2020 Market Recap /
2021 Market Outlook

Key Takeaways:​

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0:00
All right, thank you everybody for attending the Polaris wealth advisory group 2020 market recap 2021 outlook. My name is Jeff Powell, I am the managing partner, and Chief Investment Officer of the firm.

0:16
We’re going to run you through a lot of what went on last year, as well as what we see going on this year, we hope that, that you find it of interest. And if you have friends that you want to share this with, push them to the same invite, we’ll have this on our website, they’ll just have to log in and have access to this. So

0:36
looking forward to it. And also, if you can’t say the whole thing and want a copy of it again, give us a couple days, and this will be on the website.

0:45
Just quick jumping through all this. So we have disclaimers that our attorneys always want us to throw out and our Chief Compliance Officer insists that I go, unless you at least spend one moment here looking at this that basically says that, what we’re trying to do is to provide you as clean and good information as we possibly can. And what we try to guarantee the information we can’t

1:09
agenda for today. Again, just a quick intro on the firm myself and so on, we’ll be spending the majority of the hour going through the recap. And really more importantly, going through the outlook and, and really kind of helping you make some decisions on where we might find some value in this upcoming market.

1:26
Most of you on this event already know us. Polaris wealth advisory group is a comprehensive wealth management firm. We do planning portfolio management in a coordinated effort, all under one roof. We are a tactical investment manager meaning that we will get defensive, which we will be talking about what we did last year as well. But we also As some of you may or may not know, do quite a lot of retirement plan sponsorship. So we work with business owners who need 401k plans or defined benefit plans, those types of things, where we can be a co fiduciary with you with that, as of yesterday, firm sat at $1.46 billion in assets under management, we’re very proud of that number and continue to grow, it seems like on a daily basis $500,000 minimum to work with us that is a cumulative across multiple accounts does not have to be one count. We are registered in all 50 states inside the United States with clients in 47 of those 50 states very proud of that number as well.

2:31
So that being said, We’re not here to talk about pillars prepared to talk about the markets. And so what I want to do is make sure that you guys have the majority of my time today being spent on the most important thing is knowledge for you. So let’s go ahead and just jump right into what went on last year.

2:50
So right here is the fourth quarter, fourth quarter was a pretty strong quarter, overall 12% quarter, we did see a drop in September, we’ll show you that in just a moment before year. But really, we saw a little bit of weakness in the market prior to the election rally off the election. And through the rest of the year. What we did have going on in fourth quarter was actually a little bit of a leadership change that we have seen continue into 2021 where value for the first time in a long time outperform growth. But I was up large cap value was up over 14%. And large cap growth was up about nine. The overall broad based s&p 500 was up 12.15 for the quarter. This drop again ahead of the election, a lot of it was hinging on concern about having further stimulus to our economy. The economy is sitting in very, very tumultuous situation right now. And so really, the worry was that they weren’t going to do anything than they were the election does race behind us, regardless of if you’re red or blue or purple or whatever happens to be in the middle. really knowing what you don’t know is what is the fear leading into the election and then being able to understand what has happened, really the driving factor of the rally into the fourth quarter.

4:08
year to day performance again, up over 18% for the s&p 500 for the year. We started off, you know 2020 kind of where we left off 2019 on rally mode. Yes, we had heard of a Coronavirus in China. But it was really locked to one region in China and the Chinese supposedly had it, you know, covered up the district move on the city were really locked down and everybody felt like the COVID virus there was going to be contained. Really the only little blips that we saw the the cracks in the the foundation here. Were people worried that it was going to be an interruption of supply chain to companies like Intel, Microsoft, and apple. And these were quickly rebuffed. The markets continued to rally

5:00
And then our cover our February 19, rolled around. And all of a sudden over the weekend, the news spread and the US we had had a couple of small cases of COVID in the United States, but it was not thought to be spreading. All of a sudden the news came out that COVID-19 had spread to over 30 countries worldwide.

