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How A Few Stocks Can Prop Up the Whole Market · How to Retire on Time

• 0:06
  Mike: Welcome everyone to the Retire On Time Q and A. Yes. This is live. Yes. It's Tuesday, and yes, it's noon here, central time in the great area of Kansas City.
• 0:14
  Hopefully, you're having a good day today. We've got a lot of questions being submitted now. If you haven't submitted your questions, make sure to do so. Put it in the chat or go to retireontime.com/ask anytime during the week. You know, you're in that moment.
• 0:28
  You're in the office. Hey. Oh, I've got that one question. We've already, you know, been put in your calendar for lunchtime. Yeah.
• 0:35
  That's how it works. So we're gonna have a good time here. David was was with me as always, the original cohost of of this show Yeah. And the many iterations we've taken with it. So David Franson, head of many things here at Kedric Wealth.
• 0:48
  It's true. Client services, he's the one that takes care of the clients. Healthcare, director of healthcare is an important one too. Yeah. As Medicare has had some fundamental changes.
• 0:59
  David: Yeah. Things happening. Things are changing. It's true.
• 1:02
  Mike: Wait till October 15, and then you can schedule calls with David and his team to talk about your benefits. As always, the chat is live. I can see everything. It's right here on the screen. So if you've got questions, comments, keep them coming in.
• 1:16
  So for today's group, taxes are one of the biggest things. Taxes is number one. Taxes are going up as a big concern, so maybe we'll talk about that a little bit more. Our running out of money is another one. That's that's a common theme here as well.
• 1:29
  So we'll we'll try and touch base on on those things and health care costs going up. So appreciate you being here and giving the feedback. As promised, I want to talk about risk. I do not think people understand the risk that they are taking, and this is the classic FOMO market observation. And let me give you a quick story of my childhood to illustrate the point.
• 1:53
  David: Alright.
• 1:53
  Mike: Okay. So, you know, childhood, there's often a rope swing involved at some point in your childhood. Right? Yep. Well, grew up in the great state of Washington.
• 2:06
  Redmond, Washington. There's a lot of these like, you know, wooded areas. We loved it. And so there was one time I remember we found... We we went off the beaten paths.
• 2:15
  We went into the woods, and we would find trees that were like kind of going out over very steep cliffs because we wanted maximum swinging potential. Right? Uh-huh. And then we climb these ridiculous... Like this is very dangerous as a kid, but you know, you're a kid, who cares?
• 2:33
  Yep. And and we clamped the trees and we would hang a rope, you know, get a Home Depot. Hopefully, it's a rope that actually was stable. No one was testing rope strength at this point in our life. It was just a rope.
• 2:45
  We'd tie it, we'd have a little thing we'd hold on to, and we would swing for hours. And it was just a blast as a kid. Well, one day I was there at the rope swing with a number of my friends, and they had the brilliant idea of, hey Mike, you're the lightest in the group. Mhmm. What if we picked you up and carried you up the up the hill even more than usual, and then through you?
• 3:11
  You'd you'd would would extend that velocity towards... Uh-huh. Like, it would be the greatest swing.
• 3:18
  David: Yeah. We were going for
• 3:19
  Mike: the greatest swing of all time. Yeah. We're we're gonna make swings great again. But the problem is, like I was used to a swing. Like I could swing around, I could swing up.
• 3:29
  I was used to those current conditions. Yeah. I was not prepared for what happened. Now you need to understand, I couldn't go back further enough because you couldn't touch the ground. So, you were limited on how much swing capacity you could have.
• 3:43
  David: Okay.
• 3:43
  Mike: So, that's why they had to pick me up and carry me up the hill. Oh. And then push me. Yeah. And so, here it is me and six friends lift me up, carry me up the hill past my capacity on my own, and swing me down.
• 3:57
  Yeah. Here's what happened. Quickly I learned the lesson of gravity. G force. Uh-huh.
• 4:04
  Because I could not hold onto the rope. It was so powerful. The swing was so... The thrust or whatever, it was it was so much that I actually like lost all grip. Oh.
