More Knowledge, More Wealth: Ep. 202 - Growth vs. Value Stocks

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[00:00:00] Good day. This is Gabriel Shane, certified financial planner and your host of More Knowledge, more Wealth. You're on every weekend talking about all important topics of personal finance. My goal is to go over the knowledge you need to increase your wealth, not to the listener. You can always reach out to myself or anyone of my colleagues here at Falcon Wealth Planning.

[00:00:53] Our phone number is (855) 963-2526. That's 8 5 5 96 Falcon like the bird, or go to our website, falcon wealth planning.com. That's falcon wp.com for sure. You can put a submission there and we'll be happy to reach out to you. And we are available seven days a week. You can reach us during business hours and we are able to help set employment.

[00:01:14] Answer. Those questions you may have, and we do have the knowledge center online where you can get this episode or in one of our previous episodes as well and go and get some answers as we have a million. Views already in less than a year on our YouTube channel of just strategies that are out there that you could take advantage of.

[00:01:29] And if you have a question, we can answer it on the show. That's radio@falconwp.com. That's radio@falconwp.com. Uh, we are able to answer those questions now. I'm the. President of the Falcon Wealth Planning, we are a fee only non-commissioned true fiduciary, and we involve and answer all questions that have to do with the dollar sign.

[00:01:49] Folks, it doesn't matter whether it's about taxes, investments, estate planning, insurance, I. Folks, you name it. Any questions that you may have, we can help answer that. And we are offering one to two meetings, one to two hours of our time, folks, at no cost. We can help relate this show to your specific situation, and we've got offices all over and we help nationwide.

[00:02:09] We're excited to do so. Give us a call. We'd love to help. Our phone number is (855) 963-2526. That's 8 5 5 96 Falcon like the bird. We can answer the questions that you have that are keeping you up at night and more importantly, just those burning questions that you've just been wanting to ask and maybe don't have a contact to ask for.

[00:02:31] And two, you may be doing it on your own. You may have an advisor that just focus on, focuses on investments. It's crazy how much clients that we get when you actually show and can exhibit. Competency. There's just not a lot of that in the industry. And the email that I got a couple weeks back during the earnings history, I was talking about why does the stock market drop?

[00:02:53] Why, excuse me, why does the stock drop? They were talking specifically about Apple after they beat their earnings. So it's crazy 'cause you have a company like Amazon that almost doubled their estimate. That's 63 cents versus uh, in the thirties. Uh, and they were up 7% after hours versus a company like Apple, that's actually down roughly 2% in the after hours market.

[00:03:16] And why is that? It's because they ended up, uh, what? Selling less iPads. Selling less devices? Yeah. They were up 8% on their service model. Heck, they did like $80 billion in just three month of sales. And people are freaking out. Evidently. Why? Because here's the thing, analysts aren't so happy. They, they, by the way, they set what they expect for them to make and then.

[00:03:37] They want them to beat it at even higher amount than they thought they were gonna beat it. So a stock price is based on what they're expected to make, especially in a growth company, and that's really what differentiates growth and value companies. I'll take it a step further. I. A value company, you start looking at what is a value stock?

[00:03:55] It's low book to equity, low book to value ratio. So what's a growth stock? Well, here's the way I can explain it. The definition is you take the intrinsic value and multiply it by future expected cash flows. I. Okay, so what does that mean, what they're expected to do in the future? What are the top three biggest names out there?

[00:04:12] Well, you got Apple, you got Amazon, and you've got Tesla. They're always based on what they're expected to do, and that's a fantastic example with Apple. Apple beat their earnings. The analysts, the smart people, said they were gonna make A, and they actually made B, which is at a higher amount than what they originally forecasted.

[00:04:35] Yeah, but they weren't happy 'cause they didn't beat it as much as they thought. And then there's warning signs, right? Not people are buying as much devices, not people are buying as much iPads, computers, but their service is up 8%. Hmm. Interesting. So I don't know as an, I don't know what that means. All I know is that's pretty annoying to buy a stock knowing it's gonna outperform what they said they were gonna make and it drops in value.

[00:04:59] Versus a company like Amazon that's up over 8% in the after hours market 'cause they beat their estimates. There's actually no logic. Tesla has a fantastic example of that, and they've consistently are being priced at. What they're expected to make. And so even they may crush earnings, but now they're worrying about the slowdown of EVs.

[00:05:20] Why? Because maybe some competitors are doing other electric vehicles. Maybe they're. China sales aren't doing as well as they thought, or a factory is being delayed, or the cyber truck is being delayed for multiple years and they have 2 million back orders on those. So it's interesting how a growth company can actually just really affect the overall logic.

