Motley Fool Money - New Flavors of FIRE

Episode Date: March 7, 2023

The Fed Chief goes to Capitol Hill, Dick's Sporting Goods crushes expectations, and there's more than one type of FIRE. (0:21) Bill Mann discusses: - The market's reaction to Chairman Powell's testimony in front of the U.S. Senate Banking Committee - Shares of Dick's Sporting Goods popping 11% on same-store sales growth that more than doubled expectations - How inventory management is a key in Dick's Sporting Goods recent success (12:33) Alison Southwick and Robert Brokamp talk with Megan Brinsfield about the FIRE (Financially Independent, Retire Early) movement. Companies discussed: DKS, HD, LOW, TGT, WMT Host: Chris Hill Guests: Bill Mann, Alison Southwick, Robert Brokamp, Megan Brinsfield Producer: Ricky Mulvey Engineers: Dan Boyd, Rick Engdahl Motley Fool Wealth Management (“MWFM”) is an SEC registered investment adviser. MWFM, as affiliate of The Motley Fool LLC (“TMF”) is a separate legal entity, and all financial planning and discretionary asset management services for our clients are made independently by the financial planners and asset managers at MFWM. No TMF analysts are involved in the investment decision making or daily operations of MFWM. MFWM does not attempt to track any TMF services. Megan Brinsfield is the Director of Financial Planning at MFWM. The comments and ideas presented by the speaker in this podcast are solely those of the speaker and do not necessarily represent those of MFWM or any of its affiliates. This discussion is for informational purposes only and should not be construed an investment or financial planning advice or recommendations. Certain statements may be deemed forward-looking, however there is no guarantee of any outcome. Past performance does not guarantee future results. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone, I'm Charlie Cox. Join us on Disney Plus as we talk with the cast and crew of Marvel Television's Daredevil Born Again. What haven't you gotten to do as Daredevil? Being the Avengers. Charlie and Vincent came to play. I get emotional when I think about it. One of the great finale of any episode we've ever done. We are going to play Truth or Daredevil.

What? Oh, boy. Fantastic. You guys go hard. Daredevil Born Again, official podcast Tuesdays, and stream season two of Marvel Television's Daredevil Born Again on Disney Plus. on Capitol Hill, Wall Street is listening. Motley Fool Money starts now. I'm Chris Hill, joining me in studio. Yes, in studio. It's Motleyville Senior and then-Lis Bill Mann. Thanks for being

here. I can't believe it. I wouldn't want to be any place else. Yeah, despite, you know, the decorating leaves a little to. Yeah, we won't go into, we won't dwell on that because the dozens of listeners can't see the deck and decorating. It's in the air quotes. I want to get to some surprising earnings in a minute, but you and I are sitting in a studio in Alexandria, Virginia, and across the Potomac River on Capitol Hill, Fed Chief Jay Powell is spending a pleasant few hours with a group that I like to call the United States Senate Banking Committee. And the headline so far is Powell saying that despite all of the rate hikes, they're going to need more aggressive interest rate hikes because...

the economy is still hotter than they thought it would be when they started raising hikes in the, you know, rates in the first place. Chris, I have a question for you. Do you feel like you learn anything from when the Senate Banking Committee takes on the Fed Chairman? I feel like it is almost a test of the various senators, almost like a personality test. And it's kind of like, whether. Whether you mean to or not, your questions, and sometimes they're asking questions,

and sometimes they're just making statements pontificating before they get to their questions, you are, whether you realize it or not, Senator, unwittingly revealing yourself. Exactly. In a way to the investing public that may reflect well on you and may not reflect well on it. In this case, whenever they refer to the people, it is first person singular. I think. Yeah, this is not a day for revelations. It's a day in order to, for the senators to invoke their priors. And I think it's really important for people to understand exactly what power the Federal Reserve has and how it actually manifests itself in the U.S. economy. because there is sort of the immediate impact, which is psychological,

but then there is the impact that is actually important, and that is structural. And that takes months to manifest itself. And yet... Here we are. Here we are with the market reacting. I mean, you're right. There weren't really a lot of revelations,

and yet about the time Powell started speaking out loud about more aggressive interest rate hikes coming, that's when the market turns south. Yeah. Oh, this is going to be good. This is going to be bad. But just keep in mind that it's a good nine months, because what we're talking about here is relative risk-adjusted return. So what we're talking about cost of capital. And so everyone wants the cost of capital to be as low as possible. I mean, it's great to be able to take whatever risk that you want and not have to pay for it at the end of the day. You're just like, I'll bank throw up that company and set up another one just like it. The reality right now is that what the Federal Reserve is fighting against is inflation.