• 4:16
  Okay? But I was saved. Because there was a loop at the bottom of it and it caught my hand. Oh. And so as long as there was pressure on my hand Yeah.
• 4:25
  As in gravity or g force, was that was happening. But right when it went to the tip of the swing, you know, where when you start, you stop going out and you start coming back in. Uh-huh. And you have that moment of weightlessness. Uh-huh.
• 4:40
  That's when the the loop that was holding my hand came undone. Kinda loosened. And I vividly have this moment in in my memory where I had one hand that lost the rope, and I tried to grab the other rope or the rope itself with my other hand and missed. And you gotta understand, this is not your typical rope swing. This was on a steep hill.
• 5:03
  Uh-huh. I fell three stories. Oh, no. Three stories, David. That's...
• 5:10
  Not one story.
• 5:10
  David: Not
• 5:11
  Mike: off the kitchen deck onto the the three stories I fell.
• 5:15
  David: Wow.
• 5:16
  Mike: Like a rag doll. Uh-huh. Just flailing about and I just smacked the ground. Uh-huh. And everyone was concerned.
• 5:25
  Why were they concerned? Well, who wants to tell their parents, hey, while we were playing, Mike broke his arm and or leg. Yeah. Now the miracle of this story is I didn't break anything. I actually landed...
• 5:38
  It was fall time. I landed into a big pile of leaves that just happened to be there at the right place, and I fell in such a way that I kind of rolled a little bit. Okay. So there was no harm, no foul. Okay.
• 5:48
  That's lucky. Was lucky. Yeah. But the... And the reason why I show this story, it's kind of a silly story, but it illustrates a point.
• 5:56
  We don't fully understand the velocity of something unless we look at all of the aspects in the in the story physics. Mhmm. When you increase the speed, it changes the dynamics, and if you can handle it or not. My concern is that most people don't understand the economics of what's going on and whether or not they can handle it. Mhmm.
• 6:20
  Because it's easy to look at the S and P 500 and say there's 500 companies, all is well, I'm diversified. Right. It is difficult to look at each individual company and their moving averages and their financial health and so on and so forth and so on and so forth, and understand the velocity or the risk that you're taking. Now there are some metrics out there like we could look at the S and P equal weighted and the ups and downs versus the allocated version of it and all this. But here's the easiest thing.
• 6:53
  K? Who's making money? And how are they doing it?
• 6:59
  David: Like who in the market is making money?
• 7:01
  Mike: Who in the market's making money? Yeah. So are consumer staples making a lot of money? Not really. Who's making money?
• 7:10
  Like, if you start to ask questions like that, and I don't wanna get too nitty gritty here, but you notice there's a concentration of growth in the market that's dependent on AI, and that's energy. You saw this in the email today. That's energy. That's infrastructure that supports AI. That's hyperscalers, the magnificent seven or some of them, and you're looking at, I'd I'd say Tesla, but now let's just call it SpaceX because that's really AI, Elon Musk's AI, or Google, or Meta, or those companies.
• 7:43
  And then that boils up to Nvidia, and that boils up to then Oracle slash Nvidia, and that boils up to is OpenAI gonna do this or not?
• 7:52
  David: Mhmm.
• 7:53
  Mike: So we went from a very broad platform to really one company, and its hope is propping up in some standpoint the entire stock market.
• 8:07
  David: That seems like a lot of weight on just resting on hope. Am I wrong?
• 8:12
  Mike: And here... So okay. Let's... So bear and bulls. That's a fancy financial term.
• 8:18
  Yeah. Bear means a bear strikes downward. So a bear market is a downward market. A bull market is an up market. And so when you hear financial people talking there, you know, all the bears are saying this and the bulls are saying that.
• 8:30
  There's always an argument to be made for both sides. Mhmm. So right now, the argument for the bulls is AI is cutting efficiency, or is is letting efficiencies go into the market. We can be more profitable with less workforce and so on. And that's kind of true, but not totally true.