5:21
At that point, really, the wheels came off, we saw the fastest 30% drop in the history of our markets. This was a 23 day drop, in which we saw the markets drop by over 33%. On March 24, we saw the Cures Act be passed. And when the Cures Act was passed by the House, it was not signed yet, but was expected to be we started starting to see a rally, this was a $2 trillion deal put together by the House of Representatives

5:52
and signed into law. We saw the immediate rally, and then a little bit of a stalling out. And in April, we had PPP come into effect the payroll protection plan and the health Enhancement Act. And when that happened, really the the country realized that the government was going to do anything that had to to really protect our economy and to protect its citizens. And that led to the rally into August where we saw really a complete recapturing of what went on with the markets here. That all being said, this was not a one size fits all market, as I said, fastest growing, fastest drop ever. We wrote extensively about how 70% of the time the markets would drop from there. And then we didn’t see that this was one of the 30% V shape recoveries, we do believe that we’re still in a secular bull market. How can you say that, you know, what we look at within this is secular meaning long term, there are cycles within a secular movement. So if you look at what we saw here, in 2000,

6:58
and the 2000 to 2013, Mark, we’ll see from 2000 to 2003, a drop in the marketplace, but that’ll rally from 2003 to 2007. The first part of that was a bear cycle inside of a second a bear market, from 2003 to 2007, was a bull cycle inside of a secular bear market. Again, 2008 2009 was a bear cycle inside of a secular bear market. And then the rally from 2009 to 2013, was considered to be a bull cycle inside of a secular bear market. Right now we’re in a secular bull market, the last one we have was from 82 to 2000. Had you put a million dollars to work in 1982, it was worth over $22 million a night. And at the end of 1999. We do not expect that kind of rally. But we do know that there will be more good years than bad. You can have recessions in the middle of a secular bear market. For example, we had the 87 stock market crash, we have the 90 recession, the 94, almost recession, all happened during the midst of the ad or the ad two to 2000 rally. And so the same thing is going on now. This was a major downturn in the market, but the economy was doing just fine before we had our Coronavirus spread into a global pandemic. So we do feel like this is a market that has more likes to it. But this is where we stand, at least at this point.

8:24
What worked in fourth quarter, really what you saw was commodities being the highest returning thing, if you’re looking at the top left corner of this graph, in yellow, the GFC is talking about the commodities index. So as the Goldman Sachs Commodity Index up nicely emerging markets up nicely and so on for the year, if you look at the far right column, NASDAQ, you know that tech stock tech, more tech, but it was also gold, gold did incredibly well. Emerging Markets did very well. The only things that didn’t work well, during the course of 2020 after the full recovery, the dollar, which is very understandable. Again, if you’re printing almost $3 trillion of new debt, chances are your currency is not going to be worth as much commodities as an overall we’re down for the year. So again, breakout between gold and the rest of commodities, but we do expect again, the potential of a surge within commodities going forward.

9:26
So if we’re looking at again different parts of the market here, what we saw the really the the returns being an information technology, we saw consumer discretionary, which was very, very, very limited.

9:42
Excuse me, materials rallied really well. So again, we had a market that was up 18%

9:49
but we did not have it be one size fits all. financials were down, energy got crushed. Almost all areas of consumer discretionary except for some of the larger areas.

10:00
really got badly hurt here.

10:04
Real Estate also was down on the year. So, again, one of the things that you’re going to hear us constantly talking about is, you know, where’s their value, where’s their opportunity within the markets.

10:18
Here’s part of our issue. If you’re looking at the growth pattern,

10:24
the market was almost exclusively large cap growth in nature.

10:29
They barely broke even on the year, this was work from home stay at home, spending money on business needs so that people can work at home. will this continue into perpetuity? We don’t think so. In fact, most leadership, when you get a rally,

10:46
the rally and then the what takes you higher are two different areas of the market.

10:51
As you’re already starting to see, we have value starting to outperform growth in the fourth quarter, and we’re seeing that very much. So what’s going on in our current market environment.

11:04
Fourth quarter was a rally across the globe, again, almost nowhere in the world was down during the course of 2022, or 2020 is fourth quarter.

11:16
But we are starting to see things get into a higher level when it comes to valuation.

11:21
And this is where we’re starting to get concerned. But this is looking at the s&p as an overall. So the s&p is 25 year average 16 and a half percent PE ratio.

