The Compound and Friends - Josh Wants a Stock Market Correction: What Are Your Thoughts?

Episode Date: February 19, 2020

Apple warns of Coronavirus slowdown - Financial advisors never actually retire in real life - Is February too early to be citing year-to-date performance? - Reactions to the NBA’s All Star Break - How many bagels is too many? - Josh is rooting for stocks to go flat-on-year - Cruises - what’s the deal with that? Why do people like them? Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey, it's Downtown Josh Brown here with another episode of What Are Your Thoughts? I'm here with Michael Batnick as usual. Michael doesn't know what I'm going to ask him. I don't know what he's going to ask me. Stick around. Let's see what's happening. Welcome to the Compound Show podcast. Each week, we let you in on some of the best conversations we're having about markets,

investing, and life. Just a quick reminder, the hosts of this show are employees of Ritholtz Wealth Management. All opinions expressed are solely their own opinions and do not reflect the opinion of Ritholtz Wealth. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Okay, here we go. All right, I'm going to go first. Both of us seem to have been struck by this statistic. This comes from Mike Thrasher, who's a reporter at RIA Intel,

which is actually a publication from Institutional Investor Magazine. I think they do a really good job covering our industry. Part of Mike's article, wasn't even the point of the article, is that there's 111,500 financial advisors who could be retiring in the next 10 years, according to Cerulli and Associates. And that represents about a third of our workforce, financial advisor workforce, and probably a third of the assets under management in our space. I'm going to take the under on that. Nobody ever retires. Yes. What are your thoughts? I'm totally with you. Why would they retire? There's no need to.

There's no need to. It's almost like a pension keeping your firm. It's not a particularly high stress job. Right. It's not physical. As you get older, if there are some clients that are pain in your neck, you could drop them. You could work with who you want to work with. I thought this was really interesting. He said – so at the end of this piece, he said, but there was a broad unwillingness to sell, creating some perverse circumstance in the industry. And we've heard this – Wait, wait.

Back up. Meaning there's a disincentive for financial advisors to sell their practice. We've heard this a million times from people my age who were promised from their senior partner that they were going to take over their client base in 10 years when they're ready to hang it up. And it's just- It's a lie. It's always a lie. It's not happening. Yeah. We meet these kids all the time. They're like on a team. They're the young guy on the team, which means while the senior advisor is golfing, they're doing all the financial plans. They're doing like all the tech stuff to make sure people's accounts reflect recent information.

They're doing all the prospect, doing all the work. And there's like some boomer guy with like golf clubs in his office putting. And he's like, any day now. Well, so there's all of these mergers and acquisitions like more than ever before. Yeah. So I think we're conflating that with the idea that these older advisors are selling. That's not the case. These are mega deals generally speaking. I mean obviously there's like smaller ones.

But I think the real story over the next 10 years is why aren't the boomer advisors retiring? Because I'll tell you why their clients start to die. And so like they, let's say a boomer advisor with one junior advisor working for him or her in Des Moines, Iowa, and they have 70 million under management, which is a lot of money for, for, I guess that type of practice. And then a few clients die and it's like 60 million. But it's glacial. So maybe their lifestyle downshifts a bit. They're not adding any.

Well, they're also not going to save their clients that they've worked with for 30 years. See you. Good luck. Well, that's another part of it is like if you're not able to sell to the right person and it's not easy to do, you do feel some responsibility to your clients. I'm abandoning you. Yeah, to like see the plan through through, everything that we've worked for. Okay.

Let's see. What do I got? You agree. They're not retiring. They're not retiring. Okay. So it was either last week or the week before. Oh, it was Bitcoin.

Bitcoin is up 44% year-to-date, the best performing asset class. Bullish. And I'm thinking like, wait a minute, like 25 days into the year. So when do we get to start saying year to date? Is it after the first quarter or like- After the first quarter, because in the first quarter, you can say month to date,

which is more accurate. I just feel like February is too early. And you could say quarter to date. QTD is a thing. And then like around April, May, you could be like year to date. Yeah. Year to date, right.

Imagine starting year to date on January 5th, you have remarks about year to date performance. On January 1st, if that's the first trading day of the year, right. Imagine starting year-to-date. On January 5th, you have remarks about year-to-date performance. Well, so people – on January 1st, if that's the first trading day of the year, people say it like ironically, like joking around. But then like we see it seriously like 20 days later. It's no less silly. Well, yeah. And then I guess it's like what is the purpose of saying it? Well, I say it.

No, no, no. But if the purpose of saying it is like to show that like you were really smart to have the top performing asset class. I guess my answer is like, OK, let's check in in June. Let's see what's going on. What do you got? All-Star weekend, NBA. I don't want to spend a ton of time on this. Me either.

