Preview:

The stock market saw a huge pullback in the technology sector with the arrival of DeepSeek, a new Chinese AI platform. What lessons should we be learning from what’s happening in the market and how does this change investment strategies?

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More About This Episode:

Today we’re joined by Lee Hyder of Lee Hyder & Associates to discuss the emotional reactions that often accompany such news and how they can lead to impulsive decisions among investors.

As we dissect the events of the past week, we’re going to highlight the importance of maintaining a long-term perspective in investing. The market’s reaction to news is often temporary and understanding this can help investors avoid making rash choices that could jeopardize their financial future. The discussion also touches on the recent 17% drop in Nvidia’s stock, which serves as a case study of how external news can create panic despite no fundamental changes in the company itself.

Here’s what we cover in this episode:

0:00 – DeepSeek market pullback

3:00 – What did we learn?

7:12 – One powerful lesson to remember

10:38 – Strategies for 2025

12:37 – Emotional decisions

18:08 – DIY investors

23:09 – Are you aggressive enough?

26:47 – Evolving with technology

32:21 – Fees vs Returns


Resources:

Retire Pilots – https://retirepilots.com

Get your FREE Retirement Toolkit – https://bit.ly/3ZmZsaX

Pilot Tax – https://pilot-tax.com/

The Pilot’s Advisor Podcast is also on video. Watch & Subscribe on YouTube: https://bit.ly/3EIEBW2

Connect with Pilot-Tax: https://pilot-tax.com/

Episode Transcription:

(Note, this is an automated transcription. Please forgive any errors.)

Ryan Fleming  00:05

So Lee, Monday, we just had a really, really big pullback in the markets with this whole deep, sick Chinese AI, I started seeing it happening over the weekend, and I actually sent out a video to my clients early Monday morning, because I knew it was going to be a little bit of a bloodbath. And I wanted them, you know, get ahead of it and let them know. Tell me what your perspective is on what happened on Monday.

Lee Hyder  00:27

You know. I think it’s a great teaching point, you know. And people try to kind of put the pieces together like it’s a jigsaw puzzle, and quite often, sometimes you can’t. But I think if you really take a look at the deep seek, so to speak. You know, when they came out and they made their announcement that they’ve got this AI platform that’s more robust, that’s less expensive, that takes less power, the market simply reacted to news, as it always does. But I think what the investor has to do is just, you know, push the chair back from the TV for a moment and really ask yourself a simple question, did anything really significant happen in the economy in that day to drive the market down? And the answer is, no, it was an emotional reaction to some some news. And as a matter of fact, as you’re starting to hear today, you know people that are putting this seek deep, you know, to the test, half the information that they’re giving is inaccurate or it’s incomplete or the information is not even available. So I think it’s a great lesson for investors to kind of, you know, sit back and realize that, you know, when the market goes through some emotional turmoil and volatility like we experienced, and it can be significant volatility. It doesn’t mean that the economy is in trouble. It doesn’t mean their portfolio is in trouble. It just means something happened momentarily, and we saw a ripple in the economy, and as we’re starting to see today, you know that ripple is dispensing a little bit?

Ryan Fleming  01:56

Yeah, when I heard it, I thought it was going to be short term for sure. And the two things that I learned from yesterday, I mean, Nvidia lost 17% I think it was like $590 billion of market cap in one day, which is crazy. And, of course, like you always talk about, what significantly changed at Nvidia, and the answer is nothing right. Just just the outlook on what their product looks like. And and then deeper digging into this, this deep sake, they’re using the video systems anyway. They’re using the old systems. And I talked to a lot of people too, and I think it’s a lot of just miscommunication or not miscommunication, but, but, you know, they could be lying about how much money they’ve dumped into their AI, but you see literally, but you see the emotional reaction that the Chinese caused in our markets. It’s it’s pretty significant. Well, it

Lee Hyder  02:43

shows you how fragile things really are, and if people let themselves get wrapped up in this emotional turmoil, I mean, they’re never going to be a happy investor, because there’s always something you know that if you want to focus on, that can scare you momentarily, but you don’t make long term decisions on a momentary headline, I