[00:05:46] Of an investment. There is no longer logic in a growth investment and in a rising interest rate environment, especially on an emerging growth company. This can be very difficult to be successful 'cause they don't make money. In the early years actually, there's companies that are worth tens of billions of dollars.

[00:06:04] And they now call 'em a zombie stocks. Have you ever heard of that? These are companies that are worth billions of dollars now that either don't have any revenue. Think about that. They're worth billions and they haven't made one penny. You can't make this up right and worth billions. Or number two, they're making money, but they're spending so much money, whether it's on debt, whether it's on marketing, whether it's on acquisition costs, whatever the case is, that their burn through rate.

[00:06:29] Is 36 months, these companies will be out of business in 36 months. And by the way, the start process has boomed on these companies. This is why you can't just go on the new fad that's out there and in a high interest rate environment, a rising interest environment, even though we're towards the end and people are holding tighter to their cash.

[00:06:49] Why? 'cause they can get four or 5% in their savings account. They can get 10 plus percent in maybe a private debt fund. They can put their money in other mechanisms to get them their. Five, 10 plus percent rate of returns with much less risk, and they're happy with that versus trying to chase a 20, 30, 5500, 5000% return and potentially their money going away.

[00:07:09] Heck, private equities aren't just dispersing money as they used to. Same with hedge funds, same with institutions, same with banks, and same with you. Everybody's being a little bit more conservative now. I'm just saying. Be careful. Because there are stocks out there in these growth companies that you have to be careful in this market.

[00:07:27] Heck, 2020. 2021. Sure. Invest away makes all the sense in the world when you could borrow at one and a half, two point a half, three and a half percent. But now when you're borrowing at 7, 8, 9, 10%. You can't just deploy that cash and do whatever you want with it. By the way, folks, you're just joining me.

[00:07:43] You're listening to Gabriel Sheen, certified financial planner, and you're host of more knowledge and more wealth here on every weekend, talking about all important topics of personal finance. And today we're just talking about the growth company than you happen to be careful of what's out there and you have to make sure that you are investing in a way, in a mechanism that is sustainable.

[00:08:02] I mean, value companies, people love value companies for decades. Now they've underperformed in the past 10 plus years. Why? Because of the low interest rate environment and the outperformance of these no name stocks that lose millions, hundreds of millions and billions of dollars on an annual basis makes quite frankly, no sense to me.

[00:08:22] But I understand the logic, right? It's cool, it's a disruptor. It has the potential to do this well, that's just like starting a rookie. That's unpro unproven. Over an all-star that's been in the league for a long time. It may not make sense to do that. Now there are some rookies that absolutely are amazing.

[00:08:45] Football sometimes have some of the best linemen and linebackers are rookies as they come in. I get that, but that's not the case with everything in every sport as well. Let me take it a step further and now talk about value companies. These, the veterans in the sports world, the all star players, and I like.

[00:09:02] Looking at what is a true value company. And let me give you like three examples. These ones I've used for ages, bp, British Petroleum Oil Company that had this oil spill in the Gulf a few years back. Now, at a point in time they were trading at $60. When that, uh, oil spill happened, they were trading at $30 a share.

[00:09:19] Now, why did it get to $30 a share? Well, because the stock market dropped, nobody wanted to buy 'em at 50. No one wanted to buy at 40, probably at 30 the stock market sellers and buyers agreed that was the price. When I dropped to 30, everybody started buying it. So it kind of hovered around that price. Now the irony is if you would've fully liquidated the company at that time, even forecasting with the future, uh, lawsuit would have been, it was worth $50 a share, and you were buying it at 30.

[00:09:46] And surely enough, 11 months later, they're back record record profits, and they were back at 60 bucks. That's a value company. That's low book to equity, low book to value. Look at Johnson Johnson. That could be that one of that maybe after a product recall or a lawsuit or something. Car Carnival cruises have maybe a, a sickness on a ship, like what happened with during the Covid period, or maybe a shipwreck or something.

[00:10:10] People freak out. The stock price drops. These are good. Purchases value companies look at the value index. Historically speaking, they still outperform growth by well over 4%, frankly, almost 5% a year from 1926 to 2022. Understanding that value companies still hold strong weight into a portfolio. I'm not trying to tell you to go all value, not growth.

[00:10:37] 'cause as we see, this year in 2023 was great. In 2022, heck value outperformed growth, right? In a rising interest rate environment by 30%. Right. But then you also have what's happened in 2010 to 2021 where growth, for the most part, outperformed value substantially by almost two x. So my point to you is this.

[00:11:04] Take a look at your portfolio of what you're invested in now. Do you have that proper diversification? Number one. Number two, are you properly allocated amongst those growth and value mechanisms? And you still have large caps, mid caps, small caps, internationals, and so on. And then you have to take a look at where you currently are and where the market is currently and in a higher interest rate environment.