• 8:50
  We see massive budgets getting cut because AI was too expensive. We see adjustments on expectations because AI wasn't... It didn't meet expectations. Right? Cloud code's a really cool thing, but it's also expensive.
• 9:05
  Mhmm. So now we have to justify, is the expectation meeting reality? That's that's a pretty big thing. Right? Yeah.
• 9:12
  David: And then that may be still being worked out in the marketplace. Like, are the expectations of AI being met? We
• 9:18
  Mike: won't know for ten years.
• 9:19
  David: No. Yeah.
• 9:20
  Mike: We still are trying to figure out the Internet. Yeah. Right. So when you start to ask questions like that, and then you look at innovation. Okay?
• 9:34
  A lot of this build out, the infrastructure is based on the cost of AI under certain LLMs or certain models. Well, what if those models had a breakthrough and used half the power?
• 9:51
  David: Oh, right.
• 9:52
  Mike: Then you would need half of the infrastructure. Right? Yeah. What if the models, not let's use half the power, but could use a less efficient chip. So instead of like a GPU or a Nvidia chip that's very efficient, that they could get by with Google's chips, or Meta's chips, or other people's chips, Microsoft's chips?
• 10:14
  Mhmm. How would that disrupt things? And what if the places you want to buy didn't have to be all on NVIDIA and AMD? That that changes the conversation. So it's not a question of if.
• 10:32
  We know that creative destruction is a very real thing. Creative destruction is when an innovation or a breakthrough changes the status quo. The question is when? Okay. When will NVIDIA not be as needed?
• 10:51
  Now NVIDIA... Most of NVIDIA's income comes from five companies. If one of those companies started using their own chip as opposed to Navidea's chip
• 11:02
  David: Right.
• 11:03
  Mike: That could be the pinprick that starts the contagion to use a poorly timed analogy. Because some people are still scared of the pandemic, and that was a crappy situation. It was. Yeah. Put in the comments what you think.
• 11:15
  I I'd love to hear your arguments for the many of you that are on here. If you think AI is is gonna save the market and it will keep going up, or if it's not. Let me use a historical example. Cisco, in '19 or not two thousand, January of two thousand was the third largest company in the world. By March, it was the largest company in the world.
• 11:41
  Why? Because Cisco was the company you had to go and buy all of the infrastructure. Once people realized they didn't need as much infrastructure, they didn't need all of the cables or the switchboards, all the stuff that they created. Yeah. They had all of this inventory that they then couldn't sell.
• 12:01
  And a lot of it was custom made, so they couldn't place it, and so on and so forth. Mhmm. And that's how Cisco, the world's largest company, went down 80%.
• 12:11
  David: Yeah. It's hard to imagine Cisco being the world's largest country. It's just a different time, different era.
• 12:16
  Mike: Well, yeah. Yeah. Because the Internet needed cables. Yeah. What do we need now?
• 12:21
  We need fancy chips. Yeah. Computing power.
• 12:24
  David: Everything's like wireless now. Right? So much, a lot of wireless.
• 12:27
  Mike: Well, you still have to have the cables. Yeah. Which is why Cisco finally came back. Oh. And had a great great run.
• 12:33
  But the point being is, a lot of people are basing their identity on AI continuing to grow. Because it has grown, it must continue to grow. That's a very dangerous proposition because in finance, nothing's permanent. It works until it doesn't. And if your identity or your philosophy cannot adjust for when it doesn't, you're not just going down 50% like it did in two thousand o one and o two with the broad market.
• 13:06
  You're going down 80% like it did from o one or two thousand o one and o two for the tech heavy portfolio.
• 13:15
  David: Mhmm.
• 13:15
  Mike: That's a problem. Right. And when we see such a a a... I mean, the concentration goes in, and this this is a bit of a nerding out moment, but I think it's really important to understand. I don't think people understand money.
• 13:28
  I really don't.
• 13:29
  David: Yeah. And what do mean by that? How how do they not understand it?
• 13:31
  Mike: So what is money? Really? And what is the price of a stock? Really? And when a stock price goes up, how does it affect the company's balance sheet?
