Power Up Wealth podcast – episode 3 transcript:
Sharla Jessop 0:00
The pandemic launched many stocks, especially tech stocks to unbelievable highs, but has this Goldilocks market come to an end? I’m Sharla Jessop. Today we’re going to discuss market volatility and long-term perspective with our guest and expert Mikal Aune.
Welcome to the SFS Power Up Wealth Podcast, where we provide impactful insight and expert opinions on timeless financial principles and timely investment topics, preparing you to make smarter decisions with your money.
Thank you for joining us today, Mikal.
Mikal Aune 0:49
Thank you.
Sharla Jessop 0:50
Mikal is the Vice President of Wealth Management for Smedley Financial Services. He’s also a Certified Financial Planner and holds an MBA from University of Utah, Mikal, what do you think would surprise our listeners about the market?
Mikal Aune 1:04
You know, I’ve had a lot of clients that are surprised that the market has continued to go up. Since the pandemic bottom in March of 2020. A lot of them thought that the market would tank sooner than now. We are in January of 2022. And the market has seen more volatility this year than we did last year. And so some people are like, oh, we’ve been expecting this. I think what we’ve been surprised that is that the market has continued to go up, even though there seem to be more issues, right? And a lot of people are like, oh, well, gosh, the markets continued to go up and it’s still going up. And we’re like, okay, but underneath the surface, there are a lot of issues that are happening that we’re not seeing. You have some of the biggest companies that are still driving the stock market up. But a lot of the smaller companies are not, they’re dropping at this point. And so again, January 2022. We don’t know what is going to happen from here in the future. But it kind of instructs us or gives us an idea of that the landscape is shifting. And so we need to make adjustments as well.
Sharla Jessop 2:02
What kind of adjustments would we make? I know that the market has done very well through the pandemic, as you mentioned, better than most believed. What was driving that?
Mikal Aune 2:12
So a lot of what’s driven it: two things. One is government stimulus. And we’ll talk a little bit about that. But the other is just the companies that have benefited from the pandemic. So you have the Zooms of the world or Peloton or Amazon. So these companies that are benefiting by people being at home more or needing packages delivered. So those companies have gone up because their services are needed. And as their services are needed more, their company is worth more because they have more revenue. And so their stock price goes up. The other piece is that government stimulus, you know. Just to put that in perspective, in 2008, the financial crisis that we had. The government threw in an amazing $2 trillion, which is just an astronomical amount of money. During this pandemic, over the last couple of years, we’ve thrown in over $7 trillion. More than two and a half times what we did during 2008. So there’s just been a lot of money flooding into the system and it’s had to find a home. And so it’s some of the home that it’s found is in stocks. And so stocks have really been on growth mode since March of 2020. And so a lot of people thought it might drop as we went along. But it’s continued to grow, which has kind of been amazing in and of itself. But it’s just because there’s a big tidal wave that’s behind our boat and is pushing our boat along. Because of how much government stimulus has been put into the system.
Sharla Jessop 3:34
I agree. It’s really created what we call a Goldilocks environment. People are needing the services of these different companies, remodeling homes, doing all types of things with the stimulus money that they had, but also investing in companies that they’re using and supporting by spending their money.
Mikal Aune 3:50
And I think Goldilocks is a great way to describe it. Because during 2020, you could just throw a dart at a dartboard and pick a company and it went up but starting at you know, as early as January 2021. You couldn’t just do that. There were companies that started to drop and drop significantly. We look at that as our own tech companies here in Utah. And they’re kind of a microcosm of what’s happening in the overall market. So when I talk about the overall tech or tech companies in Utah, those are companies that have their headquarters here, so there would be places like Qualtrics, and Domo and Health Catalyst, HealthEquity, Instructure, and Weave. So their headquarters are here, and they’re publicly traded. Now, there’s a lot of other great tech companies that are not publicly traded. They might be private or growing. And there are some that have a big presence here like Adobe, you know, they have a big presence here, but their headquarters is not here. So if we just look at the tech companies that are based in Utah. All of those companies every single the six that I listed, they all peaked during 2021 and some of them early on in 2021. And they have dropped. And most of them have dropped so five out of the six have dropped more than 50% from their high.
Sharla Jessop 4:57
That’s interesting, you know, especially when you think that the companies themselves are very strong still. So it’s not as if the companies have gone down. But their stocks have followed the tide of the market, which is going down.