Ryan Fleming  03:01

think another lesson that came out of this as well. And I acknowledge what you’re saying, and I want to talk about that later, about always making long term, disciplined decisions with your investments, not short term emotional decisions. And I talk to investors and clients about that all the time, that we never, ever want to make a short term, emotional decision, because that’s how we hurt ourselves. But one of the other lessons, I think that we really learned from Monday, especially with Nvidia losing 17% Nvidia has been one of those companies that has been talked about for the last year. Consistently. Your clients want more exposure to Nvidia. They want more tech. They want more of this, and that’s all fine to have, you know, a little bit more of a position in big tech or whatever it might be. But another lesson of not having a big leverage position in one individual stock, you know, Nvidia has been great over the you know, just looking at the track record going back, but to lose 17% of your portfolio in one day, if you had a lot of your money invested in the video, I think it’s just another, another lesson on just not stock picking, and not having a massive amount of your your future tied up in one company,

Lee Hyder  04:10

you know. And I also think this is kind of a great opportunity for people to recognize the value of what an advisor brings to the table. You know, it’s scary out there. I mean, if all of your money’s in the market, and most people have their 401, K’s in a market, and most people that’s where the greatest amount of wealth is. And if you’re managing a portfolio yourself, and you don’t have the ability to really talk to somebody you know, who really is prudently looking after your portfolio, who brings academics to the table, it’s very easy to stock pick market time and make emotional decisions. So again, I would tell people that if they have a financial advisor such as yourself or me, you know, this is a great time to reach out to them, because, again, I think they’ll give you that sense of confidence, which we all need. It. You know these times Well,

Ryan Fleming  04:57

definitely to be talked off the ledge. Because, you know, there. A short term panic all the time. And of course, I deal with pilots, some of them are more emotional than others, and we always talk about the best clients and best investors are the ones that aren’t watching it every day, that are unemotional, that are letting the portfolio do its thing. I recently had a client that I’ve only had for two months, and I met with this client, we looked at a 10 year track record back on what his 401 K returns were versus what we’ve done for our clients, and it was very obvious that we had drastically outperformed what he had done. So he’s like, Yeah, I want to sign up. And here we are two two months later. And you know, of course, 2024, the last two days of December, it was a pretty big sell off. Unfortunately, dropped our year to date, return in the aggressive 401, K portfolio, just below 30. I was hoping to stay above 30, but what are you going to do? And then, of course, January has been pretty bumpy. I mean, it’s been pretty bumpy with speculation of the inauguration and just a lot of unknowns. And of course, the market doesn’t like unknowns. And then to combat that, with what just happened this past Monday. And so, you know, the the counts are down about 5% since we took over, and this guy’s in a complete panic. Sent me some, you know, text that wasn’t very nice, and I’m kind of sitting there going, it’s been two months, and the market’s down. I mean, you know, we’ve done a very good job over a 10 year period looking back, drastically outperforming what he’s done, but we’re unemotional, we’re long term, and he’s ready to burn down the house after two months. And it’s just it’s a reminder to me about how emotional investors are and how they hurt themselves without proper guidance, right?

Lee Hyder  06:37

There’s two lessons that I would basically tell all the listeners. You know. Number one, when you look at our particular portfolio, long term returns, I mean, I mean, there is no other explanation for it, other than to say they really are pretty spectacular, but the only people who achieve those returns are people that don’t panic and who stay the course. You know. So again, it’s very easy, and it’s very hard, certainly in a new relationship. You know, you’re wanting to start it off in a very positive note. From time to time, it doesn’t end up that way, but the only person who’s going to get those 25 and 30% plus returns are people who sit through some of these periods of volatility. The next powerful lesson that I really want all investors to kind of almost just stamp on their laptop, so when they’re looking at the day results, be it positive or negative in the market, they really remember this one critical component. Every time you want to sell, there needs to be a buyer on the other end of that transaction. You know, these things are so automatic. People just think that, you know, I’ll just push a button and I’m going to sell. And most of the time, you know, with highly traded, you know, positions, you know, they’re very liquid, so you can do that. But at the end of the day, I want your investors to really think about it in terms of this. You’ve got one widget you want to sell, and that’s your share of stock, or multiple shares of stock. There needs to be somebody on the other end of that transaction that is betting you are panicking and you are wrong, and they are glad to take that position off your hands, even at a discount. So again, just, you know, I think that’s just a powerful thing to keep in your back of your mind that, when I’m selling, who’s buying and why are they buying what I’m selling, what do they know that I don’t?