And inflation is something they actually want to have some of, but not a lot of. It's like salt, I guess. You know, you want a reasonable amount of salt. And the only thing, like with soup, the only thing worse than soup that's too salty is soup that's not salty enough. Yeah, bland. Right, exactly. So just to completely infantilize what's actually happening across the river, we are talking about making sure that the soup is rightly salted. But you do have to make these decisions way before the market sees or feels it.

And so, 2022 turned into one of these really strange years. and we've had them before, which was economic news that was too good for the market was bad news, because the Federal Reserve was taking away the liquidity that we all, as citizens of this country, benefited from and then eventually were hurt by because of the inflation that finally came to bear. Right. It wasn't just the companies. We as investors and we as consumers. No, exactly. Yeah, and the weirdest thing about it, and this is why we talk about like the psychological versus the structural, because you would think the moment that interest rates are raised, that makes things like credit card debt more expensive because they, you know, because everything is set from the risk-free rate, they're all indexed to that. But you tend to see credit card use go up. and credit card debt rates, excuse me, the amount of aggregate credit card debt to go up for reasons that are probably more psychological than they are structural.

So we're just getting into the structural part. I just wanted to make that statement because we do need to keep in mind that what the Federal Reserve has is about as precise as a wrecking ball. I think people tend to think of it as being scalpel, you know, or a plasma knife. No, no, no, no, no, no, no, no, no. They've got a big thing. It's like that gorilla swinging the suitcase in the Samsonite commercials. So, as I said, the comments from Powell sent the broader market into negative territory.

And yet, shares of Dick's sporting goods up 11% after same store sales in the fourth quarter were more than double what analysts had expected. their guidance for 20203 was strong. Where do you want to start? The CEO might as well have started out and said, my name's Wes, and I ain't in this mess, because they turned in unbelievable returns. And I think the important thing is to put the Dix sporting goods results into context. This is on top of four consecutive years of record revenues.

You're not talking about weak comparables. You're talking about comparables that were... Years or quarters? What did I say? You said four consecutive years. Let's say quarters. Okay. Yeah, let's say quarters.

Yeah, that's fair. Might as well be years. I mean, the way that, you know, since we're reacting to the Federal Reserve, you know, sneezing one direction or the other. Time is a flat circle. That's right. No, you're right. Francis Bacon. It's been an incredible year for Dick's sporting goods.

And I'm curious, you know, what stood out to you? Because one of the things that stood out to me specifically was their same store sales guidance for 2023. So we'll come back to that. Just in terms of how this business is performing. I mean, this is one of the better holiday quarters that we have seen this earnings season from a retailer. It is.

I'd say that the thing, you and I have had the opportunity. to talk about two companies recently, and they are not quite in the same space as Dix, but Home Depot and Lowe's, just talking about inventories and talking about the uncertainty of pricing. Well, Dix had sales increase of 41% overall, but their inventories were lower as a function of sales. So the inventory slowed in terms of growth as a function of sales. And even though they had high promos, their margins went up. So what you're seeing from Dix, and I don't want to extrapolate too much, but they got their mix right and they got their inventory right. And some of that is, some of that is guessing, but some of that, you have to lay down to Dix having a really good sense of who their customers are and what they're interested in.

Well, no, and to go back to Home Depot Lowe's, you can put Target and Walmart in there as well. I mean, Dix is dealing with inventory. They've had a better 12 months of dealing with inventory than any of those others. In terms of the guidance, the same store sale guidance for 2023 that Dick's sporting goods gave was flat to positive 2%. And this is something that we've seen to varying degrees with some of those other retailers that we mention where it's like, yeah, it might be negative 1% to positive 1% that sort of thing. To what do you ascribe that? Like, is that just we're being abundantly cautious as a group across the board? Who knows?