• 13:41
  Really. And what does a company do with the inflated price of their stock? Really. See, there have been many investors that use this reflexivity concept. And that's the idea of if you get excitement around a company, the company stock goes up.
• 13:58
  If the company stock goes up, then there's more capital that they can sell their own shares and deploy that capital and put it put it in the market. So they're buying circular finance. They're buying new equipment. Whatever it is.
• 14:12
  David: Okay.
• 14:13
  Mike: They're getting things more... They're getting more excitement in the market. And if they get more excitement in the market, then more people buy because they're excited about what's happening. Mhmm. So then their price goes up, and they have more capital to deploy, and this goes back and forth as the overall stock goes up.
• 14:28
  Well, like in my analogy, it's really exciting to swing on a rope swing, but at some point it doesn't keep going. Oh, yeah. At some point, we will run out of excitement for AI, or we can't rationalize a higher price for the projected earnings.
• 14:48
  David: Okay.
• 14:49
  Mike: We're investing in companies. This isn't a popularity contest. This is not a voting machine yet. That's what it's kinda been like for the last two or three years. We are breaking down fundamental analysis.
• 15:01
  I mean, let me put it this way. Would you be excited to buy stock x y z, AI company x y z today at a $100 a share? Okay. Knowing that it's gonna take five to ten years for those that price to rationalize the earnings. Because it's gonna take ten years to get the earnings where it needs to go, and then after ten years it might start to grow.
• 15:24
  Like, no. When people realize this, they're gonna go shoot. I don't want my stock to sit around for ten years so the earnings, the company can get its crap together and grow the earnings, like that's not really an exciting situation. So when people start to realize that it's losing steam, they're gonna wanna lock in their gains. And when you get a lot of people locking in their gains, that puts pressure on the market.
• 15:50
  That's how the market starts to go down.
• 15:52
  David: And locking your gains is another way of saying they're selling their their positions, their shares. Yeah.
• 15:57
  Mike: Yeah. And if you lock in your gains, you sell your positions, whatever. Mhmm. It's done. Mhmm.
• 16:02
  But if you get more people selling than buying, the price goes down. In that situation, think of the AI bubble as a theater that's getting more and more crowded, but you still have the same exit. Oh, yeah. You can only go, you know, two by two That's it. That's the risk that people are taking.
• 16:22
  Most of even the broad market exposure is still dependent on a small amount of risk, or a large amount of risk, a concentration of what the market actually is.
• 16:33
  David: Mhmm.
• 16:34
  Mike: Because many other investments aren't doing that well. So you have to ask yourself, are you gonna lock in the gains before or not? Are you gonna try and ride this gravy train out a little bit longer or not?
• 16:49
  David: Yeah. Because you don't know the exact timing. And then if you do decide to get out and then there's room for a little bit more growth, then I don't know. Do you feel bad? Are you like, oh, are you kicking yourself?
• 16:58
  Mike: It's your emotions.
• 16:59
  David: Yeah. Yeah. But maybe you shouldn't kick yourself because I mean, the opposite would be like you hang on too long and then it falls off a cliff.
• 17:08
  Mike: Don't... Yeah. It just... You did well, move on to the next thing. That's...
• 17:14
  Emotions are what really destroy people. So remember GameStop?
• 17:22
  David: Yeah. There was a... It's still in business. Right?
• 17:25
  Mike: They're still in business.
• 17:26
  David: Video games, but there was a whole movie about
• 17:28
  Mike: Yeah. Dumb money. Yeah. So most people who invested in GameStop lost money. They didn't make money.
• 17:35
  They lost money. So the excitement of the stock just growing exponentially, and then it fell off a cliff. Yeah. Because people were trying to time it right.
• 17:45
  David: Yeah. It wasn't like the main character in that film. He and his wife were trying to decide like, oh, how long do we keep going? How long do we keep writing? And before I, you know, sell out of this.
• 17:53
  And Yeah. He wanted to keep hanging on if I remember
• 17:56
  Mike: right. Mhmm. So long story short. Let me wrap it up here, and then we're gonna go to your questions. We've got already several questions that have been submitted.