Ryan Fleming  08:16

Yeah, and I think when you look at the emotional investor, it’s all about fear and greed. You know, fear. Fear drives the market. Greed drives the market. And I think the if you have an investor that just is able to be unemotional, to be long term, those always seems to be the portfolios or the investors that end up better and landing in a much better position in retirement,

Lee Hyder  08:38

you have to be. I mean, look, the market, you know. Look, the market has a scorecard every day, you know. And it’s not always an A plus, you know, but at the end of the day, we all know which way the market’s going. The market’s always going up, you know. Now, it may have it’s down from time to time, but the market always points up, you know. So again, I’m a, I’m a bullish investor, you know. I I’m very positive. I think, I think we’re seeing some very interesting things in Washington. I think we’re seeing some interesting things in the economy and and I think this is going to be a great year in the market overall, but I do think we’re going to have periods of volatility, because, again, I think what’s happening in Washington just can create a lot of headlines and headlines or news and news creates fear. So I think we’re going to have a good year, but I think we’re gonna have, you know, volatility from, you know, point to point, from time to time. Yeah. And

Ryan Fleming  09:25

the craziest part about that is, is volatility, which would actually creates those returns Absolutely, for all the positive years that we look back on, where the Hey, the this was a good year in the market. There’s many, many times throughout that year that there was a 10% correction during that year that nobody remembers. And one of the biggest things when we start looking at 2025 that is being predicted by a lot of people, is that we’re going to have a nice 10% correction. There’s those that run and get scared, or those that stay the course. And like you said, the ones that stay the course end up getting that that nice positive return for the year and and. And we’re looking at it right now. I mean, we’re looking at a nice pullback, we’re looking at people that are panicking, and then those that understand how markets work, that are saying, Hey, I have $100,000 and I want to buy in today because it’s an opportunity. And

Lee Hyder  10:11

I think any of the listeners that are fortunate enough to have a sizable portfolio, it doesn’t take that long to really remember that there’s been times in their past, you know, where their portfolio was scary, where there was a lot of volatility, but had they panicked? Had they gone to cash? Had they really become a conservative investor, they probably would not have the wealth that they have today. So it’s really about, you know, like you say, you know, keeping the emotions out of it, and staying the course silly

Ryan Fleming  10:37

every year. You know, no different people make New Year’s resolutions, and they’re like, going to get in shape. You know, you’re at the gym for that first week of January, and you can barely get on a machine because there’s so many people there. And then, of course, if you wait a week, then they’re all gone and off doing their normal lives. But as we kick off 2025 I mean, January has been kind of bumpy, but as we kick off this New Year, how should you change your money attitude for 2025 you know, what’s the new you? Or what did you learn last year? Or what have you learned from your clients that says, hey, when we talk about financial decisions and habits of the past, what’s our New Year’s resolution as far as being investors and our attitude towards money in 2025 Well,

Lee Hyder  11:19

you know, I think we’ve come through a pretty polarizing period with the election. There was a lot of fear about, you know, what would happen if one side versus the other side won? I think, I think that’s kind of behind us now, although I do think we’re going to continue to see a lot of a lot of emotion, and I think that emotion is going to spill over into news. And I think some of that news may, may create market trends for short periods of time, but again, you know, my mess, you know, I’m a pretty boring guy when it comes to, you know, investing strategies, because I believe it’s, look, it’s a long term game. You got to stay the course. You can’t, you can’t let the volatility that we’re going to experience, you know, knock the train off the track. Because, you know, we got to keep going forward. And these are all blips, you know, all pieces of volatility, all periods when we have a little volatility. It’s just a short term blip. And if you really look at the big picture of things, it’s going to pass and you’ll be fine.

Ryan Fleming  12:14

How many years have you been in this industry? Wow, now

Lee Hyder  12:18

you’re really asking me to date myself. I think we’re going on actually, 34 years, 30 and I’m sure you can’t tell you know that I’m, you know, actually, you know, 55 years of I’m really 68 years of age. And I know your your viewers are saying, No way, this guy is 68 years so

Ryan Fleming  12:34

good looking. Yeah, isn’t that true? Oh, and I think that’s always invaluable with with talking to you, because you are unemotional about it, and you know this too shall pass, and it’s a good, good grounding for times like this, where it’s really volatile, but I’m sure at times you’ve seen you’ve had investors that that panicked and made the wrong decision, or you weren’t able to talk them off the ledge. Can you think of any times where you’ve had that investor that just said, Hey, I can’t, I can’t handle this anymore. And they decided to to get out of that portfolio and move on. And you know, you know in your heart of hearts that they’re going to end up hurting them, or they’re going to hurt themselves, but they, they can’t see it.

