Business Innovators Radio - Interview with John Wright, CFA Chief Investment Officer of Stellar Assets Discussing Investing in Individual Equities

Episode Date: April 30, 2025

John is a Stanford guy, but not Wall Street. He has spent his entire career in the real world solving the biggest problems facing the largest companies.Problems like how to win, grow sales, and improve the stock price. He has driven value across diverse industries: Consulting, Technology, Industrial, Retail and Transportation.But he no longer works for McKinsey, HP, Exxon, AutoZone or GM. Now he works for you!And he applies that problem-solving, creativity, and corporate background to decide how to best invest your assets. It would be an honor, if people would consider him a money manager.On a personal note, he is married with 3 children. He is the 7th of 9 children in an extended family where everyone still gets along. They were raised by faithful parents who taught strong values, including that they are all part of a greater family of brothers and sisters. He served a 2-year full-time mission in the Netherlands & Belgium to help share that message.Learn more: http://www.stellar-assets.com/Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-john-wright-cfa-chief-investment-officer-of-stellar-assets-discussing-investing-in-individual-equities

Welcome to influential entrepreneurs, bringing you interviews with elite business leaders and experts, sharing tips and strategies for elevating your business to the next level. Here's your host, Mike Saunders. Hello and welcome to this episode of Influential Entrepreneurs. This is Mike Saunders, the authority positioning coach. Today we have with us John Wright, who's the chief investment officer of stellar assets, and we'll be talking about what rules you should. follow when investing in individual equities. John, welcome to the program. Thank you, Mike. It's a pleasure

to be here. Yeah, I'm looking forward to talking with you because I always like to know about rules. And then obviously the unsaid part is when should they be broken or when should you look for outliers? So I want to get your perspectives on all of that. But before we dive in, give us a little bit of your story and background and how did you get started in the industry? Sure. I appreciate the opportunity. So my background is different from most money managers or people in the investment world. I am really more Main Street than Wall Street. I spent decades working for Fortune 500 companies. I worked for AutoZone, GM, United Airlines, a lot of the biggest names.

So I wasn't really immersed in investing, but it was always a hobby. And one other thing you should know about. me is I constantly consider myself a problem solver. So that's what I did at corporate America. And at some point, I looked back over my hobby, over my investment returns. And I said, wow, I have got some phenomenal returns. Maybe I should do this as a career. So I look back at my retirement account and I had been earning 30% a year for over 10 years. And I said, well, I must be doing something, right? Maybe I should think about this somewhere. Yeah, and those 10 years, I'm sure that there were some big ups and big downs. So if you can have that

consistency, it kind of did dawn on you to go, you know, maybe there's some things that I'm doing that I need to go back and say, let's codify it. So you kind of put that into a book, right? Tell us a little bit about your book. Yeah, that is part of the reason why I wrote the book. So the other thing about me as I grew up in the Northeast. And in the Northeast, everyone's a skeptic. And not always a skeptic of themselves, but a skeptic. And I tend to look at things with a skeptical eye. And I said, you know, 30% a year, it sounds great. Am I really doing this? How am I doing this? Let me understand it better. So the problem solver kicked in. And so I wrote the book to educate myself on what I was doing that was making a difference.

And I think I was successful in educating myself and also convincing myself that there was some there there, so to speak. Yeah, for sure. That there's actually something to talk about, something substantive. Yeah, exactly. Well, so before heading down this path,

I wanted to make sure that I could add real value to the readers, to potential clients if I chose to go down that path. I don't believe in doing things that are not win-win. And so I had to convince myself that I could offer win-win or I wasn't going to do it. And in terms of how I wrote the book, I targeted it at do-it-yourself investors,

partly because at the time I was a do-it-yourself investor, partly because I have a lot of respect for do-it-yourself investors. I mentioned that I worked for AutoZone, right? That's a lot of, most of their business is about do it yourself. I grew up with, in a family where my father was the ultimate do it yourselfer. You know, he would actually work on transmissions with no experience. He was building his own PC before the first PC came out. So he was the ultimate do it yourself and some of that rubbed off on me.

As a matter of fact, it's a nice side story. But when I was 16 years old, I got my first car and I promptly blew the engine. And I said, Dad, can you help me? He said, no, which really floored me. He said, you're going to learn the way I did. You're going to read a book. It's going to walk you through step by step, how to fix an engine, and you're going to do it. I said, you're crazy.