11:33
latest numbers that we have are 22.33 significantly above where we are not a full two standard deviations. But

11:44
we’re getting into levels that we haven’t seen again since the late 90s. Now again, I said it’s not a one size fits all, really you’re seeing this, this over valuation going on much more. So in the growth side. In fact, if we look at it on a percentage basis, large cap growth is right now priced at about 170% of normal versus value, large cap value being at about 136%.

12:09
We have a few other things to show you that will tell you that we’re much more comfortable within this space right here than we are down here. I mean, almost 200% of normal is where we’re seeing trading going on. Within mid cap growth and small cap growth. This is not something that’s sustainable. The other thing that we’ve got to really kind of keep in mind, and this is going to kind of come into play when we’re talking about what we expect to happen next year, the weight of the top 10 stocks in the s&p 500 is almost 30%. Now,

12:38
Tesla is now part of the s&p, this is part of it, it’s part of what’s driving this. But really what we’re talking about here is something that we really need to be looking at, which is if we have overvalued market in these segments, and we’ve got markets that have an overwhelming percentage that’s in a small area of the marketplace, then what you’re going to see is a potential of an index that goes down, but not necessarily having our portfolios going down. And this is what I’m talking about. The top 10 companies represent 170 or 172% of normal valuation.

13:12
Normally, they have a P e ratio of around 19. They’re at 33% or 33 p i should say. So again, much, much, much higher than normal. So if we’re looking at this, we can have a correction or a non event with regard to the s&p 500 as a benchmark, but still have the other 490 companies that are in this index still do perfectly well and have a very good market for you as an individual investor but not have the index do much.

13:45
We’re also seeing valued growth of valuations that we haven’t seen again since the late 90s. If we’re looking at it in this kind of context, you have growth being being inexpensive up you’re cheap, value being expensive. And when you have it down the other direction has been growth is expensive and values, not just just a comparison valuation between the two, you’ll see that historically, I mean, we went from 99, all the way to 2009. were valued at significantly better than growth. We’ve been kind of an even spiral for from 2009 to 2017. We’ve had a very long time period in which growth has been doing better than value. Do not get comfortable with that. Do not line up with this because at the end of the day, what’s going to end up happening is you’re going to have value come back into favor and it’s going to severely as it has historically outperformed growth with significantly less risk.

14:44
On the quarter we actually had the worst one month drop in a history of calculating GDP goes. This chart only goes back to 1948. But you could go back into the 30s and on a quarterly basis.

15:00
This was worse than anything we even saw in the Great Depression. Not for the year, although we’re coming close to the worst, which was 1934. But we’re coming close to those kind of numbers. But we are seeing a recovery in our economy, but it’s still negative.

15:17
Unemployment also skyrocketed. So we have you six unemployment you five and official, which is you three unemployment, the youth unemployment. In gray, you can only see right in here got up to 14.7% unemployment. That’s a level that we have not seen since 1937. Okay, you six employment is people that either don’t qualify. So for example, if you graduated from college, and you weren’t able to find a job, you’re not eligible for unemployment. If you took part time work, you’re not eligible for

15:53
unemployment, if you’re flipping burgers, but you have a doctorate degree and you’re not working within the type of industry that you’re looking at, that’s you six unemployment. So we saw you six unemployment, which has only been calculated since the mid 90s. Obviously hit record highs, and well above where we were back in the Great Recession, back in 2008, to 2009. So again, we saw a big run up, then this was just overnight. And so then coming back to recovery. Right now, the official unemployment rate is 6.7%. One of the things that you will see is this is very dependent upon your education level, the higher your education level, the lower the unemployment levels are. So people with college education and higher, you’re seeing an unemployment rate that’s closer to 4%. If you don’t have a college degree, you’re seeing it almost up in the eight 910 percent. And then if you don’t have even a high school, it’s significantly higher than that as well.