Lee Hyder  13:11

Yeah, sadly enough, a lot of people will initially think they’re reacting academically. They think they’re they’re basically making their decisions based on research, based upon what TV is telling us, based upon the news. And there are some times when somebody will, you know, self destruct a portfolio. You know, I had a situation, yeah, a couple years ago where a gentleman was just scared to death. And, you know, he took his money and he went to cash. And, you know, we still communicate with our clients that move on. And I was excited, you know, some time ago, to actually receive a phone call from him, and he kind of asked how we have been doing since he left us, and he still remained pretty conservative. And after a long conversation and a little kind of, maybe embarrassment on his part, he decided to come back. And I’m glad to say that he came back, but I think the lesson that he realized is that he did panic, he did make an emotional decision, and more importantly, he lost a lot of opportunity because over the period of time that he was out of the market, our portfolios, as I’m sure many of your listeners, portfolios, just simply soared. So you don’t want to miss those opportunities well

Ryan Fleming  14:18

enough. I’ve had that too. I mean, let me ask you about this where you have an investor call you up. They’ve seen some of the unknowns and the volatility, and a lot of this is in January, they said, hey, I want to pause my investments or take a certain portion of cash until things settle down. I know you’ve dealt with this in the past. What normally happens with that? Or how do you deal with something like that?

Lee Hyder  14:40

You know? I, you know, I think we all have the same situation. I mean, you know, the, you know, they pick up the phone, they call us, they send us an email, and they’re scared. And what I try to do, more than anything else, is get them to realize that they’ve been here before. And if I really kind of, you know, help them peel the onion, and we go back to maybe 2020, or we go back to, you know, 2008 or something. Times, you know, they’re the first one to brag that during those rough periods of time in the past, they stood firm. And then I kind of will say, well, listen, if you stood firm in 2020, if you stood firm, and you know, 2008 you know what’s different. And after each one of those times, did your portfolio come back? And did it come back strong? And the answer was yes. So I just try to have a very genuine heart to heart conversation. And I tell people that, look, I mean, things are scary, but I’m still investing every month. You know, I’m not going to stop, and they shouldn’t either. Well,

Ryan Fleming  15:32

and I would say, if I was to ask you the percentage of people that wanted to make a move like that, we always talk about not trying to time the market or being on the sidelines at the wrong time. And I would venture to say that most of those people that wanted to pull back the throttles or go to cash over that long term, if you took a snapshot a year later, they probably hurt themselves more than they help themselves by trying to avoid whatever that it was that they were nervous about or scared about. Would you agree with that?

Lee Hyder  15:59

Oh, absolutely. And I think you read about that in the professional journals that we have from time to time, that you just cause a significant amount of damage, potentially to your portfolio, because history, again, points that you know, when markets go through periods of volatility, they tend to come back pretty quick and pretty strong. So you don’t want to miss that that swing upward. And

Ryan Fleming  16:19

it’s all about being invested in the market, in that portfolio, to get that long term win. You can’t pick and choose when you want to have that exposure. Absolutely,

Lee Hyder  16:27

you know. And again, especially for the people that are not retired currently, people that are that are still working. It’s not like they need that money for next month mortgage payment or for their car payment. It really is a sense of the emotional fear. And they just start peeling the onion, and they, you know, one fear leads to another fear. But the reality of it is that many of these people that are 5678, 10 years away from retirement, it just makes no sense to kind of get yourself so wrapped up that you you fear a downturn in the market.

