The Compound and Friends - It Was Hard to Lose Money This Year: What Are Your Thoughts? (with Josh and Michael)

Episode Date: December 17, 2019

Downtown Josh Brown and Michael Batnick go head-to-head for a brand new What Are Your Thoughts! In the final episode of 2019, Josh and Michael cover: * It was almost impossible to lose money this year * Does the success of DoubleLine over the last decade prove that building an active management company is still possible? * The five best performing stocks in the S&P 500 this year were AMD, Lam Research, KLA-Tencor, Chipotle and....Target? * Why does Michael get bullied online more than Josh? * 2020 analyst forecasts * Josh's anti-coffee rant was trash * Apple is the most emblematic stock of 2019 Let us know your thoughts on these topics! We love to hear from you. 1-click play or subscribe on your favorite podcast app   Subscribe to the mini podcast on iTunes or Spotify    Enable our Alexa skill here - "Alexa, play the Compound show!"   Talk to us about your portfolio or financial plan here:  http://ritholtzwealth.com/   Obviously nothing on this channel should be considered as personalized financial advice just for you or a solicitation to buy or sell any securities. Please see this 3,000 word terms & conditions disclaimer: https://thereformedbroker.com/terms-and-conditions/ Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, it's Josh Brown. Welcome to What Are Your Thoughts? I'm here with Michael Batnick as always. Michael has no idea what I'm going to ask him about. I don't know what he's going to ask me about. It's our favorite game. Let's play it. Stick around. Okay, I have the first topic, and I think this year was really fascinating. I tweeted out it was almost impossible to lose money this year. So I just want to run down real quick a couple of these returns for some indices. S&P plus 26.4%. Dow up 20%. NASDAQ up 30-something, 32%.

Russell, 22%. Europe, you made money, 20%. Japan, 17%. What's the question? Emerging market. Go down the list. The only thing you could have lost money in is the volatility index. If you bought the VIX, if you were obsessing with vol.

This is one of the years diversification didn't mean having to say you're sorry. Just about everything you did worked. Because even bonds give you double digits, close to. Yeah. You made money in junk. You made money in junk. All right. So? You made money in investment grade.

Is it likely that you'll have multiple years in a row with returns in every single asset class, double digit returns in every single asset class? Or is this really an aberration? But how do we know? Like is there anything saying that 2020 couldn't see a repeat of something like this? Of course, good. Okay. But we haven't historically.

I don't know the numbers off the top of my head, but I would say that this was an unusual year in which everything made money. But it wasn't 2018 the opposite. Everything lost money. So, but is that the point? Remember Deutsche Bank? Deutsche Bank did this thing where they were like 300 of the 305 asset classes we track lost money in 2018.

In 18. Whatever it was. So is that the takeaway? That a lot of times it's just the setup and we came into 19 down big in everything? There is no takeaway. Really? It's just that random? I think so.

Okay. All right. I'm still betting on another good year. Go ahead. Sticking with performance. So the best stocks in the S&P 500 this year, there were five and they all returned more than 90%. What are they?

So three of them were semiconductor stocks. AMD, Lamb Research, and KLA Corporation, which is something that is not really spoken about. KLA 10 core. It's like chip equipment. Was AMD the best performing stock in the S&P? It was up 120% or something like that. The other two, you have any guesses? I'm going to say Target and Walmart. Target and Chipotle. Target and Chipotle. Oh, yeah, Chipotle.

Target was up 90%. Isn't that wild? That's like a mature business. I thought. I'm going to tell you that I think that's the most interesting thing that happened this year. Best Buy, Target, Walmart are, I think, in the top 20 of the S&P 500. What about in the bottom? You got Macy's.

Wait, let me finish that thought. Go ahead. Amazon underperformed. Underperformed what? Amazon did 17% this year versus the S&P 26. So it's interesting. If you went into January this year and you're like, I want to play the consumer, you would have been more likely to want to have more Amazon and less of things like Best Buy and Target and you would

have been wrong. Well, two of the bottom four were Macy's and Trip. What's ABMD? Abiomed. Okay. I don't know anything about it. I just know what it is. Next. All right. I want to ask you about your thoughts on DoubleLine. So as Jeffrey Gunlock founded the company, they just celebrated their 10th anniversary this week. DoubleLine started with 45 think, $150 billion. And only 40% of that is in the flagship fund, total return. This really flies in the face of everything else that happened outside of DoubleLine in active management this year. Yeah, they were an outlier for sure. But isn't this proof that you can build an active investing company or fund or strategy

regardless of what the overall flows are? I mean, it's an incredible story. $2 billion to $150 billion in the last 10 years. Yeah, but- Every other dollar went passive. They're a huge outlier. They're a huge outlier. It doesn't prove that it could be done.