What kind of father is that? And of course, that was back in the day when you actually had to read a book versus going to YouTube and hit pause on a video. Right. Yeah, I'm old. No, but it was probably the most formative experience of my life. He taught me that I can do things myself. I put my mind to it. And that includes hard things like, well, I don't know, maybe trying to beat the stock market. But he commits me I can try to do hard things. And he gave me a formula for how to do it. But I have had tremendous respect for do it yourselfers. And so I'm going to help them out if I can. And if I can help them out in other ways, maybe a portion of their portfolio, they want to turn over to me. That's great too, you know, but I'll help out any way I can. Yeah. So as a professional money manager, you're actually providing and wrote a book on telling

people how they can do it themselves. Why that approach? Because I'm certain that most money managers are just saying you can't do it yourself. You're going to make the wrong mistakes and the wrong decisions. So come let me handle everything. What am I missing in that equation? Well, most money managers certainly have a high opinion of themselves and a low opinion of their clients. So that is true.

The title of my book, You Know Nothing About Picking Stocks, and That's Okay. That hints at the first chapter, which is about humility, right? Staying humble, whether you're a professional or whether you're a do-it-yourselfer, a little bit of knowledge is a dangerous thing. and most people rely on a little bit of knowledge or the illusion of knowledge. A quick little story on that topic. When I was at AutoZone,

part of my responsibility was understanding what drives same store sales and informing the management team and the board on what was driving sales before every quarterly investor call. So I had access to inside information. I actually had access to this two-week weeks before the end of the quarter. I can't tell you how many times I wanted to trade on that

knowledge, but couldn't, of course, for legal reasons. But how often I was surprised when that knowledge became public and the stock did the opposite of what I expected to do. A little bit of knowledge is a dangerous thing. You can't just rely on that. It needs to be taken in context, I would suspect, right? Well, yes, and it takes more than knowledge, right? That's... Yeah. Knowledge is a good way, a little bit of knowledge is a good way of fooling yourself.

We live in an age of pervasive knowledge. You can find almost anything on the internet. And to think that because you found an interesting nugget, that no one else has found it, or that it forms the complete picture, that it's simple hubris. So relying on that is dangerous. You might be right 50% of the time and wrong, 50% of the time, but that doesn't get you anywhere.

Yep. You know, I like that you talk about humility. It made me think of this. When you mentioned you had a span of 10 years with 30% returns, does humility ever, like, go away or do you need to always keep it in check? Because I would think at that point, you look back and go, man, I've got the formula dialed in. but if you let that go to your head, so to speak, I'll bet you that you are ripe for making it too aggressive of a play, and now all of a sudden those returns are tanked.

Absolutely correct. One of the chapters in my book is called Passion is Poison, right? It talks about getting carried away with yourself. It talks about rules of, it talks about emotion getting in the way of your investment returns. pride being one of those emotions. So part of the challenge to investing and part of the reason why most people may want to go to a money manager is because they have a hard time separating logic and emotion. They get too involved with their investment decisions. And there are a lot of ways to get involved with those investment decisions, right?

Some people, one of the ways, and maybe we'll talk about this later, but one of the ways people get involved is nobody likes to be wrong. So whenever we get a new piece of information, we tend to use it to confirm whatever our previous bias was instead of looking at it objectively. But there are a lot of problems with passion and emotion that a money manager, while not perfect, perhaps can deal with those issues a little bit better. You know, I know that one of the either, it's either a comical rule or a meme or, you know, industry, you know, of joke. but one of Warren Buffett's rules, there's two rules of investing. Rule number one, don't lose money. Rule number two, always refer back to rule number one. So typically people say, buy low, sell high.

You know, like you always want to sell higher than what you bought. But as we know, with market volatility, sometimes that doesn't present itself. So what do you advise your clients on when you've bought at a certain level at whatsoever sector or whatever? And you see it starting to go down. How do you know when to pull the plug and just take the, loss and move on or it's going to come back. Well, that's a good question.

And first, first I have to say, how do you know that type of question? We need to acknowledge that you never know, right? We're dealing in probabilities. So if I can get it right six times out of 10, that's great, right? You do that often enough and you make money. So you never know. But can I guess at do I have some metrics I can look at? do I have some factors that suggest that doubling down, which is another one of the chapters

in my book, that doubling down is the right approach. By the way, buy low, sell high, also a chapter in my book, which one comment on Amazon was, this book has nothing new. Buy low, sell high. And absolutely right. There's not a lot new under the sun. But buying low, selling hard is really hard for both professionals and do what yourself offers to do, that the inclination is to see something that's gone up and you want more of it.

That's the definition of buying high. But how do you know when to double down? Part of what I follow is, would I buy the stock today? Right. So maybe it's dropped 30%. Is it still in my buy consideration? If it's still in my buy consideration, then I'm going to double down. If it's not in my buy consideration, then the decision becomes trickier.