• 18:04
  And put your questions in the chat if you want to. But I don't think people understand the risk that we're taking. Risk is very dynamic. When you have a very concentrated amount of the market that's making the entire market go up, you just need a small amount of the market to turn back, and then the markets can fall off. This is, in my opinion, very much like 1999.
• 18:23
  We don't know when March of two thousand's gonna hit. Mhmm. So maybe all of your assets shouldn't be at risk. The idea of a retirement plan, if you're getting close to retirement, is that if the markets go down, you can still live your life. Time is your most precious commodity.
• 18:39
  It's not being the richest person at the graveyard, and it's understanding the duality of your portfolio. Markets go up, all is well. Markets go down, this is what you do to take advantage of the market crashes.
• 18:51
  David: Mhmm.
• 18:52
  Mike: The problem is most people just want all at growth, all at risk. Yeah. And the way to do that is you put your plan together first, your strategy second, and then you pick out the right investments or products, which means selling potentially some of your AI positions.
• 19:05
  David: Mhmm. Yeah. And can some people... Let's say you you put your plan together, and you... You've accumulated a lot over the last twenty years.
• 19:14
  Congratulations. And so you you take some of your money out of the market. Can you have some... To shore up your plan, so you're good. You're set.
• 19:23
  Right? Your your plan is set. But then do you have... Do some people have like a buyer's remorse? Like, oh, but I could have gotten more growth.
• 19:29
  Almost always. Even though they don't actually really need it.
• 19:32
  Mike: Yeah. Almost always. And I've got a couple of clients that bought Nvidia several years ago. Mhmm. Very low basis.
• 19:39
  So I said, look, Nvidia's still up. Let's sell a 100,000 of your shares. You're gonna have the first tax free year of your life. And they loved it. Yeah.
• 19:48
  And then they saw Nvidia keep going up. And I said, it might be up now, but if the price five years is lower than it is today, then you'll be happy, but we won't know if that's the case. Yeah. So it's one of those, if you compare to other people, you'll always lose. If you compare to yourself, you can win.
• 20:07
  Did that part of your money do its job, and are they gonna come back and celebrate? Or is is the money gonna come back, and you're gonna be upset with it because it could have gotten a little bit more out of it. Yeah. It's seeking perfectionism is a very dangerous thing.
• 20:23
  David: Mhmm.
• 20:24
  Mike: So... And I'll be talking about this even more tonight as well. For those who are on here, we've got over a 100 people's RSVP to our workshop tonight, retireontime.com/workshop if you wanna attend. Let me be breaking down the plan first, strategy second, methodology. This is how you get more out of your money.
• 20:40
  This is how you get rid of the buyer's remorse, and you see how you're gonna structure your time. Money is just a commodity. It's a thing. You've worked to get money so that later you don't have to work and use money so other people work for you. Mhmm.
• 20:55
  That's how it works. So you are saving with your money to have a purpose. What is that purpose? If the purpose is to be the richest person in the graveyard, fine. Maybe keep it at risk.
• 21:06
  But that assumes you don't need it. And for most people in retirement, they need the money at some point or some of their money at some point. So when we can divide and conquer, divide the missions, if you will. That can really help the conversation. Yeah.
• 21:21
  Alright. As always, if you wanna get started in your planning process, that's where you you start with the plan, and the first 10 will tell you if you can retire or not. It's the first part. We've checked that box off. Can you retire on time?
• 21:32
  Yes or no? If you're already retired, was that a good idea? Yes or no? Usually, you're already retired, it is. But we have that first conversation.
• 21:40
  It's ten minutes, and then we pull back and start asking questions. Hey, what do you want your money to do for you? Do you have legacy intentions? Do you wanna front load your income to travel more at the beginning? Let's let's start defining the purpose of your money.
• 21:53
  Mhmm. And then we go to strategies, and then we go to the products or the right tools for the tool... For the job. Yeah. That that start it doesn't cost you anything.
• 22:03
  Just go to retireontime.com/call to schedule that call and get things going.