0:04 spk_0
Welcome to Stocks and Translation Broadcasting from the New York Stock Exchange. I’m Jared Blicky, your host, and with me is Alexandra Canal. The People’s Voice is on assignment. Kindly like, subscribe, and comment on Stocks and translation on Spotify, Apple Music, Amazon, or YouTube, and today we are welcoming for the first time James E. Demmert. He is a founder and CIO of Main Street Research, a $2.4 billion registered investment advisory for.He has over 40 years of experience and has authored 3 award winning books. His latest is called Wall Street Lessons, which explores behavioral finance and investor psychology. So welcome, James. And today we’re gonna be leaning into investor psychology throughout the show along with a heavy dose of markets talk. But first we’re gonna focus on the upheaval in US policy, which is reshaping global economics, leading to our phrase of the day, new.World order how trade wars, tariffs, and French shoring are reshaping global economic power and markets. And this episode is brought to you by the number 13. That is the number of psychological blunders investors make, according to James. We dive in carefully. So James, we’re taping this right after the 1st 100 days of Trump’s presidency here. We’ve seen a lot of volatility. What are you making ofall of it?
1:16 spk_1
You know, I think the market isExpressing what’s happening internally was the administration just really changes policy, economic policy that was in place for gosh decades. So this market was investors overconfident at the beginning of the year, probably a little too complacent, and overdue correction turned into something much worse as those tariffs came in much more extreme. Then we sort of sold off to a very oversold.Level high level of bearishness which we can talk about psychologically and now we’re sort of seem to be on on right in the middle back by the middle of that correction, and we would suggest here investors should be really careful. The new leadership from here is going to be different than what was happening last year and the year before and there’s still risk here, uh, certainly of going down and testing lows, maybe even going lower. So this is a time to, to really have your wits about you.
2:06 spk_0
So this is a good time to pivot to our phrase of the day, which is new world order. It describes how shifting geopolitical policies like trade wars and tariffs and French shoring are reshaping global economic power, changing the investment landscape. So the phrase kind of reminds me of the Latin motto on the great seal of the United States, Nouss ordoschorum, which means new order of the ages. Uh, it’s right there on the dollar bill, and it was coined by the founders to highlight America’s emergence as a.Radically new economic and political force. So I’m wondering, are we seeing echoes of this? How much of this is due to Trump? How much of it was just inevitable because the old ways were just getting sclerotic andstale?
2:44 spk_1
Well, I think that, you know, the policies that this administration has really changes the world economy significantly. You’ve got the US being much more protectionist, obviously with the tariffs. You’ve got a US policy within.Washington being more of fiscal austerity, basically what that all does is it turns down the spigots of growth. So it should be no surprise that this morning we have GDP coming in a little negative. There’s other reasons for that, maybe a little more pronounced than it needs to be, but I think investors should recognize all these policies that don’t look like they’re going to be reversed, at least in, in, in total, are going to lead to slower US growth and um you know, the the American exceptionalism.Which we’ve been living with now for gosh decades might be in question here and that’s why we think investors should also look overseas where there’s changes also occurring because of US policy. They’re changing in a fashion that might give them better growth.
3:42 spk_2
Do you think thisis a fundamental shift, you know, every 4 years we sometimes continue on with the current administration. We sometimes we get a new president, but do you think what’s going on now?Even if things are reversed, even if in 4 years we have a Democrat president in place, he has different policies, he or she, I should say, is this, you know, a new order that might last longer than the next 4 years, right?