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Ryan Fleming  18:08

even if somebody that’s in retirement has 60% of their portfolio normally tied to the market, because they need to get those gains to not run out of money

Lee Hyder  18:16

and and keep up with inflation, of course, well, exactly. And

Ryan Fleming  18:19

that’s, you know, when they talk about the 4% rule, that’s that’s that’s taken into account that you’re giving yourself that bump of inflation each year, absolutely. But it just goes to show you, once again, we need the markets to survive and have that portfolio for the long term. Now, Lee, I want to transition a little bit. Obviously, you’re a financial advisor, so you probably have a little bit of a conflict of interest when I ask you this question. But you probably know how badly investors need a financial advisor to get them to stay the course. And I experienced this past year where we had great returns in 2024, I mean, we had returns that beat the S, p5, 100 in some of our 401, K, aggressive portfolios. And so a client that had just realized that 28 29% return on their portfolio, and suddenly they say, Hey, you know, I think I’m going to go, go on my own, and I’m going to do it myself. I did some reading this this year, and I just don’t want to pay an advisor to help me after getting returns like that. What do you think about that? What do you think’s behind that? And what do you think the few think the future is for clients that do that, to do it yourselfers,

Lee Hyder  19:26

well, to do it yourselfers, you know, Vanguard had a study that they made available to people like us financial advisors, and I’ve shared that with my clients from time to time, and they said that it’s not uncommon that a good financial advisor can actually significantly increase returns on a year to year basis. Now, again, everybody’s going to measure a good financial advisor, you know, with a with a different yardstick, but at the end of the day, I think the strongest thing that a financial advisor can do is is shed that years of experience, so that that’s where confidence come from. You know. You know, the fear that somebody has is they don’t have the confidence because they don’t have the experience. The polar opposite is, our confidence comes from years of experience. In my case, I’ve been around the block. Matter of fact, in my case, it’s a it’s a long block. I’ve been around the block for 34 years in this industry. So I’ve seen the ups, I’ve seen the downs. I’ve seen the fear and I’ve seen the the jubilation when people do very, very well, you know. So financial advisors bring confidence and Vanguard, you know, with the study they they produced, actually demonstrated that well,

Ryan Fleming  20:33

and I’m pretty confident in our portfolio. So when I watch a client make that decision, it actually hurts me, because I’ll ultimately feel like they’re making a mistake and they’re probably not going to be able to keep up with what we’re doing. And of course, I don’t want to rub it in their face, you know, looking at it a year later or two years later, like, Hey, how’s it going? But I it actually hurts me, because I actually think that they’re probably making a mistake and they’re going to end up, end up hurting themselves. Do you ever feel that way?

Lee Hyder  20:59

You know it for me. It’s even worse. It’s not only that I do I think that the client’s making a mistake, but but I really take it very personal. You know? I mean, my job really is to be that that person, that that just exudes confidence, that helps remove fear, and when somebody makes a portfolio mistake, a portfolio decision to ultimately what I believe sabotage their financial future. I feel I’ve let them down. Maybe I wasn’t a good communicator enough, maybe I didn’t reach out as often as enough. But I take it as I take it personal, and I’ve had a lot of success with clients that have sadly left, but surprisingly, have come back because of my communication, and they see I care, and it’s important for me to kind of help them, if they did sabotage that portfolio for a year or two, to help them get back on track well. And

Ryan Fleming  21:51

what I always, you know, I take it personally as well. I care, and it actually really hurts me. It depresses me. If that happens where I lose a client on a day or over a weekend, sure, I feel like I’m depressed for a day or two, and I do ask that, like, hey, what could I have done differently? I try to send out videos to all my clients at least monthly, what’s going on. But of course, it’s if they ever want to set up a private meeting, we can have those meetings and and communication is huge. How do you keep in communication with them, so that they know what your portfolios have done? So where they actually do want to come back, and hopefully it’s not because they went out there and lost, you know, 30% of their money or or speculated and gambled and made a bad decision, right? Well, you

Lee Hyder  22:29

know, number one, like you we, we believe in, you know, video communication. It’s a great way to, you know, convey a message. So we have a lot of outbound videos I do, also voice messages that I will do a voice broadcast. So it’s kind of like recording a message that would go out to everybody’s cell phone. We have, we have weekly newsletters that go out, and then throughout the year we have what I call kind of a ongoing educational program that, you know, we’ll maybe host a dinner or host a Saturday brunch. And we kind of talk about things that are going on in the market, you know, I think just people, people need to see you, people need to hear you, people need to know and believe that you care. And we do. Lee, if

Ryan Fleming  23:09

you look at a lot of studies today, it shows that people don’t have enough money to retire. And I’ve also read a couple articles on about how individuals are actually not aggressive enough during their working years to grow that kind of capital, or those retirement funds so that they can have adequate money to retire. And of course, there’s other issues too. We’re looking at taxes. We’re looking at inflation. Do you think that people don’t are not as aggressive enough in their retirement year? Or, excuse me, in their in their retirement building years prior to that distribution phase, or what do you see after seeing some of the articles and things that are out there?