[00:11:25] In a situation like this, what and what tilts should you have in folks? That's what we do on a daily basis, and that's why we're offering our pre-financial assessment. We would love to analyze where you are and where you should be. Our phone number, Is 8 5 5 9 6 3 25 26. That's 8 5 5 96 Falcon like the Bird, or visit our website@falconwealthplanning.com.

[00:11:47] That's falcon wp.com for short. We have offices all over. We help nationwide. We'd love to help relate this show to your specific situation. Folks, we'll be right back after a few words.

[00:12:01] This is Gabriel Shaheen, certified financial Planner, your host of More Knowledge, more Wealth. That's on every weekend. We're going over all important topics of personal finance. We're going over retirement planning, making sure you're prepared for retirement, social security and strategies, real estate taxes, avoiding them now and in the future, investments reducing.

[00:12:20] Fees, commissions, and so on. Insurance and estate planning. Folks, we are offering a free financial assessment that you could take advantage of. We have offices all across Southern California, including the Inland Empire. Give us a call to take advantage. Our phone number is (855) 963-2526. That's 8 5 5 9 6.

[00:12:38] Falcon like the bird, or visit our website, falcon wealth planning.com. That's falcon wp.com for short. Enjoy the show. We look forward to serving you.

[00:12:48] Welcome back folks. This is Gabriel Shaheen, certified financial planner and your host of More Knowledge, more Wealth here on every weekend, talking about all important topics of personal finance. And today I just wanted to talk to you about the simple concept of what's going on in the stock market.

[00:13:01] How's you just can't use logic when investing. And one of my earliest examples of this was two. Two of them, one of 'em was when this construction company in China won the bid for the Beijing Olympics. I thought that was a good investment. Well, sure enough, they went belly up and bankrupt. Okay, well maybe that's obvious.

[00:13:22] 'cause construction companies sometimes buy more that they can chew and. When you look at it, it is a communist country that's involved in you're gonna get paid or not paid. Okay? Here's another one. Taser. Do you remember that in the early two thousands, taser guns, which, oh, by the way, cops still use, but the point is, is this was booming.

[00:13:41] This stock price went from $10 to $130 a share. I'll never forget, I put in $5,000. That thing boomed in price. I ended up getting 5,000. Grew easily to $75,000. I thought I was a genius. This whole investment stuff is easy. So what did I do? I put another $20,000 in. And what did the stock price do? Went all the way up to as much as 1 75 share all the way down to 10 again.

[00:14:09] And why did that happen as it was at $175 a share? It was saying it just signed almost every major police force in the country. Orders were flying in. It made no sense yet again, logic, the information, and this is why insider trading is so, uh, is not allowed, is the information that you have today already reflects the price instantly.

[00:14:36] Instantly it affects the price. So when they later came out that, yep, we ink the deal, it's signed, it's ready to go. We ended up getting tasers to every police force out there. Well, they, we already knew that maybe the order number changed. Maybe it was certain states, not all cities, maybe it was certain departments.

[00:14:55] So the idea is, Stocks are always based on forecast. That's why we were talking about earlier, a growth company is based on current value, whatever the current value is, current sales and so on, based on future, what they're expected to make in the future. This is what makes a growth company more volatile, more risky, but you also do get rewarded for it as well, right?

[00:15:17] Amazon was a growth stock. Tesla was a growth stock. Apple was a growth stock that were very small and not making money at a point of time. So the core comes to, do you believe in what they're doing, what their mission is, and the void that they're filling in the space? Right? We didn't know that our phone could be a computer until Steve Jobs said, this will change your life.

[00:15:41] We didn't know Amazon that sold only books was gonna be able to buy and replace malls. We used to hang out in malls. We used to go walk around in the malls and window shop. Now you use cyber shop Tesla. I didn't think I would like my Tesla until I wake up every day with a full battery and I probably saved 10 hours a year by not pumping gas plus no maintenance on the thing.

[00:16:05] You get what I'm saying. And in autopilots, which just makes it easier, it assists when I drive where I don't like 100% have to pay attention. I only have to 99% pay attention. That 1% helps to look at the phone maybe for a quick second, which, oh by the way, you do without an auto assist feature, so don't judge.

[00:16:25] So the idea. Is this, how could you build your portfolio and maybe have tilted your portfolio, yes, towards value, but also have a core side of the portfolio where you could put logic into having a growth piece to your portfolio that maybe on one hand focuses just on profitable growth Companies like the Apples, the Amazons, the Googles, and Teslas, those companies that actually show a profit.

[00:16:49] That's one. Or number two, depending on what's going on in the economy, being able to participate in those companies that are losing. Tens of millions, hundreds of millions, billions of dollars like those three companies I mentioned earlier in Apple, Amazon, and Tesla. You have to understand when the right time to do this is, and it is a form of not timing the market, but using economic standards of what's happening today of how that will impact growth and innovation.