16:53
And here’s where the jobs were really lost. I mean, obviously, everybody knows that leisure and hospitality is where it got hurt the worst. So it’s showing you here is the number of jobs that were lost. And then how many jobs have been regained. So February through April, was when the job loss occurred. And then we’ve been trying to recover from that. So about 60% of the jobs lost in leisure hospitality have been back filled and regained already leaving, obviously a lot more room to go. Interestingly, and I’ve been asked several questions about this, well, how is this negative? Well, what ended up happening was a lot of jobs were lost. And then additional jobs were lost, there were no jobs gained in government, or in mining a launch and you actually saw further loss going on of jobs within these particular areas. So again, where we saw job loss, we have not seen full recovery by any stretch of the imagination. But we should see this continued to backfill more and more as we see vaccinations and so on being distributed and, and administered. Remarkably, our consumer price index has actually remained pretty intact. We’re sitting at about 1.7% inflation, as we speak right now, this is historically a lower number. This does not bode well, for a number of items out there that we’ll be talking about for 2021.

18:19
Fed Funds rates again, brought back down to zero. So for looking at this right now, the expectation is for it to do nothing more than that is to remain where it is. But if you’re looking at it from an historical level, yeah, the late 70s and early 80s, astronomical Fed Funds rates that we’ll never see again in our lifetime. But really, historically, I mean, you’ve seen a Fed Funds rates that are closer to 5%, we’re sitting at zero, this was the 2017 18 run up of Fed Funds rates, then obviously the collapse and drop of it. So

18:54
again, a lot of stuff going on from this kind of context. So we’re really matters to us about what we’re seeing with us and why we don’t want to sit there and we’re looking at this from a much more concentrated effort is when we look at the bond market. Right now, if you’re looking at the bond market, at the end of the year, the 10 year Treasury was yielding you point 9%.

19:16
Inflation is 1.65. So if you’re buying a 10 year Treasury, what you’re saying is that you’re willing to give up seven tenths of 1% real yield or buying power for your portfolio. So I’ve kind of joked with you as in days past and talked about this at length, but if you kind of think about it in the context, if I came to you and said, Okay, I’ve got an amazing investment, you give me $100,000. And in 10 years time, I’m going to give you $93,000 back, guaranteed. That’s what’s going on right now within the bond market. Yes, it adds to stability, but the real yield that you’re getting right now is still negative. And so we definitely want to be looking at this in this kind of context, and make sure that we understand exactly what’s going on.

20:00
From that context and make sure that we are doing what’s necessary in order to protect you, is protecting you a one year downturn in the market, like we already showed you and a full recovery 2008, we had 100% of our clients back to breakeven by the end of 2009. Okay, so is risk a one year downturn, like we saw in the Great Recession, or what we saw to the COVID, or what we saw during the.com bubble, which basically, by the end of 2003, we had recovered 100% of our losses during that era. So if you’re looking at it in this kind of context, you know, is risk losing buying power for years on end? Or is it a blip in the stock market, it is something that you need to speak with your financial advisor Polaris about, and really have us do an in depth diagnosis of what you need to be taking in the way of risk in order to have your portfolio continue to grow. And if we continue to see the dollar drop, you’re going to see these nominal yields be even worse, when it comes to needing to buy goods abroad, you’re going to see inflation start to continue to rise here. And it’s going to net out negative for you. So if we’re looking at it in this kind of context, again, where are we seeing recovery points. Right now, the biggest recovery point has been in mortgage applications, we’ve seen people moving out of the big cities and into the suburbs. And so we’ve seen a lot of positive activity when it comes to residential real estate. But we really haven’t seen a full recovery in other areas of the market. Yes, we’re spending much more than we did before saw a little bit of a tail off at the end of December. But we were at 30% savings rates here. And when COVID had immediately in March, we saw a dramatic drop off in spending, and then a slow climb within a hotel occupancy, dramatic drop off, this has been a rise. But one of the things you have to realize within hotels right now is they’re discounting about 50% of normal, in order to get you to where you need to be right now, where they’re at about 30% down from where they were a year ago. But their income levels significantly worse because of how much they’re discounting in order to actually do stuff. Same thing with with us travel, I mean, seated, travel on airplanes, those types of things. So we’re seeing the TSA activity or wallets, rising aircraft, airline flights are at a major discount. We do expect both of these to rise as we see vaccinations go and this is again, one of the ways that we get a better understanding of recovery of our economy.

