Gear Up Fight Back How to weaponize your portfolio against market chaos

Investors have weapons to battle the market chaos. It's time to gear up, fight back and use them. Here is my favorite plus another A.I. investment. This one will surprise you. 

00:00 Surrounded
01:38 Not my first rodeo
02:30 Financial Weapons
03:54 Do the math
04:21 Opportunity
05:06 The promise of A.I. 
05:34 Bigger than the internet
06:15 Parker
08:03 Investing in AI

Transcript

0:03

We're surrounded. That's the call from soldiers in the field, hunkered down in their foxholes, trying to avoid incoming fire. No, it isn't a movie. In fact, it isn't even really a battlefield. But to the millions of investors trying to navigate markets on a day to day basis, it feels like a battle and one that too many are losing. The casualties are only money, but the emotional loss is real. Remember, in the end, money touches everything. It funds your retirement, your daughter's education. And for professionals, it is your source of current income. I'm not kidding. Surrounded is the operative word on the high ground. We have a Federal Reserve slamming the brakes, hoping to push the inflation genie back in the bottle. Behind us is a dysfunctional Washington. Flooding the system with money. In part, cancelling those efforts by the fed. And finally on either flank, geopolitical tensions so grave the balance of power is shifting under our feet. I know the enemy seems to have the advantage, but trust me, you have weapons. Gear up. It's time to fight back. Welcome to the Money Runner. I'm David Nelson. This isn't my first rodeo. And it probably isn't yours either. As bad as the battle in front of us seems, does it look any worse than the financial crisis or COVID? Both of those were periods in my career I thought had the potential to end my career. During 2008 early 2009, some, including yours truly, thought the financial system was close to collapse. In fact, if you talk to money market PMS and fixed income traders, we probably were. Covid? Forgetaboutit. We weren't sure we would even survive, much less have enough money to fund our retirement. The truth is, we've met insurmountable challenges before and guess what? We survived. In fact, we thrived. Okay, I said you have weapons, you have many. But let's focus on the most important one. A defensive weapon so large, it's like having Delta Force and Navy SEALs ready to back you up. Your weapon of choice? The U.S. T-bill. I know it's simple, but too many aren't using it. For more than a decade. Investors have been forced to place the bulk of their money into risk assets. Even the balanced and conservative investor found themselves placing more of their capital into equity. The standard 6040 portfolio with 60% in stocks and 40% bonds morphed into 70, 30, even 80, 20. In fact, many investors abandoned bonds completely. Who could blame them? for more than a decade you were paid little or nothing. It wasn’t that long ago I was investing short term treasuries for institutions and was thrilled if I could get just 30 basis points. Even when yields started to rise last year, investors who had money and a 6040 mix of stocks and bonds were murdered in the all time worst year for balanced investors in recorded history. However, today, parking safe money in a 5% plus T-bill going out one year or less. That's a slam dunk. Do the math. Even a 5050 portfolio of stocks and fixed income constructed in this fashion has a high degree of safety. The fixed side is going to be a better than 5%. So even if the stock side gets shellacked down 20%, your total return hit to the downside is in the single digits. That's a risk reward balance you can live with. There have been few periods in my career where there wasn't some sort of opportunity within equity markets. Sometimes it was individual sectors and themes and of course, individual stocks that went with it. Look, I'm not blind to the fact that we're interest rates are today, current valuations for many stocks are challenged. In fact, maybe excessive. Critics point to stocks like Nvidia, Apple, Microsoft and Amazon as expensive and therefore the market is expensive. Yeah, on the surface, that's accurate, especially since large indices like the S&P 500 are top heavy with the largest companies by market cap making up the most weight. However, stocks don't live in a vacuum. And while it's true, higher interest rates are a challenge for what we call long duration equity, it ignores the potential of technology to change the world as we know it. Most of these companies have, in part and driven by the exciting growth opportunities in artificial intelligence or A.I. I’ll admit I own many of these stocks today because uncertain AI is likely the most important investment theme of my career. Venture capitalist Marc Andreessen has said AI is as big as the Internet. It's probably bigger than that. But the opportunity isn't limited to these tech titans. The bigger opportunity may be the hundreds of public companies that will use A.I. to enhance their top and bottom line. Any CEO who doesn't have a project in-house to find ways to use this technology should start looking for a job. If they don't get it, the board will find someone who does. I've mentioned a number of stocks on the air in televised interviews for Bloomberg and Fox Business. But here's one more. PARKER-HANNIFIN Today, we just call it Parker. I know what you're going to say. Parker is a boring industrial companies selling boring products like valves, filters, hose piping. In fact, given their catalog, they probably sell tens of thousands of these boring products. Well, boring or not, these are mission critical parts needed throughout the industrial complex. I've said in the past that A.I. is the biggest investment theme in my career. Even a company like Parker gets the message. Parker has now partnered with Camgian computing using A.I. Technology and analytics. Cloud and Edge hosted AI enabled applications that can perform operational intelligence and predictive maintenance at the enterprise level. I know a lot to swallow, but technology like this is how I will drive productivity across dozens of industries. If you can identify a piece of equipment that is about to fail and replace it before it does the savings more than offset the cost? Higher productivity drives, higher multiples and exactly what we need in a market where yields are elevated and likely to stay that way. Debt at Parker is modest and at 16 times next year's earnings and a free cash flow yield of 5%. This stock deserves a hard look. This is just another example of an old line industrial company using artificial intelligence to drive returns. Know your risk. Know your risk tolerance and size your positions accordingly. What I say here isn’t an absolute and when the story changes so will I. Artificial intelligence is an important theme for investors. I'm going to try to have a new name for you every couple of weeks. In the meantime, if you like today's pod, please let us know. Hit subscribe. And if you have any suggestions on what I can do to make this podcast better and more relevant for you, shout it out. Thanks for joining. I'm David Nelson.