I'm really, really bullish just in general on the NBA because – I'm not going to talk about the game. I was just thinking about watching my kids watch all the events and myself. I was just thinking about the nexus, like the Venn diagram that the NBA sits in the middle of. It's a global sport in a way that I don't even think the NFL is, even though the NFL is bigger. Of course not. Sneaker culture.

So like my kids are now buying and selling sneakers on apps. It is like the center of the universe for a certain kind of kid. And the jerseys and all the street wear. You watch the players show up to games. They're in head-to-toe Balenciaga. And then you have nine-year-old boys talking about these brands. I don't know what that thing you just said. Okay.

It's like a hot like foreign uh like italian uh designer but just the point that what would it take to get nine-year-old boys interested in fashion nba players and then the hip-hop element which obviously hip-hop and basketball are like you know hand in hand so i just find like basketball is really at the center of the culture like what do you think about that? Totally agree. And if you were football, like what would you do about this? Because football is bigger. Way bigger. But not – it's not –

It's not as culturally relevant. Like I feel almost like NBA would be a momentum stock and the NFL would be like a big giant dividend blue chip. Yeah. But you don't get to keep that forever, right? Well, there's player turnover quicker in the NFL. Their heads are covered. You know their numbers. But even Tom Brady, probably the biggest name in the NFL,

he's not a very public guy. If you walked by Lamar, like the hottest NFL player of the year, let's say, besides Holmes. If you walk past Lamar on the street, would you know who he is? Yes. Do you think most people would, though? No. You might know he's a professional athlete.

This was actually the first All-Star game I've watched in a long time. And it was sick. It was very good. It was very good. All right. I'm super bullish on basketball. You're really going out on a limb there. Okay.

Okay. So Apple warned last night again. I say again, you pointed out that they did the same thing a year ago. They should do it every year. But this time it's on fears of coronavirus. Obviously, they're huge in China. So they were projected to do $63 to $67 billion in revenue next quarter. That's not going to happen. So last time they gave like a $2 billion warning and the stock dropped like $50 billion market cap or whatever it was. Not seeing a similar reaction this time. What do you make of all this? Not seeing a similar reaction. I mean, it's down 2.5%. You know why? In January, I think of 2015, we saw all these profit warnings from S&P 500 companies. And the reason why-

A lot of them came to fruition because of the energy thing. No. It was like a snowstorm. What do you mean? There were like massive snowstorms across the country in the fourth quarter of 2014. And I think in early 2015, like all these companies started warning on profits. But wasn't there an earnings recession? You're talking about like later in the year and early 16 about the oil.

This is prior to the oil price collapsing. This was just like snowstorm impeded people's ability to go to car dealerships or start new home building. I think what investors have learned is that things that are put off aren't canceled. So if you didn't get a new iPhone in early February in China because they closed Apple stores, a few weeks pass and you go get the fucking iPhone. Like it's not – so it's a revenue shortfall short term but it's almost the equivalent of like a snowstorm. It's like, oh, yeah, we couldn't get it done last weekend. We'll go next weekend. I don't think it materially changes the trend of an economy or a business like Apple's because you've got this temporary situation where people don't or can't, in the case of quarantines, leave their homes. The other thing is who is it positive for?

So there's a company called Zoom Media, like full disclosure, I own a little bit, ZM. Stock went up like 30 points since this coronavirus thing started. Why? Because all these canceled meetings and trips to China mean virtual versions instead. Business still gets done. People find a way to make money. Well, you think, but do you think that maybe investors learned the wrong lesson that it didn't matter previously so they should disregard it this time? Well, we'll say that could be because if we're still talking about coronavirus in three months after the winter flu season is over, then 100%, you will see massive ratcheting down. It's down 2.3% today right now. That's nothing. Yeah. You'll see huge ratcheting down of earnings expectations for the full year. That will have a real impact on stocks.

But I think like, let's be a little bit humble. It's a little premature for any of us to be able to say definitively what coronavirus will mean to full year 2020 earnings. So in conclusion, Walmart just warned this morning and cited coronavirus. No, but people are saying that the market is voting conclusively that because it's only down 2% that coronavirus isn't going to be a big deal. We could be down 4% tomorrow, you know, another 2% tomorrow. I wouldn't get that complacent, but I thought it was important. Tim Cook started 2019 with a letter to shareholders. He did not want to deliberately say

the trade war is fucking up Apple, but that was like the subtext of the whole thing. If you sold on that news, it went down 10% stock or 8%. If you sold on that news, it went down 10% stock or 8%. If you sold on that news, you missed 100% move over the next 12 months. I'm not suggesting Apple will double again in 2020. I'm just saying like, can we have some awareness of how these things typically play out? Nobody thought the trade war would permanently impair sales of iPhone. And if you made that bet, you're schmuck because that's not what ended up happening. All right.