22:39
So that’s a quick snapshot of what we went through. I mean, obviously, you know, if you’re looking at the history, what we went on, there’s so much more that went on during the course of the year. I mean, starting off the year with the United Kingdom, dropping out of the EU, we actually had an impeachment trial for for Trump, back in January. And it was acquitted in February, something when I was going back, I’m like, Oh, my gosh, that happened this year. I can’t believe it. Oh, can’t believe I can’t remember that. But yeah, it happened this year. And and obviously everything else kind of too cold with regard to COVID. And really kind of made us look to that as the dominant news story. But we had some other amazing things happen. We had SpaceX have the first private launch of astronauts of any private company of us astronauts into space. We unfortunately had things like the George Floyd, murder happen. And obviously the the social injustice that’s been brought to light through Black Lives Matter. We had an election. But all of that. And truly all of that was surpassed by what we were dealing with all year long with COVID.

23:43
So let’s talk about the outlook.

23:46
It is still all about COVID. And we’re looking at it we’re looking at daily new cases that are still on the rise. This was done just a few days ago. So in the United States, obviously we had our initial run, and then we saw a drop off another peak back in the summer, a drop off and then the holiday said, and we’ve seen a a huge run up of what we’ve seen within it.

24:09
We’ve seen that hospitalization rates skyrocketing again, this was taken a couple days ago, I thought I saw a headline today that said we had the highest death rate for any given one day yesterday. And you’re seeing that again, and their death rate and the continuation of the death rate. As long as this continues to be an upward movements, we’re not going to see a change in economic activity as we continue to see the majority of the country locked down.

24:39
But we do have a path to safety or a path to herd immunity. And that’s really what we’re talking about. So this was done by the CDC, talking about the number of actual infections which helps get you to a herd immunity, and we’re talking about not hearing something but herd like a herd of cattle. When you have another

25:00
People that are immunized against a vaccine or a virus, it dies, it dies away because it can’t spread anymore. And that’s really what we’re talking about here as getting to this green line between people actually getting infected and getting immunized. And the expectation is somewhere in summer of this year, on a global basis, we will hit herd immunity.

25:25
Now, again, you’re gonna see most likely,

25:29
some drop off in the the number of people that are actually infected. And so with this, we are seeing a significant drop off in the spring and into the early summer.

25:41
So that’s really one of the bigger hopes out here is that we’re going to see continued to drop in the number of cases allow the infection rates to drop to a level where we can start opening back up our economy, I continued the vaccines into the summertime. And and hopefully, by the fall of this year, we will have ourselves back to normal is really the overall hope out of this. You’re seeing Wall Street agreeing with that overall assessment, here’s 2019 actual, here’s the expectation and a significant drop in 2020 earnings, but look at what 2021 to 22 earnings are expected above where we were in 2018 and 19. Here, so we’re gonna see a continuation and arise, hopefully within what we’re seeing with regard to earnings.

26:36
We do not think that this is going to be the same market that we saw last year, if you’re looking at where you can see. So MTM here on this chart stands for next 12 months, next 12 month earnings growth and consumer services or communication services and summaries of consumer discretionary industrials and materials is where we feel like the greatest amount of strength is going to be if you’re looking at having a very strong technology portfolio, you’re looking at having very average growth and overvalued part of the marketplace, it’s not a great combination. Looking for industrials, for example, they’re expecting an 81% growth rate. This is an area that’s been held down significantly by everything going on COVID. So an 81% growth rate when they’ve got a historical growth rate of 11. The next biggest is consumer discretionary, where you’ve got 54 versus 15. Now within consumer discretionary, this is not going to be your Amazon’s Your Home Depot’s near Lowe’s, which have already had substantial run ups, we’re talking about the battered companies within that segment of the marketplace that are going to recover for no other reason. Then we normalize communication services. And materials are really the four areas that we see the best growth opportunity. But we also see additional opportunity and information technology healthcare. We like energy and financials. These are areas right now that we are overweight in our current portfolio. It’s one of the reasons why you’re seeing the overperformance within our portfolios year to date, and do that and 21, as we’re already in front of this right here. Now are these long term investments, probably not.