Maybe part of it for Dick's sporting goods was they're going late. They get to see the other retailers going earlier. They're cheating off the other team's papers. And they're just saying, wait a minute. So who knows? Maybe their guidance was going to be a little bit higher. And they said, let's tick it down just a little bit. But I mean, one of the thoughts that goes through my mind is, what's informing this caution

is the unclear picture on inflation. When part of the story for Dix and those other retailers we mentioned has been higher-tickered prices because they've been able to charge more. It's not more traffic in the store necessarily. Right. The baskets are more expensive. Right. That's doing the heavy lifting.

Yeah, the baskets are more expensive. Yeah. It's a great question. And I always do wonder about when you see an outlier like this. Because you're right. Most of them have said, we might be a little negative. We might be a little bit positive. But Dix has at least put the lower bound on we will be neutral. I think maybe that has to do with their having a sense of confidence, having managed their inventory so well that they know that they don't have to go to promos to move out old. inventory. So they have, they're not, they're not sitting on, you know, the 20203 equivalent of 10,000 Furbys that they don't know what to do with. Their inventory management has been right and it has been tight. And I think the thing that leads the most credence to that, and I'm going to just lean into the theory that I'm coming up with while we speak, was the fact that they increase their dividend by 105% to $4 per share for this year, which suggests not only have their earnings gone up, but they feel like their cash requirements are lower, such to the

point that they can return a much higher amount of capital of shareholders. That's a serious dividend hike. It is. It is. You see that a lot of times when companies have newly instituted dividends and they're like, okay, we'll go from two pennies to four pennies. Oh, 100%. Four dollars per share. And not to say that a share is a share as a share, but it is a substantial yield for the company at this point. And that, to me, says as much about their confidence about the quality and the security of where they believe Dix is at this point. Oh, man. Good to see you. Thanks for being here. Nice to be here in studio.

You may have heard of fire. Financial independence, retire early. But that's just the first kind. Alison Southwick and Robert Brokamp look at the new flavors of fire and what it takes to become financially independent. In the beginning, there was the fire movement. Fire standing for Financial Independence, retire early. It can be traced back as far as 1992 and the publication of Your Money or Your Life by Vicki Robin and Joe Dominguez. really took off after the Great Recession of 2007, 2009. And since then, all sorts of fire spinoffs have been created. Here to explain them is Megan Brinsfield. She's the director of financial planning for our sister company, Motley Fool Wealth Management. Welcome, Megan. Thank you. I'm excited to be here, and I brought my favorite tag-along friend, all of my disclosures that I travel with. So just keep in mind that I do work for Sister Company, Motley Fool, Wealth Management, and all our operations and investment decisions,

made separately from the Motley Fool. My comments represent my own thoughts, not necessarily those of full wealth or its affiliates. And finally, keep in mind that this conversation does not constitute investment advice. So if you do need personal advice, reach out to a professional. Fun. Glad we got that out of the way. All right. Let's start by you telling us about how you got interested in the fire movement. Well, I've always been a little saver. I always saved my allowances growing up, and I really took pride in putting away my money for a rainy day, a future, et cetera. And I stumbled upon the Mr. Money Mustache blog. It was actually right before I started working at Full Wealth.

And it was talking about the simple math behind early retirement. It was based on the 4% rule. And I basically saw all these ways I could level up my savings game, and I was down for the challenge. So I ended up in very rapid succession, moving much closer to work. So I went from a 20-ish-mile commute to a one-mile commute. I went from living by myself to having roommates, and I bought a bicycle. So if you have ever read Mr. Money Mustache, this is like his life-changing advice, is to buy a bike and use that to commute everywhere.

Yeah, a big part of it really is just being very smart worth your spending, bring it down and saving an awful lot of money. So it's kind of interesting that we're actually still talking about the fire movement, because the last three years have been rather extraordinary, right? We had the pandemic and a recession. I remember there were some articles that came out in March of 2020 saying this is going to kill the fire movement. And then last year, we had a bare market in both stocks and bonds, as well as high inflation. So you also saw some articles sort of saying that, oh, boy, those fire folks are in trouble. But from your vantage point, Megan, how is the fire movement changed, if at all, over the past few years?