Let me give you this. I feel like I'm rooting for a correction right now. Is that really bad? No. I always am. You always are. I don't know. I'd like to see if things get shaken up a little bit.

So we don't have any clients. I don't want the market to go down like 40%. No, that's not a correction. That's correct. I'm just being explicit. I want the year-to-date gains to be taken away right now. Let's do it. I want stocks to be lower so I can buy more of them.

I don't want another 10% higher from here. And if I had clients that were counting on stock gains in the first six months to pay their bills, it would be different. But wealth management firms don't have clients that are relying on a stock rally every six months. If anything, it's the opposite. Most of them are 50% fixed income in cash. So I don't know. I feel kind of weird. Well, we're already 0.2% off the highs, so you may get your wish. Do you always want stocks to go a little bit lower rather than a little bit higher or just recently. I don't know.

I just, it's, it's, I mean, it's felt, I know it's not been easy, but like it's, it's how many new highs this year already?

A dozen. And I know I'm using year to date numbers, but whatever. Sue me, it's enough. Let's give it back a little bit. It's enough already, right?

Let's give it back. Let's, let's calm down. Do you think I feel that way because the internals are deteriorating? What? I don't know. No, like for the first time since October, like the New York Stock Exchange advanced decline is not confirming the new highs in the S&P.

So maybe I feel like we deserve to pull back on that. I don't know. All right. All right, go ahead. I was in Bagel Bus this weekend and this guy walks in and he goes, hey, Mike, what do you need? And the guy goes, six or seven bagels, nothing crazy. Okay.

For himself? That's what he said. Wait, who walked in? His name was Mike. Oh, but not you. The guy behind the counter said to him, hey, Mike, what do you need? Okay. And his answer was six or seven bagels, nothing crazy.

So what? I don't understand. So I was thinking, like... Nothing crazy? What would be crazy? The nothing crazy part really stood with me. Stuck with me. You know what I mean? What if he said, like, yeah, 70, 90, you know, nothing crazy. Like, do people never think they're crazy? Like, the whole... I don't know.

I cheated on Bagel Boss this weekend. I walked into Bagel Chalet. Bagel Chalet, which just opened. Already strike one. They don't have Boar's Head cold cuts. You go to the bagel store and get cold cuts? No, but we needed it for some reason. Like we needed American cheese and they cut me this plastic shit.

That's weird. What's a crazy number of bagels? I want to know. So I walked in. I had to buy a dozen. I had two sleepovers going on at my house Sunday night because the kids were off Monday. So I had to buy like a dozen bagels. I didn't say nothing crazy.

What if this guy ordered like a baker's dozen and the guy behind the counter is like, what are you crazy? Whoa. Slow down. All right. This is my last one. People are going to get mad at this. All right. That's a wrap.

No, I can't help it. I got to do it. Cruises. Never been. Not for me. Like putting aside, I don't expect coronavirus to infect every cruise. Well, you're a prima donna, A.

You're a real indoorsman. No, I like the outdoors. I like going to resorts. I don't want to be trapped with the same people and look at them seven days in a row. And then just the idea of something goes wrong that I can't get off. So I was watching the news last night. They airlifted 14 Americans off that boat to treat them and they were going to be OK, thank God.

But part of me was like, well, why did you get on that boat to begin with? What are you doing? What are you thinking? Are you insane? No, I know millions of people go on cruises. I just can't imagine wanting to. You're a terrible person. Why?

Why would you go on the boat? Yeah, like what are you doing? What? People like cruises. What's wrong with you? What do they like about them? I've never been. I'm not even being a dick.

I'm dead serious. I've never been. We're not going to solve this here. Anyway. All right. Well, all right. Well, why don't you let us know what you think. Don't get mad at me with the cruise thing. Maybe I'm just totally wrong. I've only been on one.

I don't think you talked me out of it though. Go ahead and give us a subscribe if you haven't already. We're about to break 25,000 subs. We appreciate each and every one of you. Or unsubscribe if you don't like Josh's cruise thing. Yeah, if you hate me now, you can unsubscribe. But let us know what you think in the comments.

Go ahead and give us a like as well. We will be back very soon. Thanks for listening. Check us out at thecompoundnews.com for daily investing and market insights. You can watch all of our videos at youtube.com slash the compound RWM. Talk to you next week.