28:17
But are they are good places to be right now, during recovery mode. Definitely. And so these are areas again, that you will continue to see Polaris participating with them.

28:29
Just want to remind you that even though we saw growth having this run this three year run in the marketplace, that’s fantastic. But what we want to remind you is that dividend paying companies historically do much better than ones that don’t non dividend paying companies. So this is growth historically from 1973. To present, have a 4.5% return

28:52
dividend paying companies 9.2.

28:55
So right there alone or giving you an advantage by going into companies that are paying dividends, we try to go into the ones that are growing them or initiating them, which gives us even a larger competitive advantage, doesn’t mean it’s gonna be always the case. But I have people say, you know, why would you stick out with your value investments? Well, guess what, historically speaking, better returns add less risk. So if you had $100, to invest back in 1973, your growth investments, your NASDAQ as type of stocks, which, by the way, are just now getting back to where they were in 2000. They’re gonna give you $843 you could have that or $6,946 being an all dividend paying companies or over 11,000 if you were an only growers and initiators. We are in these areas of the growers, initiators and all dividend paying companies, again trying to position you in a way to take advantage of the market.

30:00
It’s you’re in you’re out, doesn’t mean it’s always gonna be the case. Of course not. But just realize that we are positioned in the way that we are for a reason.

30:11
Another thing that we’ve been looking at is the regression analysis on what’s going on with the market. So if you’re looking at it in this context, you’re looking at valuation by dividend policy. Again, we’ve got large cap growth here, versus large cap value, regression. So again, think of it in this kind of way, if you’ve got a pan and you take a rubber band, and you pull it up, and you pull it up, and you pull it up, and you let it go, it’s gonna snap down.

30:36
Same thing, if you got a pen right here, and you pull it down, you pull it down, you pull it down, it’s gonna revert back up and to the mean. That’s what we’re talking about here. So historical growth rate for large cap growth is around 5%. Right now, they are about seven and a half percent overvalued.

30:56
That being said, if you do the same thing for large cap value, it’s about 45%, undervalued to go back to its normal trading valuation. So do you want to be an 8%, overvalue or 45%, undervalued, I’m going to choose to be in the area of the marketplace, that’s going to provide me the best potential solutions going forward.

31:21
So worth going into. And again, we’re not going to get into the politics of what’s going on over the last week, 10 days, I don’t think that it’s worth going into, we have clients that are from every spectrum out there. And so again, my job is not to sit there and be rad or be blue, or to be purple, it’s to be translucent.

31:42
Looking at it in this kind of context, what I mean by that is a thorough his ability to make money in any market environment. And so when we’re looking at it in that kind of context, you know, you may not like the person who’s been elected or you may be elated. Every four years of flip flops. This is what goes on during a typical four year presidential cycle, however, and it’s polarises job to identify what’s going to be the driving factor behind the growth pattern. Okay, so it doesn’t matter if it’s a democrat or republican office, Polaris wealth advisory groups job is to sit there and understand what’s out there, what opportunities are there, what landmines are out there, and how are we going to work around that? Okay. So again, if you’re elated, fantastic. If you’re depressed, I’m sorry. But this is what we want to be looking at first year of a presidential cycle is not the worst year, the second year is actually, historically, the worst, there have been some phenomenal ones. But from a historical standpoint, you’ll see that there’s progression, both Democrat and Republican over time. So again, we’ll be monitoring the cyclicality of what’s going on from a presidential standpoint, in order to understand what’s going on.

33:02
Keep in mind, again, the way that we manage money is looking at it on a four tiered approach. We’re looking at technical analysis, macroeconomics, we’re looking at fundamentals, as well as market sentiment. So in this last year, in 2020, you could throw out macro economics, and you could throw out fundamentals. It all was market sentiment, and then we saw that market sentiment by using technical analysis.

33:29
What do I mean by that? Well, you would have never invested back into the marketplace in February, March, technically, of 2020. By looking at the fundamentals or the macroeconomics, the economy was falling apart.