Lee Hyder  23:44

Well, it’s, you know, it’s interesting. You say that because I think the natural knee jerk reaction for most people is, if we talk about retirement, hey, I’m retiring, or I’m going to be retiring soon, what do you think I’ve heard that maybe I should be more conservative. And I think our industry has really done a significant disservice to people with that message, because that’s the message that nine out of 10 people would recite if you said, hey, you know, how do you think you should be invested when you retire? And in my opinion, it has nothing to do with retirement. How you build your your allocation in your portfolio? It’s really 100% of the cash flow. So, you know, I tell my clients I have two kind of clients. I have client number one that basically tells me that he will never have the financial necessity to use his investments to maintain his lifestyle. It is just what we call just in case money. Well, that person may be retired, so why should that person shift his portfolio to being conservative. If he doesn’t need those dollars for his reoccurring expenses, then I have the other investor that, of course, may say that, yeah, I do need two or three or $4,000 a month from my portfolio when I retire. That particular investor should very possibly scale down their volatility. 30, but it’s not about age. It’s really about cash flow. And I do agree that a lot of investors can really be much more aggressive than they think they can be.

Ryan Fleming  25:10

Well, I like to talk about it where it’s more of it’s not about your age. It’s about your time horizon for that money, which is very similar to what you’re talking about. If that time horizon for your money is very far off, or you’re never going to touch it. There’s no reason for you to pull the throttles back. You know, keep the throttles up. Keep being aggressive, let that money grow. And another factor into that is if you have a client with with a pension or two, you know, military pension, airline pension, whatever their baseline so high that they might only be skimming maybe 1% if even that, off their 401, K, and once again, that becomes long term money just because you’re going into retirement. It’s very situational on that purpose and their situation, or like you talk about with cash flow, I would say the average, you know thing that most people do when they go into retirement is that 6040 portfolio where they have 40% fixed income to lessen the volatility, but 100% I would agree that that’s not right for everyone, because everyone’s situation is a little bit different. And

Lee Hyder  26:11

I really do believe our industry has done a significant disservice with that message, because most people basically will recite that as if it is the gospel. I’m retiring. I heard I should have less in equity, less in stock. Why? Well, they don’t know why. And then, when you do a financial need analysis and determine how much their Social Security is, like you said, how much their pension is, they don’t even need their portfolio to maintain their their lifestyle. Why would you, you know, throttle back risk at that particular point?

Ryan Fleming  26:45

Yeah, absolutely, I agree with that. Now let’s talk about something that’s even more significant. I think this is something that has really changed for me. I started in 2008 so that’s how long I’ve been doing. I’ve definitely not been in the industry as long as you have. But with that being said, I think there’s some significant changes that are happening in the industry based off of technology, automated trading, even AI. And what I mean by that is, like, if you’re in a financial advisor, that’s not evolving. I think you’re really, really falling behind and maybe even doing a disservice to your clients. And what I want to bring up with that is I 100% still agree that clients cannot speculate and gamble with their money, and they can’t stock pick, they can’t market time, they can’t track record, invest. If they’re doing those things, they’re going to end up hurting themselves. But I think the passive, very diversified index, low cost, ETF, I mean, not that it’s a bad portfolio, but I just don’t think, I think I think you’re going to get very average returns. And I think there’s a lot of things going on in the industry now where you could be a little bit more active with all the algorithms and technology and things that we have to try to get a little bit better returns for your clients. Do you have anything to say on that?

Lee Hyder  27:55

Yeah, you know, kind of like you, you know, many, many years ago, I cut my teeth, really, as what I would refer to as being a passive advisor. And what I mean by passive is that we didn’t do a lot of, you know, trading. We didn’t do a lot of responding to the market. We built a very diversified portfolio, which everybody should have, and then we kind of let it, you know, you know, play, and we would rebalance from time to time. But again, you know, everything changes. I mean, you know, just, you know, everything from from the way you cook in your house to the to the medical science to the automobiles that you plug in your garage like a toaster. Investing has changed as well, and with technology, and, as you say, the algorithms and and the new things and the speed and the information that’s available today, you know, I believe you can do a different kind of market timing. Now, again, you know, most people, when you talk about market timing, they’re responding emotionally to fear. They’re responding to what they hear. They’re responding to an election. You know, that’s when it becomes very, very dangerous. But when you tie academic research to what’s going on in the world, then I think you’re bringing math and science into trading. And that’s really, you know, what we think is happening today and and that’s why I think some of our portfolios are, are just, you know, very, very impressive compared to the competition. Can you