Proves that it was done by one company. But they did it. Yeah, one company did it. But not only did they do it, it's massive. And they did it from scratch. Also, hold on. No, they didn did it so but not only did they do it it's massive and They have it also also hold on. No, they didn't they did not do it from scratch You don't start a two billion dollar company with 45 people from scratch He had a long track record before he started the company. Of course. He didn't come out of nowhere But I'm just I guess it's nice to see that you can build an active

an active management company even in a time where that you can build an active management company, even in a time where trillions of dollars left active management and went over to passive? This is an anecdote. Well, I don't think there are more double lines, but I'm just saying it can still be done. I don't know. It makes me happy.

CNBC did a survey where they surveyed market strategies for the 2020 forecasts for the S&P 500 and probably amongst other asset classes. And this was sort of surprising. So the average was like 6%, which it's always single digits, even though we know that single digit returns are out of or unusual. It's usually up or down double digits. But this surprised me.

The most bullish forecast, I believe, called for something like a 9% gain. 3,600, Piper Jaffray? Is that the most bullish one? But 9%? Is that right? Well, I think you see them every year forecast an average, and we almost never get an average. Right. So by definition, they'll be wrong.

My point was that if the most bullish forecast is only 9%, I just thought that stood out to me. The other thing that's interesting is how they arrive at that number. It's usually some combination of the return plus the dividend. And then they give you like that average. It gets to each forecast and then they'll average them all across. But yeah, I would be surprised that there's not one double digit upside target. So the average forecast is up 5% and the maximum target is 3450 by BTIG's Julian Emanuel.

Is anyone forecasting down? Which would be a 9% advance. I don't think it was broken down that way. But that seems very low that the most bullish forecast is for a 9% return. You think what I'm thinking? What are you thinking? Super bullish. Okay, next. I want to talk about bullying.

Bullying? Bullying. I don't. Oh, bullying. Yeah. I thought you said bullion. No, I don't want to talk about bullion. I'm curious what your thoughts are. We moderate some of the comments on YouTube. We get big reactions every time we post videos on Twitter. You seem to get more shit than I do. Why do you think that's

because you're younger? Well, more shit we're on YouTube. Just in general. No, like every like just in general with with our with our show. I feel like I definitely get like people say things, but you get dunked on way more than I do. I might get dunked on for things I say, but you just get like straight up bullied. I think it's the bald thing. If I had to guess, I mean, but easy talking.

I'm almost bald. I should get half of that. Um, so you don't really think very deeply about why you more than me. No, I have not internalized. I mean, all right,

I want you to go home. I want you to go home this week and think about it. Uh, I don't know. I, I just, I thought that was interesting. Um, I do get it from all angles it's yeah like if you wear if you wear a hood on your head or halfway on your

head somebody said i was trying too hard first of all we were in the conference room it's 35 degrees in there and my hood was half on because there's a camera so i didn't want to look like darth vader or the emperor so you couldn't even see my face i just want to say like if you if you wear a t-shirt they're like oh batnik wearing a t-shirt doesn they're like, oh, Batnick wearing a T-shirt, doesn't give a shit. Now you look good today. Probably because we have a meeting. I know you didn't dress up for this. But people be like, oh, look at you in a button-down shirt, big shirt.

Like, you almost can't win. I feel like I get a pass on certain things. Okay. This is a nice segue. Would you like to apologize, sir? Your coffee video was trash. Oh, man. I'm embarrassed for you, and I'm giving you a chance. Do you like to apologize sir your coffee video was trash oh man i'm embarrassed for you and i'm giving you a chance do you want to apologize i uh what what because i said that it was it was an unnecessary aggressive dunking on people that like to drink coffee calling them coffee assholes

what are you a steak asshole you're you're a shake shack asshole true all right no i'm a pizza and burger okay so i'm giving you totally great no i look i'm but i own that so own what if that i pay way too much attention to like oh this place has the best burger no but this place has the best bun like i do all that shit so i own it so when you get upset if somebody did a video calling you pizza asshole no do it please do it um but i will say, stay tuned here on The Compound. My apology will be in video form. I had a blind taste test with Doug Bonaparte, and I think that's coming out tomorrow. I'll say that the difference in taste between the coffees was wide.