4:09 spk_1
Yeah, Ellie, I think that’s a great question. You know, one of the problems we have in the US before this policy even got started is we have an overburdened amount of debt.And that that was just escalating out of control. I’m not sure this is the right way to handle the debt.But I don’t think we go back even after 4 years with a with a new party because the whole idea of getting our debt level more manageable is is really important for the success of this country. So a lot of pain now, so later on we can be healthier and markets are obviously exhibiting that pain certainly in the last few weeks. So, so our view is that the global economy.It is going to be tilted. It’s going to be different now for the next, let’s say 5 to 8 years until the US economy gets in better health, and that will create opportunities certainly in parts of the US market but also outside the market, the US market, which has kind of beenignored
5:05 spk_0
the Let’s talk about those international markets. I know you’re keen on that, and we’ve seen other countries like Spain just had a block.Having a blockbuster month in time despite their loss of electricity the other day, but to talk about these internationalopportunities. Well,
5:21 spk_1
you know what’s interesting is what’s happening outside the US, particularly overseas, is you have the opposite, and you know, here we have the fiscal restraint and we have monetary policy tight there because the US has withdrawal of funding, particularly in countries like Germany, they’re having to turn on the fiscal.Spending, that’s hugely stimulator
5:39 spk_0
for the Germans too because they’re very inflation wary because of, you know, the old times.
5:44 spk_1
That’s exactly right, but they’ve committed to billions of dollars of spending over the next, not just 1 year but over the next 456 years, and that’s going to be very stimulative to the economy. That’s why you’re seeing those stocks after years of just lingering around starting to hit new highs.
6:02 spk_2
Yeah, so I, I’m curious and it’s interesting to hear that ripple effect there too, right, because the US is restricting funding now you’re having all these fiscal measures overseas. What, what exact what are the investable areas then in that case? Is it sort of looking at these currencies? What, how are youassessing that?
6:20 spk_1
Yeah, in the US market or globally, yeah, overseas, you really want to think about where if we’re gonna stimulate those economies, where is that earnings growth going to be? And, and generally speaking, at the beginning of what I would call a new cycle there, you want to go to those cyclical industries, the industrials, the financial companies, and there’s a lot of really great quality companies or telecom is another example. Um, I think the whole market there.But I would stay away from maybe the consumer staples overseas and focus more on those cyclical names. Certainly the euro currency has done really well versus the dollar. That’s another way to play it.
6:56 spk_0
Whatabout for US investors who are we, we’ve had the fortunate experience of having these exceptional markets for the last few decades where it was the place to be. How do you dip your feet, your toes into these international markets where the average person might not be.Familiar with some of these German industrial names. How do you find them? What kind of filters do you use? What sources do you look
7:17 spk_1
at? Yeah, our name is Main Street Research, and that last part is about the research. We love digging in. We only use individual securities, so we look all over the world for great opportunities, and we use a lot of research just in-house looking at companies publicly traded, how much debt they have, what their earnings are. We like companies with high cash flow return on equity.And uh we like them in certain sectors, Ali, as you were mentioning, that might have that earnings lift with all this stimulation that’s going on with the economies.
7:45 spk_0
So let me bring it back to kind of the new world order here. It seems like every few decades we get a big break in the action. I could go back to World War II where right afterwards we had the Bretton Woods agreement, and that was a regime of global fixed currencies that gave way in 1972 with Nixon closing the gold window. Then we had floating currencies, and now it looks like we’re morphing into something different.And we have kind of a template of what Trump might want to do in terms of the Mar a Lago accords, and that has um there are a few pillars there. It’s deregulation. It’s getting the rest of the world to kind of shoulder the security burden by taking on longer term US debt. We’re talking 100 year bonds that haven’t even been formed yet, which don’t even exist yet. What do you, how are you?Deciphering this, and are you looking for opportunities based on all of these recentdevelopments?
8:37 spk_1
Yeah, we are looking for opportunities, and I would suggest that investors not to ignore, Jared, the US market, just be a lot more selective than they’ve been or had to be for the last 5 or 10 years. I like that you brought up the Bretton Woods and some of these earmarked places that where the economy has changed for many, many years. I think we’re kind of in that position.Um, the US has to be very careful here to walk a fine line to not put the economy in harm’s way. I think that’s where the Fed is going to be very important over the next year or two, but there’s select great places here. If you think slower growth in the US, what kind of companies thrive in a softer economy? And I think it also investors should not disregard that artificial intelligence is real and it’s gonna have a lot of tailwind.