33:43
Again, we had an if you look at it on an adjusted basis, second quarter and third quarter, we had over a 12% drop in our economy. That is almost record numbers for an annual business, we’ll find out if we hit that record, when we get fourth quarter economic activity and, and get a clearer understanding of that. But we had record numbers. So if you’re talking about, again, looking at the data that you had, knowing that we were in a recession, why would you invest?

34:15
The answer is you really wouldn’t, again, within a recession, I mean, just take COVID out of the situation, if you know the economy is shrinking, the average company out there is going to make less money. So if you’re going into it with that kind of context, why would you invest knowing that the average company out there was gonna make less money, you’d have to be very narrow in your understanding. Now, when COVID did hit, it triggered panic in the market, that panic in the market triggered selling, which showed us those types of things here within our technical analysis. So again, going back to what we had done for our clients in 2020. We got very defensive if you look at what we did back in 2020

35:00
By the time the piece that was written called not time to go to cash happened, which was on March 19, we were telling clients not to go to cash. Okay, we’d already made the move our 100% equities legacy strategies. So our rising dividend growth, our social responsible, our global growth, we’re down to less than 50% equity, our rising dividend growth in income was sitting at 30% equity, and the rising dividend growth and income strategy typically as a 6040 split, if we think that there’s average risk, if we think that it’s got less than, less risk out there, we can go as high as 80. Right now we’re sitting at 70. But we were not at 30% equity.

35:43
And then as we got confirmation that the rally was happening, we added back into our portfolio over time, again, based upon tactical valuations, nothing to do with macroeconomics, nothing to do with fundamentals, for sure. This is why having these four pillars is so important. If you’re a pure fundamentalist, you are not happy, you know, you saw the deterioration of your portfolio happen, then you got out, you’ve gotten knocked back into the marketplace, because the fundamentals don’t make any sense at the moment.

36:15
understandable, but you lost a lot of money doing it. So to us, it’s about being partially correct, rather than completely wrong. And having these four different pillars here truly helps us get a 360 view of what’s going on with the market as best as possible.

36:33
So what are we going to do if the markets continue to go up?

36:37
There is reason to continue to work from home. Okay, so if you’d asked me a number of years ago, you know, what was polarises work from home policy, I would have said we didn’t have one, if you were going to be working from home, that’s called a personal time off.

36:56
The people here that work at Polaris, have truly amazed at their work ethic, they’re there, they just stepped up to the plate. So we’re gonna certainly read thick at that and look at it very closely and make sure that we’re still keeping productivity up. But there should be a lot of other companies going to think the same way.

37:17
This has a negative impact on a lot of commercial real estate. If you’re not putting as many people into a high rise building as you normally would, why would you need to run as many floors, you wouldn’t.

37:29
People are also much more accustomed to now ordering things to their home. So that’s also gonna have a potential impact on

37:38
retail space. So you better be very good at what you do from a retail space, which we feel like there are some surprisingly good players within that space that will thrive. But there will be other places that will turn into ghost towns as a result of that.

37:53
So the other area that we’re looking at getting involved is really, again, the oversold area. So the play of your your darlings of Wall Street have already had their run. So you know, who were the stepdaughters out there and the ones that have not recovered at all, or recovered very little, given the fact that we’ve been sheltering in place for as long as we have. So as we see a recovery began, these oversold companies are going to be the no brainer. So again, looking at things like the Travel and Leisure industry would make an enormous amount of sense with it, you know, concert

38:33
companies, things of that nature, restaurant companies, great places to be putting your money, once you feel like the market is going to start to rally. Again, the demographic shift is huge.

38:48
People are moving out of the cities and into the suburbs, they do not want to be locked into a smaller apartment where they’re not able to sit there and go out and see anybody. So the big thing there that we’re looking at is we’re seeing people that want to have a yard to be able to get out and to be able to do things,

39:09
you know, and socially distance themselves still, but not be locked into a city where their only means of getting up and down and out of the building is by going into an elevator that could have been shared with people that were already containing COVID. I’ve seen that happen. I’ve heard it happening, where people that have gotten sick, got sick from people inside their own apartment polling. Now, obviously, you know, you’re only as good as the things that you also avoid. So certain segments of the marketplace. And again, I would start off with with a lot of the Fab Five, I would also look at the top 10 and really question, are those companies really worth sitting in your portfolio right now based upon their valuations, or are they going to sit there and be undervalued for years to come as you’re waiting for a long term recovery to happen to drive

40:00
Enough earnings through the company, that actually starts to drive the price back up, because that’s really all that matters to you as an investor. So again, we want to be looking at certain segments overpriced or areas of the market to avoid.