Ryan Fleming  29:15

talk about that a little bit more? I mean, I think we’ve both discovered Howard capital and their technology in their algorithm, the byline, I think it’s making significant changes. And if you look at the track record, it’s there. And it’s really a lot more about getting clients to be unemotional and let let it do its thing. What would you say about that? You

Lee Hyder  29:33

know, as I said a few moments ago, I was kind of a disciple of the old, you know, plug and play. You know, build a great portfolio and let it, let it do its thing, you know. But like you, I kind of found the Howard capital portfolio, and I really kind of pulled back the curtain and and started seeing how they do things and how they go to cash, very, very differently, you know, than the emotional investor going to cash, you know, because when you go to cash with an academic process. You really do a couple things. Number one, you protect previous gains, which is so important for the average investor, it’s two steps forward, one backwards. So it’s always a give and take. But when you have an academic process where you go to cash, not only do I protect my previous gains in my portfolio, but I also now I’m sitting on cash to redeploy back into the market, but I’m doing it on sale, versus having to wait for the market to come back just to get even. So again, I’m just a big proponent, because when I’m sitting on cash, I can also take advantage of what I refer to as sector rotation. You always hear from time to time that when the market is going through periods of volatility, there’s always this sector that is doing well, but you don’t have cash to get into that sector, because your portfolio is down 20% if you had a systematic process of deploying the cash from time to time. Now I can actually deploy those dollars in a sector rotation process. And again, that’s where Howard capital has done a great job well.

Ryan Fleming  31:00

And I think something you brought up is system systematic, having a system in place that’s unemotional, and having that dry gunpowder to take advantage of the market and any volatility, even a correction in the market like this, I look at it as an opportunity. We might be down a little bit more when the market’s down, but I’ve watched how they’re able to take advantage of the market as it comes back, absolutely, and even hit the gas a little bit as the market comes back. So we’re even outperforming what the market returns are looking like. And and I think that the numbers speak for themselves, and I like bringing it up and talking to you about it, because I think you’ve seen the light a little bit like I have, absolutely,

Lee Hyder  31:37

I mean. And again, look, change is hard. You know, change is hard for a lot of people, and it’s hard no matter what particular topic we’re talking about. You know, change from being an investor that just kind of sits tight to maybe an investor that deploys an academic algorithm that that goes to cash from time to time and gets involved in sector rotation, and even bringing a financial advisor into their life when maybe they were to do it themselves or but again, today, it’s it’s tough to be a do it yourselfer, because you get pulled in 1000 directions. Well,

Ryan Fleming  32:07

in life happens. You’re off doing other things, and you don’t have some automations in place. You don’t have an algorithm that’s constantly working and looking and redeploying when needed. I think there’s a lot of things that go into that. Now, when we bring up power capital, I want to bring up the obvious, and I want you to try to walk us through for these investors out there that are so focused on fees versus looking at a net of fee return. So one of the biggest things about Howard capital and the algorithm and the technology is it’s not cheap. It is not cheap. And I’ll be the first one to say that you can go out look at it. You can do whatever research you are, what are your you know, depending on what share class you’re getting into. But it’s not cheap, and I think that a lot of investors out there just don’t understand what a net of fee return is. If a net of fee return, we are outperforming what you’re doing by four or 5% I don’t that’s that’s where the rubber meets the road. It just doesn’t matter to me whether you have a 10 basis point expense ratio or a 2% expense ratio if you’re just getting your butt beat. And what do you have to say about that? Or how could you educate our listeners on that?