9:22 spk_2
I wasgonna just ask about that because tech, the fundamental.story there is still the same, right, even though we have a lot of the uncertainty, AI is is a big play. So how do you view more of those high growth names, those the the tech sector
9:36 spk_1
overall? Well, AI is uh could easily get us out of this pickle with debt, right? If we can we can get better productivity growth, which is what it should bring, and we’ve already seen it has, that should fuel better corporate profits even in a slower economy, which helps get corporate taxes to come in.Fill that hole. So we believe that AI is an important part of our portfolio, and I think investors here really should look at, you know, those leaders in AI. A lot of them reporting we have Microsoft and Meta tonight reporting Amazon, Apple tomorrow. So is it
10:07 spk_0
the hyper scales or the knock-on kind of side bets here?
10:11 spk_1
We think you go with the best in breed. So when you go to the semis, you go to Nvidia. When you go to the second tier, right, that second derivative, you go to the metas, you go to the Google.Which numbers were good, and you can buy them now at growth rates up here, but PE ratios finally lower than those growth rates. So stick with really high quality names. Um, I don’t think investors should overdo it on their tech exposure, like maybe worked for them in the last few years.
10:37 spk_2
So maybe take some of that tech overexposure and look elsewhere overseas, your passport. Yeah, I’m going in a couple of weeks.
10:44 spk_0
What, what about China? China has just been an incredible story andIt’s it’s, it seemed to have been uninvestable for a period of time just because of the very arbitrary seeming policies of the Chinese government. But last September we got a wake up call and they just released this bazooka stimulus. They’ve done some follow up and follow on and now of course tariffs is the main story with China. Do you see that China as investable?
11:09 spk_1
It was uninvestable. There was every metric you look at, just stay away, and they threw everything but the kitchen sink at this, right? Low waiting for the kitchen.That’s the last thing to come. Um, they’ve they’ve used the fiscal stimulus. They’ve used everything they can, and our view of China about six months ago is that, hey, we got to be getting close to investable. But here we have to also think a new world order. They can’t export as much to the US or they probably won’t. So look at companies like BYD, right? The electric vehicle maker, they don’t even do business
11:39 spk_0
than Tesla,you know, in certainrespects.
11:42 spk_1
That’s correct, and they do a lot of business in Europe and around the rest of the world.
11:45 spk_0
All right, hold that thought. We need to take a short break, but coming up we’re gonna be talking about the 13 psychological blunders investors make from FOMO to Tina and a magical who wore better where investing meets illusion. Stay tuned.This episode is brought to you by the number Lucky 13. That is the number of psychological blunders that James here identifies in his book Wall Street Lessons. Here is a sampling FOMO, Tina, Perma beer, perma bo, confirmation bias, loss aversion, fear of capital gains tax, tax, sunk cost and lost opportunity, deer in the headlights, procrastination, information, and I like how information is on its own line there as a potential blunder, but tell us how you approach.Some of these concepts here in your book. Yeah, we have the book right here.Thank you.
12:37 spk_1
Thank you for showing the book. 40 years of doing this. I’ve seen and heard investors’ horrible mistakes almost always related to their own psychology, right? Our human brains are just not great at investing. We can be our own worst enemy because of fear and greed, and I think the recent months in the market are a really good microcosm. People were too optimistic at the beginning of the year, investing too aggressive.And now you find people don’t even want to go near the stock market and they think it’s, you know, uninvestable. So, uh, I’ve learned a lot of things over the years.