So, what I've seen is actually more of a focus on flexibility over the past three years. There's also been a lot of news about the great resignation within Gen X specifically. And I think within fire circles, I've seen that even more, that whatever savings they had accumulated thus far gave them a little bit more flexibility, such that, for example, if they didn't have access to child care during the pandemic, one spouse or partner might be able to forego work or decrease their hours because they did have that better financial backstop. Also, the increase in remote work and remote capabilities means that people could kind of change the calculus on how much they need in their annual budget in order to make fire work

for them, especially if they were able to move to a lower cost of living area. So you saw a lot of the population moving away from high-cost cities like New York. in San Francisco to lower cost of living areas. And I won't say that's all the fire movement, but I do think it kind of gave people some levers that they didn't have access to in the past. All right. So there are many different kinds of fire.

So let's go through them here really quickly. Maybe Megan, you can define them for us. There is fat fire. Fat fire is mostly consisting of people that want to spend $100,000 a year or more. So fat, meaning like a fat budget every year. And these folks try to accumulate at least $2.5 million to generate that $100,000 a year. All right.

How about Lean fire? Lean fire is the other end of the spectrum. You are typically doing a lot more budget conscious sort of maneuvers so that you're spending very little. You probably have either housing paid off or your house hacking or something like that. The prominent example in the lean fire space is like the Mr. Money Mustache kind of group that spends about $25,000 a year. So they have to amass a lot less in terms of total invested capital in order to meet their budget needs every year. All right. How about Coastfire?

Coastfire is where you've actually reached a point where your savings can just compound until a traditional retirement age. So savings becomes optional at that point. And so a lot of folks are able to either take a step down in the number of hours they're working, take a lower paying job, work seasonally, things like that. All right. Barista fire is where you get a job, usually like a part-time job just for the benefits. You just want maybe health care coverage or maybe access to a 401K or some equity options, things like that. But usually health care is a big motivator for people in barista fire where it's like that might be a very, large expense in your budget. So if you can just work enough to get that paid for, it really reduces the stress on your savings.

So I suppose a big difference with all of those is really how much you're going to save and your overall time horizon. But are there some core sort of precepts that underline most or all the flavors of fire? So I think there are some financial precepts. Definitely the 4% rule is very highly relied upon as a starting point. There's definitely additional research and discussion. out there because the 4% rule, as you know, is based on a 30-year time horizon. So a lot of folks who are retiring early are going to have a much longer time horizon than that 30 years if they totally stop working.

But that is a starting point for kind of establishing a target. A lot of folks in the fire movement rely on index funds or like total market index funds as an investment vehicle, just mainly focusing on low-cost strategies to stay invested in the market. And then just from a spiritual sort of standpoint, people want the flexibility to sing that old song, take this job and shove it. If they reach a point where they just can't handle it anymore and have the flexibility to walk away. And that really is the freedom of fire. And these days you often hear folks talk about more the FI.

So the RE is kind of getting dropped here. What about that? Yeah, there's definitely a focus on financial independence more so than kind of hitting an eject button from the workplace. A lot of the research out there kind of talks about that early retirement might not actually be great from like a social and brain stimulation perspective. And so the RE is really becoming redefined, whether it's like restart again or whatever sort of, um, that's a raw, but whatever sort of acronym you want to replace in there, like reimagining your career, what have you. And so a lot of the media around the fire movement has really just dropped the RE. Yeah, you talk about people questioning whether actually in the end it was worth it. So I'm sure there are plenty of people who have tried fire and then realize it really wasn't for them. So have you heard or read about any sort of fire failures? The one that comes to mind,