Mikal Aune 5:08
Exactly. So are they bad companies? No, they’re great companies. You just have to look at, take it into perspective to and say, Hey, what what were they at before the pandemic? And then some of them really, you know, tanked during 2020, in March of 2020, when the pandemic hit, but then they went on a tear. You know, Domo, for example, went up over 1,000%. And so it’s come down over 50%. But that was from its peak, you know? And so is it going to come back again? Probably, nobody knows for sure. Right? Which way it’s going to go. But right now, it’s still at a higher value than it was before the pandemic of 2020.
Sharla Jessop 5:44
You know, what does that mean to people who are investing when they’re looking at technology? And what’s happened in that sector of the market? What does that mean for investors?
Mikal Aune 5:54
You know, it’s been interesting to see, because a lot more people have been excited about investing, because they see things going up. And they’re like, oh, I want to jump in. And there’s the fear of missing out or FOMO. And so there has been the FOMO. And so people have been jumping into things. And maybe they don’t really understand what they’re investing in. And so you just have to be careful, right? If a bunch of people are jumping into something, it’s kind of like playing musical chairs, where the music is playing and at some point, the music will stop. And you just have to make sure that you have to find a chair before the music stops.
Sharla Jessop 6:24
You mentioned earlier and I thought this was very interesting that a large portion of the index had actually lost money in 2021. They weren’t in other words, their stock prices were not doing well. So how do people protect against that? I mean, how do you pick which of those stocks are going to do well and which are not?
Mikal Aune 6:43
It’s really hard to pick so so just like I was talking about the Utah-based companies, right, that’s just a microcosm of what’s happening the overall market. We talked about the NASDAQ. That’s one of the big indices out there. In the NASDAQ, as of January 25, half of its stocks had lost more than 50%. Right, so our own Utah stocks have lost more than 50%. Most of them, those tech ones that I talked about. The NASDAQ, so big companies, they’re losing a lot of value from their peak. And that just tells you that the tidewaters that that lifted, all boats are now receding. And so no longer is it about just hey, throw a dart at the board. But we have to be much more selective, are you going to pick the right company? And if you know the company well, and a lot of times you can. I shouldn’t say a lot of times, sometimes you can. And sometimes it’s better to be lucky than good. A lot of times for us, it’s too hard to try to pick individual companies. And so we lean heavily on diversification.
Sharla Jessop 7:41
Explain a little bit more about diversification for those who might not be familiar with what that means. Sometimes people think diversification is buying an S&P 500, which has 500 different stocks and that’s considered diversification. But how, how does Smedley Financial view diversification?
Mikal Aune 7:56
We take it much further than that, because the S&P 500 there are 500 large companies just in the United States. But what about all the medium-sized companies and small-sized companies? What about international companies and emerging markets? And emerging markets would be places like Brazil, Russia, India, and China, you know, these huge markets that are developing and are growing. So there are different places that you can invest in that are doing well. And that could do better. And diversification, the idea behind it is, you don’t know. You just in any given year, you do not know who is going to be the best. So it’s easier to buy all of them and portions of all of them and have a diversified portfolio than to just try to buy one and hope you bought the right one.
Sharla Jessop 8:40
That seems to make a lot of sense. What would you say about other situations or other periods of time where we’ve been in similar situations, maybe in different markets, or maybe even in different countries?
Mikal Aune 8:50
One case that I think is really illustrative is Japan. And Japan was during the 80s was the hottest country out there. And if you didn’t buy Japan, you got left in the dust. But it hit an inflection point in ’91. And in ’91, the economy stalled. Their stock market stalled, and for the next decade, they went nowhere. If you look at us for the last decade, the US has been the best country out there. The hottest country out there. Are we going to continue to be the hottest country for the next decade? Probably not. And that’s just because the law of averages you don’t stay hot forever. Does that mean I’m not going to invest in the US? No, I’m still gonna invest in the US. But that’s where diversification makes more sense is I need to have more international or emerging markets or other places that are still going to help buoy up my portfolio.
Sharla Jessop 9:36
So basically, what you’re saying is we don’t know where the markets gonna go. So by spreading investments among all areas of the market, or many different areas of the market that’s going to help reduce some of the volatility. What do you think about volatility for this year for 2022?