But we constantly have to check our money. motions and make sure that we're not holding on to something just because it was a commitment that we made once upon a time. And finally, I'll give you one more chapter in the book. The last one is called Opposite George. So I don't know a lot of the audience is probably getting a little bit too young to appreciate Seinfeld. I was a big Seinfeld fan.

And one of the best episodes was Opposite George, where the character did everything wrong in life. And Jerry basically said, well, if everything you did wrong is, everything you did was wrong, then technically the opposite should be right. And so he went about doing everything the opposite, violating every instinct. And I think that's a good rule of thumb for how we should invest. Interesting. You know, I know that you can't get away from market volatility. If you look at the news or the stock market, one day it's up, one day it's down. And sometimes you scratch your head going, who knows what caused that. But if you have your major part of your retirement portfolio in the market, it can cause

stress. Talk a little bit about how you recommend diversification to help mitigate that because you can never eliminate. You can only mitigate lesson. Yes. So diversification will reduce stress. And if you only diversify, that's all it will do is. reduce stress, which makes for a very expensive sleeping pill.

You need to combine diversification with reallocation. So people talk about diversification without the second part. If you don't reallocate, then you're sleeping better at night, but you're costing yourself returns over time. It's the reallocation which forces you to sell your winners and then buy losers, reallocating back to that original percentage, that's what helps you with the right combination, the combination of making money and reducing your volatility. So you can, and you can do that at home, and you should do that at home, right?

The natural tendency is to do the opposite. When something went down, I'm going to sell it, right? I'm going to get out. But in reality, again, it's opposite, George. You should be doing the opposite of what your instincts are telling you. Or like you mentioned in that situation you were in where you got the insider knowledge and obviously you couldn't trade on it, but you kind of looked at it to go when the news came out, what did it happen? And sometimes the stock went up for the company. Sometimes it went down and you're going, wait a minute, they should have gone up.

So you never know what a piece of information is going to do. So even when like that stock or that sector is down, is it down for the reasons of whatever, fundamentals or, you know, company structure is now not sound. But if all of the main driving forces are the same and it's just maybe an external force like, you know, whatever the case is, right? Inflation, we know that that's going to pass and it's going to come back. So you have to take that knowledge and that information with a grain of salt and put your thinking cap on, I would suspect.

Yeah, absolutely. And, you know, part of the beauty of reallocation is it doesn't always require a thinking cap, right? The only thing it requires is to do it. And sometimes overthinking can get you into trouble, right? You're not going to outsmart the market. So part of my philosophy is don't try. Don't try to outsmart the market.

Implement specific rules that are designed to overcome those emotional biases. And one of those rules is always have something to sell. That's where diversification comes in. If you're diversified, then no matter what the market throws at you, you will, in theory, have something that you can sell. Reallocating to the original percentage is a way of forcing you to do that. But you don't have to wait for the reallocation. You can do it on your own if you can overcome your emotional biases. And I would suspect that one statement right there is so easy to have people nod their head and go, yeah, yeah, keep your emotions in check, but it's so hard.

Because I know a lot of do-it-yourself investors are thinking, oh, well, I'll just learn this and learn this technique and learn this whatever the case is. But then when they come down to it, something happens, they tend to, you know, make a reaction based on emotion. So what are some of the things you bring to the table that DIY investors really aren't able to execute on their own because they're too close to the force to see the trees? Right. Well, one of the things I talk about in my book is the need for three different things as an investor. You need bravery. You need the right principles. When I say bravery, I mean, you've got to actually pull the trigger and violate what you might be feeling.

And that requires bravery, right? I mean, most investors are filled with fear, the opposite of bravery. And our challenge is overcoming that fear. So you have to be brave. And number two, you have to have the right principles. And I think that's what I cover in the book, is having the right principles. I've got 10 chapters, 10 principles to follow. And then the third one is discipline, right?

So a lot of times people just want to do what they want to do. Or, oh, I got a hot stock tip. I'm going to invest a bunch of money on that hot stock tip. That's not discipline. You know, my brother, one of my brothers, I come from a family of nine children, actually. So I've got lots of brothers I could talk about. But one of my brothers is always coming to me with the latest fad stock is what I call them. And he says, John, what's your opinion on this?

And what I tell him every time is I have no opinion. It doesn't fit. That type of stock does not fit in my mold. And so I'm not going to invest there. You might make a lot of money. You might lose a lot of money, but I can't tell you. You've got to stick to what you know. Yeah.