13:09 spk_0
So how do you, how do you, as an average investor, uh, let’s take a beginning investor, how do you approach the field of investing, um, without having to rearrange your brain and going to a therapist every, every week? Because really, I mean, there’s a reason why professional traders often say retail usually, if not always gets it wrong.Because they’re at the lows, there’s just this pervasive fear. That’s when people tend to get out and they think, OK, I’m going to get back in when things are good. But guess what? The market’s already back up at highs and then it’s too late and you’re you’re sitting there on all this cash. That is a pervasive problem, and I’ve been there myself, so I’m, I’m not immune to that. Uh, how do you approach that? Well,
13:47 spk_1
you know, the first thing I would suggest is, um, you know, if if you haven’t seen therapy or you can’t work on yourself to try to retrain your brain, which is really hard to do.Um, you know, I’ll speak as a biased investment event manager. Get a partner to help you get an advisor who can see through the psychological ups and downs and give you advice that, you know, sort of gets you away from your own brain making those mistakes. But second to that, and the book really goes through this, um, use tools and techniques that will create a discipline for your investing. Let’s say for instance, I shouldn’t have more than 1% of stocks at any.Time so that and if I keep that rule, let’s say 60% stocks even in a raging bull market, it reminds me I got 60% in let’s not increase it. That’s where people get in trouble. They start to investing more than they should and more aggressively. I think also in this market particularly is a really good example is be wary of the sectors you’re investing in, right? There’s a lot of sectors maybe that are that are beaten down that people ignore because the trend isn’t there, but they’re safer and that’s.Way to diversify and lastly use tools like stop loss orders. They stop the loss of catastrophic decline even even in any market. So we can talk about that more, but again, use tools and strategies and commit to those as an investor or use an advisor that does eitherway.
15:11 spk_2
We were just talking about AI and I’m curious how you think AI or robo advisory tools are changing the investors.Psychology, I mean, I’m not gonna lie, sometimes when we’re having a bad day, Chat GBT can can help me out a little bit and can be my little AI therapist. How do you view the role of AI in all of this? Yeah,
15:28 spk_1
Chad is one of our best friends, right? But you know, the problem with so far Robo in that field, it’s not come up with very good investment ideas or metrics and Chat GBT is not good at math so far. But I think that will change and evolve eventually.One of the problems with humans and their investing, um, even given a model that, OK, I won’t touch this, I’ll let this model do what it needs to do, it will save me. Generally speaking, when things look really bad, we go unplug the model to stop it from, you know, because we’re fearful that the market will continue to go down. So I think the human brain has a tendency, even with the best rules in place to interrupt it because of the fear they might have or the greed.
16:12 spk_0
Well, yeah, it’s interesting. I used to build a portfolio systems, automated trading systems, and what I realized is that emotions don’t go away if you have a trading system, because if the market is making moves is making money without your participation.Uh, then you, there’s this, there’s this, uh, you want to change the rules, you want to rewrite things, you want to tinker with things, then you change the rules and then guess what, the market does something and you’re not participating again and then you’re just rewriting and rewriting. So I, I haven’t found that, you know, a totally automated system doesn’t even solve all these uh psychological problems that we have. So what do we do to attack this?
16:47 spk_1
Well, I think that’s a really good point, right? You could make an algorithm that would do certain things in different markets, and that’s why I think the human experience is important. You know, I’ve been doing this for 40 years. I know when the bearishness gets so bad in a certain sector of the market, even if the models say we shouldn’t be there, I want to go because I know that that neglect of that sector isBe where the opportunity is. So I think using disciplines and tools like I mentioned, but also use some subjectivity to adapt the portfolio on the on the margin to take advantage of opportunities.
17:22 spk_0
All right, we’re going to do a hard pivot here. This week’s runway showdown is all about investment magic and the psychological tricks of the trade that come with it.So first down the catwalk is sleight of hand. It is a master of misdirection sporting the flash of quick trades and dazzling volatility. It is a strategy that captivates the crowd, promising immediate gratification but often hiding risks in plain sight. Just behind, poised and patient is the grand reveal, elegantly dressed in careful asset allocation and long-term planning, but there’s no immediate applause here. Instead, this magician savors the dramatic.Pay off years down the road unveiling returns that magically compound. So James, which style holds a true magic in today’s market environment? Is it the fast and flashy hand that can distract and light, or the patient strategist waiting for the big payoff?
18:11 spk_1
We think it’s a patience strategist. I think that’s love the analogy. I think you go with the David Copperfield stage with the smoke and the Big illusion. Copperfield meets Warren Buffett. There you go. I love it. Yeah, and you know, and again.Adapt it right here we’re talking about not just being a US investor anymore. be global, adapt slowly, strategically, but yeah, keep that longer term view.