Mikal Aune 9:50
It’s going to be a lot more than it was in 2021. So and I think you’re going to see this going forward is like we’ve said, we’ve seen the Goldilocks period and things have been going well and the market just seems to keep going up, but that that market has really been driven by the top players. So you know, some people call them the FAANG stocks. And you have to add in a few more. So FAANG stands for Facebook, Apple, Amazon, Netflix, Google. Throw in a Microsoft, a Tesla in, you know, they keep adding on more as other companies do well. But those big stocks have been the ones that have really been driving the market. And the little stocks underneath, or relatively little by comparison, are the ones that haven’t been doing as well. And so we’re looking at saying that’s just signaling a shift in the market. And so we have to change how we view things and how we approach in which, which pieces we weight in the portfolio and so there’s adjustments that we’re making. In every stock, there’s different flavors. In every bond, there’s different flavors of bonds, right? So we’re making sometimes micro, sometimes a little more drastic adjustments in portfolios based on what’s happening in the current market environment.
Sharla Jessop 10:53
What are three things that you think our listeners should know?
Mikal Aune 10:56
One: that the Goldilocks market is no longer. It’s done, right? And so we are going to see more volatility going forward. But this is normal, it’s normal to have drops of 5%, either two or three times a year, it’s normal to have one drop of 10% a year. Like that’s normal volatility. And so you should just expect that and know that if you have a good long-term perspective, you’re going to grow in the long run. Two: diversification is going to help. I’ve heard many places that just say, hey, just buy the S&P 500 that’s all you need to do. Well, that doesn’t always work. And especially it can work against you if you’re going into retirement and you’re taking distributions. If you’re invested in something that’s, that’s really aggressive, and you’re still taking distributions, that can really hurt your portfolio. So you need diversification, you need a good plan. And that’s what I’d say too is make sure that you create a plan and a good long-term plan and stick to it. Try not to be willy nilly and be like, I’m going after this thing today and that thing tomorrow, but to say okay, if I take a good long term investment, I usually will end up better than those that just pick one thing and hope that one thing does good.
Sharla Jessop 11:59
What do you think makes Smedley financial services different in investing than maybe other opportunities that clients might find?
Mikal Aune 12:07
So two things that really separate us one is that we are active managers. And so we have James Derrick on our staff, and we’re pretty lucky to have him here. He’s a Chartered Financial Analyst, a CFA, there aren’t that many in the state. And he’s been doing this for over a couple decades. He can really understand what’s happening in the market and making adjustments based on what is happening in the market. Two is that we’re much more holistic planners, like we create an actual plan where a lot of a lot of places you come in, and they say, well, how much money you have well we’ll stick it here. But we get into much more of an advanced plan where we’re saying, what are we doing to enhance your wealth? But what are we also doing to protect it? And what about transferring it to the next generation? And your charitable gifting and other life goals? And so that advanced plan really helps you create something that you feel is more concrete, rather than just hey, I’m going to invest moderately or aggressively. Like we have something that’s like, okay, when times are tough and the market goes down, well have your goals changed? Has your plan changed? Well, if not, then let’s stick to it. And by and large, you’re much better off to stick to that plan than trying to make knee-jerk reactions in a downturn.
Sharla Jessop 13:14
Definitely. I’m pretty sure that probably increases the success for all investors.
Mikal Aune 13:19
Yes, it definitely does.
Sharla Jessop 13:20
Mikal, thank you so much for joining us. It’s been a pleasure.
Mikal Aune 13:23
Glad to be here. Thank you.
Shane Thomas 13:33
Past performance does not guarantee future results. S&P 500 and the NASDAQ are indexes often used to represent the U.S. stock market. One cannot invest directly in an index. Smedley Financial Services, Inc.® is not affiliated with any of the companies mentioned in this podcast. Mikal Aune owns stock in the companies mentioned in this podcast. Diversification does not guarantee positive results.
Thank you for joining the SFS Power-Up Wealth podcast. Smedley Financial is located at 102 S 200 E Ste 100 in Salt Lake City, UT 84111. Call us today at 800-748-4788. You can also find us on the web at Smedleyfinancial.com, Facebook, Instagram, Twitter, and LinkedIn.
The views expressed are Smedley Financials and should not be construed directly or indirectly, as an offer to buy or sell any securities or services mentioned herein. Investing is subject to risks including loss of principal invested. Past performance is not a guarantee of future results. No strategy can assure a profit nor protect against loss. Please note that individual situations can vary. Therefore, the information should only be relied upon when coordinated with individual professional advice.
Securities offered through Securities America. Inc., Member FlNRA/SIPC. Roger M. Smedley, Sharla J. Jessop, James R. Derrick, Shane P. Thomas, Mikal B. Aune, Jordan R. Hadfield, Lorayne B. Taylor, Registered Representatives. Investment Advisor Representatives of Smedley Financial Services, Inc.®. Advisory services offered through Smedley Financial Services, Inc.® Smedley Financial Services, Inc.®, and Securities America, Inc. are separate entities.
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