Yeah. No. I was proven wrong. Like, if we were doing a wine thing, I definitely don't think I could tell you what good wine was. But the coffee was like, oh, that's the good coffee. But can I tell you something? Yeah. Even after all that, if I want coffee and I'm driving past a 7-Eleven, that's it.

That's where I'm going to go. You have shitty taste in coffee. No, I know it's not. I know it's not as good as it can be. Next question. My point is I don't have time. I don't have time. Did you see what I just did there?

Yes. All right. I don't have time. I don't have time. Did you see what I just did there? Yes. All right. My pick for the stock that's most emblematic of 2019, tell me what you think about this.

Wait. Or if you have a different answer. Well, what do you think it is? The most emblematic of 2019. Like if you had to use one stock to explain the whole year. Wow. I don't know. We haven't mentioned it yet.

Microsoft, Tilray? No, Microsoft close. Apple. Apple. Apple don't know. We haven't mentioned it yet. Microsoft, Telluride? No, Microsoft, close. Apple. Apple. Up 70? Because it's pure, it's pure multiple expansion. And it just shows how, so I know a very well-known analyst. Congratulations.

Covers Apple, like he's considered to be like the most knowledgeable analyst on Apple. He had it as a neutral the whole year. Apple went up 75% this year. I actually saw a tweet yesterday that it's trading at the highest forward earnings as it has. No, the forward earnings multiple doubled from a year ago. Something like that. This is my point. Let's say you are the expert.

You are the ax on Apple. And you know every single detail of what's going on with this company. Yeah, yeah, yeah. And then the multiple goes up 60% over 12 months. So you had the earnings right. You had the revenue right. You had the cash flows right. You even got the buyback right.

And you're still wildly wrong on the stock. No, no, no, no, no. He nailed it. They're business analysts. They're not stock analysts. They can't- That's not true. They have price targets. They have-

Well, because they have to have price targets. Okay, but they're not business analysts. They can't. That's not true. They have price targets. They have to have price targets. Okay. But they're not business analysts. They don't work for Deloitte. They literally, their job is to say where they think the price is going based on the underlying business. They can't predict the multiples. No shit. So what's the point? Why even have a target? Just say we think the company's doing well. It's so absurd that- People want the target. Anyway, this was a big year for multiple expansion. Almost no earnings growth. I mean, there were pockets, but overall S&P.

In the meantime, you got this big boost because the Fed was being easier. Corporates paid 11% in taxes or something this year. Just a wildly low tax number. Buybacks were good and there weren't any geopolitical calamities. So you got huge multiple expansion throughout the year. So my point is Apple is so emblematic. This is the biggest company on earth and still managed to find a way to go up 75%. Didn't Apple get destroyed when the news of tariffs first hit? Didn't it gap down like

eight or 10%? Yeah, it had a terrible 2018. It had multiple double-digit drawdowns. And then this year, there was a moment where it got crunched, I think, in August. And then it just went vertical. But I think that the lesson for me, the takeaway is valuations are driven entirely by sentiment, of course. And so even if you nail the business prospects for a company, that doesn't tell you how other people are going to feel about it.

And that, to me, is the harder part of being an analyst or being an investor. What do you think about that? Well, I think that over the short term, yeah, anything is possible. But I think that if you get the trajectory of the business right, you'll agree to do fine. Yeah, I think that's fair. Got anything else? No. Okay, let us know what your thoughts are. Tell us what you think about these topics.

We love your feedback. Go ahead and let us know if you have any topics for next time out. We appreciate all your feedback. We appreciate your subscriptions. Not all the feedback. Most of the feedback we appreciate, except for when Michael gets bullied.

I don't really appreciate that. But we love you guys. Thank you for subscribing. Thank you for watching. This is the final episode of What Are Your Thoughts for 2019, but we will be back in January.