18:33 spk_2
OK, longer term view, but how do you avoid having FOMO? I have FOMO in my everyday life. You say FOMO is a mistake. One of the one of the 13 in your book. So talk to us about that because you know it’s really, really tough not to feel like you’re in the party.
18:47 spk_1
Yeah, yeah, I try to keep FOMO in other parts of my life.not in the market for the clients or my family’s portfolio, but I think that, you know, it’s very important. There’s a lot of good information even an individual investor can use to see when people have piled into something so much that the FOMO is bubble-like, and I think we saw a little bit of that last year where I would meet potential clients and they’d show me their portfolio and it was Nvidia, Nvidia, Nvidia, and then other semiconductors, XL, yeah, and they had a ton of, you know, that that that.FOMO just got the best of them, of course, that came to a horrible ending in the first quarter of this year. So I think really importantly investors can mitigate their own FOMO by saying to themselves, OK, I’m only gonna have this much stock. And in each sector I’m going to limit, no matter how I feel emotionally, I’m gonna limit how far I’m going into, let’s say technology or the semis, create some boundaries, create some rules, and stick to them. Or if you can’t do it, get an advisor who can.
19:43 spk_0
I want to get back to magic here because we’re talking before the show that, and the reason we crafted this particular segment is because that is part of your background. Just tell us a little bit aboutthat.
19:53 spk_1
Yeah, when my dad was, was a teenager, he was a professional magician.And when I was a teenager, he showed me this box of stuff that he had been car carting around for decades and sort of introduced me to that and then I sort of took the lead and became a young professional magician through my teenage years, which was really fun.
20:12 spk_2
So it seems like you’re a very curious person, right? Your dad had this box you were asking about it. You were just saying your uncle used to read the Wall Street Journal. You were telling us before the show, and that really is what got you interested in investing. So how do you utilize that curiosity?in your everyday life now, Ali,
20:26 spk_1
it’s a it’s a thank you. The curiosity is, I think, a driving force for what I do, and an important element to doing this, you know, just having that curiosity. Where are the best investment ideas today, right? When this looks expensive, let’s look everywhere we can around the earth for publicly traded companies. That curiosity is a big driver, not just for myself, but I think it bleeds through my whole team at the firm.
20:51 spk_0
We got about 30 seconds. Would love to hear your final views. Maybe something on risk management, but I’ll give you the floor here for the
20:57 spk_1
viewers. Yeah, thanks. You know, I think that risk management is the most important thing. Building wealth over the long run is really about obviously participating in bull markets, but mitigating the catastrophic declines that happen in one stock or the whole market, you know, from time to time. So most important thing investors can do is when the market’s falling dramatically.Don’t have the deer in the headlights type of do something, mitigate the risk. It’s OK to be out of the market, or at least part of it, and you know, getting back in later when it goes up is safer than being down 50%. If you’re down 50%, remember you got to go up 100% to get even, and I always try to tell my clients about that.
21:39 spk_2
So I’m curious what you think are underrated opportunities right now because we talk a lot about the volatility.How that often creates opportunities. Are there sectors or companies that you’re thinking no one’s talking enough about this and you’re bringing those names to yourclients?
21:56 spk_1
Well, I think the foreign investing is for sure just starting to come into this people are starting to talk about that a little bit more and that’s just the early stages where the first few months of what I think is a years long bull market. So that’s one place to go. There are some ignored sectors in the market, and I think I was.the healthcare sector where AI meets healthcare, makes us all live a lot longer, is going to be a great opportunity over the next 4 or 5 years.
22:20 spk_0
I’d be satisfied if they get my records straight, but that we are officially out of time. I’ve got the timing right finally, and we’ve got to wind things down here at Stocks and Translation. So make sure you check out all our other episodes on the Yahoo Finance site, wherever you find your podcast platforms, Amazon, YouTube, you know the drill. We’ll see you next time on Stocks and Translation.
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