[00:17:19] Yet again, it seems so logical and common sense after the fact I'm just trying to share with you is naturally in a low interest rate environment, these tech companies have more leeway to put their growth minded. Forecast to work to become profitable and it's easier for somebody. There used to be something called Tina.

[00:17:43] There is no other option. And so Tina, uh, is means, well, I'm not earning five to 7% of my savings account right now. My bonds or my private debts, you know, I have to invest my money to have my money working for me, or it's just sitting there doing nothing. That's why some people also bought real estate. So you had to do something with your money, or it was just sitting there earning zero point nothing.

[00:18:09] Now that zero point, nothing is like 2%, 3%, 4%, even sometimes 5% depending on the bank you go with and bank with. So it's a big, big deal. By the way, folks, if you're just joining me, you're listening to Gabriel Shaheen, certified Financial Planner and your host of More Knowledge, more Wealth here on every weekend, talking about all important topics of personal finance.

[00:18:31] And right now we're just talking about the logic of just investing your money and understanding how the markets work. I'm not telling you the time markets, I'm not telling you to do individual stocks. Heck, you got. The, some of the smartest venture capitalists in the world. You've got some of the smartest angel investors in the world.

[00:18:46] You have some of the smartest people, and they have religiously said one thing. They'll get a hundred applications that come their way, and one, if they're lucky, two of them become hits and they have to invest in those hundred applications and they get probably thousands of applications. They invest into a hundred, but only one and two are successful.

[00:19:07] Majority of 'em go belly. Up for you and I, we don't care for that. But if you think about it, when you invest in the s and p 500, it's the same concept, right? When you invest in the Russell 2000, it's the same concept. When you invest in micro cap companies, it's the same thing, except you're not dealing with that nonsense.

[00:19:28] And here's the thing. Sometimes a micro cap gets promoted to a small cap. A small cap to a mid cap, and a mid cap to a large cap. Are you aware that's called a reconstitution? That happens one to two times a year depending on the indices? Well, you have to understand the indices that you're invested in. Is that the best thing to do where you're selling potentially at all time low and you're buying at an all time high?

[00:19:50] This is why not all indices are made equal. Not all companies that manage the index are made equal. You have the three largest players in the space, Vanguard iShares, which is BlackRock and Spider, which is State Street that quite frankly suck at reconstitution. They just go with the flow. It's the two biggest trading days of the year, and they just go with it.

[00:20:16] So I'm telling you, what are you doing with your portfolio right now? Are you just invested in that Vanguard Fund? Listen, there's time. I've gone on TikTok saying, Hey, these funds, you might as well just invest in the s p 500 or Vanguard Total Stock Market Index. Okay? It's a, it's a blind recommendation.

[00:20:33] That's why we say don't follow that advice. Talk to a professional. Well, that is why we're offering a free. Financial assessment where we're giving you one to two hours, one to two meetings of our time. Folks at no cost. Help relate this show to your specific situation because depending on how much you have, yes, maybe just do the s p 500, maybe do a world index fund.

[00:20:54] Maybe you end a globally index fund, uh, equity focused. Maybe some people, maybe they work at a company, they have individual stock. Maybe there's strategy there. Just depending on your situation, maybe you should have five to 15 to 25 different indices holdings. It may make sense. You get where I'm going with this.

[00:21:15] Our motto is Planning made simple but simple and planning is not always the case. It's easy for us. We do this every day and should be easy for you 'cause you are just hearing what we're having to say. 'cause you're the c e o, right? You don't. You don't open the store and close the store and do the book.

[00:21:30] C o o shows and talks about the mission. The values. Well, that's what you do. You tell us your goals, what your mission you want accomplish. I wanna retire successfully. I want financial stability. Financial security that makes you the c e o. All you're doing is hiring someone to help, and folks, we can help with that.

[00:21:50] Yet again, we're offering one to two meetings, one to two hours of our time at no cost. Folks, give us a call. Our phone number is eight five five nine six three twenty five. 26. That's 8 5 5 96 Falcon like the Bird, or visit our website@falconwealthplanning.com. That's falcon wp.com. For sure. Folks, that was a fast, fast show.

[00:22:11] I wanna thank you for tuning with us this weekend. You can always reach out to myself or one of my colleagues here at Falcon Wealth Planning. Our phone number is (855) 963-2526. That's 8 5 5 96. Falcon like the bird folks. Tune in. Feel free to subscribe on podcasts and on Spotify. It really helps out. If you have a question, go to radio@falconwp.com.

[00:22:35] That's radio@falconwp.com. For sure, folks. Have a fantastic weekend. Have a great week, and God bless.