’re, if you’re being trusted by, uh, by people in the, in the most important decisions in their life, they, they want to be able to look across the table and see in your eyes that, that you’re going to take care of them.

Bob Neugebauer Well, I’m sure there are people out there that run these technology companies that would disagree with you, but I’m on

Ben Warren Yes.

Bob Neugebauer your side. I

Ben Warren Yeah.

Bob Neugebauer think the human factor needs to be played into

Ben Warren Mhm.

Bob Neugebauer an investment philosophy, and

Ben Warren Yeah.

Bob Neugebauer AI doesn’t have the ability currently to take over what you would call the future of people’s lives.

Ben Warren Yeah.

Bob Neugebauer Uh, although

Ben Warren And what

Bob Neugebauer I

Ben Warren I

Bob Neugebauer do

Ben Warren would,

Bob Neugebauer see some of it going.

Ben Warren yeah, I would, I would jump in and say it’s kind of in the name, right? The name is artificial intelligence. But the key to success in investments has never been intelligence. I mean, there’s a baseline level of intelligence that you have to have to have success in investing. But what ultimately determines the real winners and losers is discipline. Far, far more than intelligence. So it goes back to that. I mean, when markets get extreme, when they go down in two thousand and eight, then it’s discipline. Sticking with the plan when it when it doesn’t feel like it’s working. Um, when in the late nineties and maybe today when we’re at really high points and your advisers pushing you to stay diversified, rather than bet it all on a diversified portfolio of Worldcom and Enron and pets dot com? You know, that kind of thing. That’s that’s when the discipline pays off. It’s not about being intelligent. It’s about being. It’s about being disciplined far more frequently.

Bob Neugebauer So if we ran into a nineteen eighty seven, uh, where the market took a huge dump, which

Ben Warren Right.

Bob Neugebauer I’m very familiar with because

Ben Warren In

Bob Neugebauer I was

Ben Warren one

Bob Neugebauer involved.

Ben Warren day. Yeah.

Bob Neugebauer Yeah. And, and then you run into a situation of two thousand and eight where you have this huge problem with mortgages.

Ben Warren Yes.

Bob Neugebauer Uh, and, and the way they were combining them. Um, is this something that would affect the way you’re looking at investments at those times? Or do you just kind of stay the narrow cost that’s of course, that you’re on and continue to do what you’re doing.

Ben Warren first Yeah. So of all, the key is to be prepared, right? If we historically there have only been two ways to lose money permanently to destroy wealth in the stock market. The first is, is bet in in a diversified and an undiversified way invested in an undiversified way. If you bet it all on Kmart, that didn’t work out very well. If you bet it all on Enron, that didn’t work it out very well. So we solved that by being diversified. Number two is selling when it’s down because there’s not been a single downturn the stock market has ever had that it did not recover from fully. And then go on to set on set new higher highs. So the the stock market is volatile. But we know that it’s it’s it’s something we can prepare for. We don’t I don’t think we know we’ll never know the timing of the next downturn. But we know we can be really confident that there’s going to be another downturn eventually. So there’s no excuse for being unprepared. So first of all, be prepared. And that’s where we have that war chest concept where we want to have the the next five years to ten years worth of your withdrawals set aside in bonds so we can live through downturns. So that’s step one. And if we’re prepared, then when those kinds of things show up, then I want to be opportunistic. I want to take advantage of it. So stock market goes down and we’re prepared. Let’s say, you know, very commonly what we’ll have is we’ll have a situation where a client has five, six, seven, eight years worth of their upcoming withdrawals set aside in that war chest of bonds and cash. And so then if it’s, let’s say they’ve got eight years worth, then I’d look at them and say, you know, we’re in the middle of a downturn. It’s down twenty, twenty five, thirty percent. Um, would you be just as comfortable with your portfolio if instead of eight years worth of, of spending we have in bonds, what if that was just seven? What if that was just six? Can we take some of these dollars off the sidelines and put them in, in a moment where we know it’s a much cheaper price than it was two months ago or two years ago, or whatever it happens to be. So we can take advantage of it by rebalancing the portfolio, trimming that, that war chest, take advantage of it. That way we can do it by reinvesting dividends. So we don’t want to do that on a, just a mindless blind way that every dividend just gets automatically reinvested back into the company that issued it. No, let’s take those dividends and put them where we feel like the best opportunities are so we can reinvest dividends. We can do tax loss harvesting to get some tax benefit off of those, those downturns. So we can we can ask and see, can we lean up the cash reserves we have in the rest of our life to take advantage of these downturns? So I get kind of greedy in those moments. I want to take advantage of it. I want to buy when everybody is selling, because historically that has worked out every single time. So it’s, it’s worth trying to, to take that kind of a mindset into it. It’s paid off.

Bob Neugebauer Well, I’m glad you’re not a short seller because that’s how you can get killed. I’ve tried it.

Ben Warren Yeah, yeah.

Bob Neugebauer Uh.

Ben Warren Short selling is tough. It’s a tough game. Uh, what? What? Who was that? Was it Keynes that said that the market can stay irrational longer than you can stay solvent?

Bob Neugebauer Absolutely, absolutely.

Ben Warren Yes.

Bob Neugebauer No question about it. Uh, I want to thank you for spending some time with us today. I think we’ve gotten a really good idea of where you’re at and where you’re going. Um, and I appreciate the time that you spent here telling us about how you invest and where you invest. Um,

Ben Warren Yeah.

Bob Neugebauer let’s hope that more people are a little more diligent in the way they look at investing, uh,

Ben Warren Yeah.

Bob Neugebauer than they have been in the past. Because, uh, from past history, I have seen literally millions lose tons of money, uh, in situations where they jump to get out of the market because

Ben Warren Right.

Bob Neugebauer they fear it’s going down and they never return.

Ben Warren Yes.

Bob Neugebauer That’s how you lose tons of money. That’s how you

Ben Warren Yeah.

Bob Neugebauer lose your investments.

Ben Warren Yeah. Peter Lynch, famous manager of the Magellan Fund at fidelity, famously said that, uh, that more money has been lost trying to avoid downturns than in the downturns themselves. So it’s, it’s absolutely right that trying to avoid trying to time markets, trying to avoid these downturns, trying to get in when it’s good and out when it’s bad. It’s a fool’s errand. And it is maybe one of the most expensive mistakes that I see constantly in the world these days. It’s, uh, I hope that we can start training. I hope more people can hear the message and, uh, take it to heart and, and skip that one because it’s heartbreaking. It really is painful because you’re right. When people get out in moments like that, they don’t get back in and then they miss, you know, for example, the two thousand and eight downturn, top to bottom, fifty seven percent drop. It was horrific. We all know that. But people that got out likely have never found an entry point to get back in, and they’ve missed out on what has amounted to something like seventeen percent per year returns since the bottom in two thousand and nine to today. And that’s an incredible that’s an incredible run. So two thousand and nine to twenty twenty six, what are we talking about there? Uh, what was that seventeen years at seventeen percent a year. That’s if you miss that, you cannot catch up to that. If you’re just you’ve missed it. It’s gone.

Bob Neugebauer Well, I agree and I hope, I hope you continue to do what you’re doing. I want to thank you again for your time, I appreciate it. Uh, and let’s have you back on again. Let’s spend a little more time talking about what’s actually happening in the market.

Ben Warren Perfect. Yeah. I’d love to. Thank you for the time. Thank you for inviting me on, I appreciate it.

Bob Neugebauer No problem. Talk to you soon.

Ben Warren Thanks. Bye.