But those three things are required. and those things are often lacking with an individual. Fear, so going back to the bravery, I tend to be pretty fearless. So we can talk about my personal investing versus my investing on behalf of clients. But personally, I invest in options all over the place, okay? Because I have no fear. Now, when I'm investing my parents' money, for example, I'd say unfortunately I passed away the last couple of years, but when I invested their money, I invested it very differently. But I have the bravery to do what it takes. I have the principles. I have the discipline. And if you have that as a do-it-yourself investor, great. Go for it. But if you don't, then money manager such as myself is here to help. The other thing that I bring to the table that's pretty unique is

is clear models to help me understand when to pull the trigger. So one of my fundamental rules, which we didn't cover earlier, is to have a specific metric that you look at and to follow that metric rigorously. And these metrics are relatively simple, right? I mean, I don't like PE as a metric, but that's an example of a metric. The metric I follow is a ranking that I do. of 3,000 plus stocks on a weekly basis. And I come up with this ranking based on a lot of regression modeling.

So part of what I did at AutoZone to understand what's driving same store sales is I managed a team of data scientists that would engage in regression modeling. And we hired some outside authorities as well to basically take a big giant box of data, shake it up and determine what is driving sales. How much is weather? how much is competition, yada, yada, yada. That's what I do with stocks. And I develop these models.

I do multiple models. So I've got one model that looks at, that identifies common attributes of companies that do well when the market is falling off a cliff. Okay. So I look at the most recent down period. So this last month is going to be a great foundation for rerunning my models and identifying which factors are common among companies. that did well in this downturn.

So that's my risk off model. I've got a momentum model. I look at a prior period where stocks have done well for an extended, you know, at least for at least for a month or two, usually longer, but what stocks did well and what are the common attributes? So I take roughly half a dozen of these different models.

I get an interest rate model. I got a value model, et cetera. And I weight those models and I rank the stocks from one through three thousand. and that's my starting point. And excuse me, that's, that's hard to replicate. But it's something that I do. And I think it's very effective at helping me identify winning stocks versus losers.

Yeah, that's really important. I know. And I think also you mentioned, you know, factors in the current market. And no matter what date you look at the market, external and internal factors are at play. and it might be inflation one day, it might be terrorists one day, it might be who knows what. So the markets are their own beast. So from a broad stroke, how do you apply your rules to a current market when it's either up or down? How are you assessing those things?

And of course, you could probably do a weekend seminar on this one question. But from a broad stroke, how do you look at a market and apply some of these rules and whether it's do-it-yourself or when you're working on a client's portfolio. Well, the first thing that I recognize is my own ignorance. I have no idea what the market is going to do next week. And I personally believe that anyone who tells you otherwise is blowing hot air. But I don't know what the market's going to do. So is it going to be a risk-off market?

Is it going to be a momentum market? Is it going to be a market driven by a change in interest rates? I think those things are unknowable. And so that's why I blend the different models together so that I'm really looking for the intersection of stocks that can do well regardless of what the market throws at me. So picture a diagram like a flower petal with the leaves. And I'm looking for the center point where I can find a company that will thrive no matter what. And that's what forms my rankings. So I don't know what the current market is going to do.

I know what has happened over the last month, and actually it's been very good to me and my clients. We've done quite well in this environment. But I don't know what's going to happen next week. All I know is how to prepare for a wide range of possibilities. And, you know, it's interesting this morning before our podcast. Of course, I always look at the market every morning before it opens. after it opens and and the thought occurred to me you know it really doesn't matter what this number is going to tell me I'm comfortable right so the number could have been the pre-market number

could have been minus 2% and it wouldn't have changed anything I was doing in the moment or it could have been plus 2% wouldn't have changed anything I had to do in that moment because I am prepared for a wide range of contingencies it's it's very I know we're going to talk in a future podcast about risk and living with risk. And it helps me quite comfortably live with, I don't feel the risk because I'm prepared for that risk. And I think do it yourselfers can do that to some degree. I think I can do it better.

And I hope that they will consider me for at least a part of their portfolio. Sounds great. Well, I tell you, it's been real eye-opening, listening to some of your approaches and very measured and calculated approaches, John. So it's been really great. And if someone is interested in learning more and reaching out and connecting with you, what's the best way that they can do that? Go to my website, Stellar-Assets.com. They can always drop me an email.

I'm at J-A. Wright, W.R.G.H.D. at Stellar dashassets.com. Or pick up the phone. 8665 Stellar is our phone number, 8665 Stellar. I look forward to hearing from anybody. Excellent. Thank you, John. I really appreciate you coming on today. Thank you very much. I appreciate it as well.

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