I actually got to interview this blogger a while ago is Financial Samurai. He runs a blog, and he retired early in the San Francisco Bay Area, has kids, and had a very, he was definitely in the Fat Fire category, and he wrote a whole blog about how he was an early retirement failure and a number of reasons why, but definitely on the list of reasons came back to social engagement, bond returns, tax policy, mental stimulation, and then just the number of variables that change when you are a younger person, you've just got like a longer horizon of potential possibilities and feeling like maybe those all weren't covered. So my biggest skepticism with the early fire movement came from the feeling that a lot of the

fire folks were making their living by getting other people. to pay them to learn how to retire early. Basically, their job was being like fire influencers. So it's kind of like selling a get rich quick book that teaches people how to get rich quick by writing a book that teaches people how to get rich quick by writing a book that, you know, it's just turtles all the way down. And this annoyed me, as bro knows. Is it less like that now? There are tons of financial independence blogs. I don't think there's any denying that. And it seems like they all kind of have this little pithy name related to the physical fire. But I do think it's helpful. There are a lot more conferences popping up where you can meet quote unquote regular

people either pursuing or who have achieved fire. So I actually went to one back in the fall called Camp FI. And these are all over the country. It's like sleepaway camp. We were literally at like a Bible camp. And yes, bunking up at a Bible camp. And there were a little break. sessions. There's lots of opportunity for group discussions, everything from figuring out your number to what's your purpose, to what flavor of fire do you want to pursue. And yeah, there were bloggers and influencers there, but for the most part, it was normal people without a website. Those sound more like my kind of nerds. All right, let's close with your recommendations for the best sources of information about fire or FI or whatever for people who want to learn.

more. Well, I think there's a very active Reddit community, actually, that can be really helpful. So the different Reddit threads, the books that we've mentioned here, Simple Path to Wealth and your money or your life are kind of seen as like biblical texts in the fire community. So that's definitely a good place to start. And then I think from podcasts, Choose FI is a great podcast. They kind of incorporate a bunch of different elements of this. They've been around for a while, and then they have local Facebook groups as well. And then if you just Google like financial independence early retirement plus whatever phrase that sounds appealing to you, there's early retirement extreme where people retire when they're like 26 and things like that

all the way to people who are in their 50s and just are starting over and pursuing fire. So there's definitely a flavor out there for everyone. and it's all in the pursuit of greater financial literacy and optionality. I'll mention a few. First of all, your money or your life is a great book. The first time it came out as in 1992, but it's gone through a few editions. The most recent was in 2018, so you want to look for that edition. There are actually a couple of good movies. One is Playing with Fire, but you want to make sure you get the documentary,

not the comedy about Fireman. And there's another one called Minimalism. And it's not explicitly fire, but I would say it's spiritually the same, in that you just realize that you only need a few things in life to make you happy, and that allows you to save a lot of money. And then finally, I'll just point out retiree early lifestyle.com, and that's the website of Acacia and Billy Caterley, who retired at age 38, 1991. They are real like fire pioneers, or I guess, Fioners, you might call them,

and they're still retired, and they just came out with a fifth edition of their new book, which you can get at their website. Not to be confused with Fioners, which is an actual website of, Someone's completely different. So someone's already grabbed that one too, huh? Yeah. Of course. Of course they have. All right, bro.

Well, if you were to invent your own flavor of fire, what would it be? So this is somewhat tongue and cheek, but not really. I would call it quiet fire or flat fire because it's based on the supposedly sort of recent idea of quiet quitting, where you know, you're working from home and you do just the bare minimum. You don't actually work extra hard, and it gives you a lot of free time. So, you know, we're supposedly seeing a lot of that these days. I actually know people who actually do this. And I call it Flatfire, too, because this is also happening in China, but it's called

the lying flat movement, where these younger folks are saying, we're tired of working so hard for so little, so we're just going to put in the minimal amount of effort. So quietfire or flatfire. Megan, how about you? Maybe like Backfire, where you just like repeatedly fail. at retiring early and go back into the workforce and learn a new job and then do it all over again. Love that. Love it. Allison, what do you have? Mine is chemical fire. You never stop working, but every weekend you take a trip thanks to a

psychedelic or otherwise mind-altering drug. Don't try it at home, kids. Don't try it at home. Just say no. As always, people on the program may have interest in the stocks. They talk about. and the Motley Fool may have formal recommendations for or against, so don't buy ourselves stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.