Lee Hyder  33:12

I mean, the bottom line is, you know, are you getting your money’s worth? You know? You know, we can all be a bottom shopper, and we can go looking for something that’s very inexpensive, but if the returns are not there, you know, what appears to be inexpensive is really a cost. It’s costing us the opportunity of actually out earning but we’re not able to achieve it. So to me, you know, fees are insignificant now, now I understand they’re not insignificant, but when we’re able to produce historic returns as we have been able to and I know as much as anybody else, past performance is no guarantee of future returns, and we can’t really sell off returns, but what we can sell off of is our stylistic philosophy, and it is the philosophy that has helped us achieve the returns that we’ve been able To achieve. And we can more than justify our fees, because we’re bringing value to the table. The real the real question is, you know, are you paying fees and not getting value

Ryan Fleming  34:11

well? And I heard Vance Howard actually say this, and I thought it was really interesting. He said, you know, yes, I can build you out a Vanguard ETF portfolio all day long, and it’ll be 1010, basis points. And guess what? You’re going to get very average returns. But if you want exceptional returns, you’re going to have to pay for it. You’re going to have to have a system in place. And I think I saw that in 2024 especially where I was analyzing a lot of other pilots portfolios, and they have a lot of Vanguard ETFs, or they have, you know, if say they’re the port 401, K was at Fidelity, they picked a lot of different fidelity mutual funds and their returns are, you know, 18% maybe on the year, and we’re pushing 28% 29% right? And you see that difference, you see that delta, and yeah, so great. You’re paying 10% or 1010 basis points in expense ratios, but you’re losing by 10% or more. Or and when does it matter? I don’t care if I was paying 15% for the technology. It’s working. It’s winning,

Lee Hyder  35:06

you know. And the interesting thing is, you know, it’s all a matter of how you present it. You know, if you turned around and showed somebody what our historic returns are and said, How much would you pay for these kind of returns? I bet you they would actually be giving us a percentage in that answer that is even significantly higher than what we’re actually charging? Yeah, well,

Ryan Fleming  35:23

I think it’s an interesting conversation. And I, you know, for my clientele, a lot of pilots are just cheap, and sometimes they cut off their nose to spite their face, or can’t, you know, see the forest through the trees. And so I find it very, very interesting when we start talking about a fees. And fees matter 100% fees matter. But like you said, getting the value out of it, and if I can get a client an extra one to 2% return every single year, and then it compounds, they have a totally different retirement. And that’s what I try to focus on, is just, just the numbers. I mean, the market, on average, is up three out of every four years. We’re going to have our down years. And guess what? That’s a part of the market. You can’t you got to be unemotional when that happens, but know that you’re going to win over the long term. And I think we both had a mentor of ours say that I don’t know if the next 10% is up or down. I have no clue, but I know the next 100% up because it always is. And I really try to focus on that, focus on the long term, right? And

Lee Hyder  36:18

not only that, you know, I’m sitting here, you know, in Sandusky, Ohio, looking at trees on my front yard. And, you know, to the average person, you know, you would think all of these trees are dead. You know, there’s no leaves on them. They look so brittle and dry, like they’re not going to come to life. But we all know that trees, like many things in life, go through a season. And I’m not going to cut down my tree, and I’m not going to cut down my portfolio, because it’s going through a short term season. So what do

Ryan Fleming  36:41

you think about 2025 we’ll finish up with this. I 100% think there’s going to be a 10% correction. I think it’s going to be a lot more ugly than what we just saw Monday. I mean, the market’s already coming back and and turning and rebounding, but I think there’s going to we’re going to have our backs up against the wall, and people are going to be scared. Something’s going to happen. It’s just a part of the the way it works. But I think 2025 is going to be a very positive year. I think it’ll be a double digit positive year. That’s my prediction. What about you? Yeah,

Lee Hyder  37:06

I think if we were having this conversation December 31 I think we would be rather pleased with our portfolios. I think our clients would all be rather pleased with their returns. But I do think to get here, we’re gonna go through periods of volatility, and I just think it’s, it’s, we’re in a politically charged environment. There’s a lot of things. There’s a lot of wins we’re bucking here, from inflation to to the immigration issue. I mean, there’s just a lot of things that create headlines. Headlines create fear. Fear creates turmoil. But at the end of the day, you know, like, I tell people, it’s the news that’s driving the market. It’s not the corporation that’s going through the volatility. It’s the interpretation of the volatility.

Ryan Fleming  37:50

Well, it’s all about staying the course. Lee, as always, I appreciate you having a we appreciate having you on the podcast. I know we’ll stay the course through 2025 and hopefully we’ll get our investors where they need to go,

Lee Hyder  38:01

absolutely, stay well.

Speaker 1  38:07

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