40:20
The markets want to correct, which again, we already know that there’s certainly no numbers out there. I mean, if we were to see, for example, a breakdown and distribution of

40:32
vaccinations, that would probably drive the markets down.

40:38
So if we were to see that going on, what we want to look at is are high beta or higher risk stocks really need to be the first ones to go. Beta is means correlation to markets. And so if we’re looking at it in this context, what we want to really be looking at is saying, okay, I want something that is less correlated to the market, because if it’s going down, I don’t want to be going down with it. So again, higher beta stocks, normally mean better returns, and good years, worse returns, and bad years, all kind of evens itself out in the end. But the high risk, high returning ones should be the first ones out your portfolio. If you’re looking at things where, again, that you expect the overall broad based markets retreat,

41:23
we would shift into some of the defensive areas of the marketplace. And again, we’ve if you read our articles, you know what we’re talking about with this. But we’re really talking about things like staples, healthcare, utilities, telecommunication companies, those are historically are higher dividends, less price movement, areas of the marketplace. So if we were to see this go on, you would see us again, continue to move towards those defensive areas of the stock market. And we really want you to be aware that, you know, again, one of the lessons that was learned in 2020, I had a client asked me the question, you know, if you could go back, you know, what have you learned from what went on in 2020. And again, one of the things that that we pride ourselves on is the lack of ego, when it comes to how we manage money. It’s one of these things where, you know, again, we want to constantly be getting better. And so I took some time to reflect upon what they asked me. And it was really kind of interesting, when I think back on it, you know, obviously, with a perfect

42:23
foresight, you would get out of the market entirely on February 15, or 14th 19th, to the very latest, and then your picks back up the entire market on March 24. That would be your ideal situation. Now, that’s super human. And that’s obviously not realistic. So what can you have as your takeaways? Well, one of the bigger ones for us is that investors now own a record amount of ETFs, and index mutual funds. And so as a result of that, when they panic, and they sell, there’s the portfolio managers of these index mutual funds, or the ETFs, if there’s enough selling, are forced to sell out of El all of their stock in order to keep the the overall portfolio mirroring what’s in the s&p 500. So you are losing the diversification that you’re looking for. Because so many people have index chairs. And so when they sell, they throw out the baby with the bathwater. And so in these situations, you just need to be really, really aware of it and have a further trajectory, you know, with regard to your eyesight, and goals and everything else. So that if if one of these weird situations were to pop up, again, that you had the time to sit there, and I lost that. So just be aware that the the additional index sharing that’s going on, is really creating more volatility in the markets, more downside in areas of the market that historically had you gone, you would have actually made money not lose money. The other part that I would throw out is do it in phases. Now this works on both sides, guys, we have a lot of people that we know, that are sitting on far too much cash right now.

44:10
or sitting 100% cash. And the question is, what do I do with this?

44:15
And so again, my statement to them is be correct. And they kind of chuckle at that. And I’m like, what does that mean? I’m like, put some of your money to work right now. Okay, we strongly feel that we have the ability to make money in this market, even if the s&p does not want to show much in the way of performance because the top 10 companies in the s&p are overvalued, we still think that we have a very good chance of making some very strong money. And we’re very excited about it. So what I’m looking at within this and when we talk about you know, retreating market or growing market, okay, so the markets retreating, do it in phases. Don’t sell out of 100% of your portfolio, sell some of it, sell 10 20% wait a day or two. See if you’re right, if you’re right, keep on moving.

45:00
And increments like that. Well, what I was saying about sitting on too much cash, it’s the same situation. We have many clients that did not listen to us saying, you know, do not go to cash, you’re not going to cash and they’re still sitting in cash.

45:14
Okay, you need to put your money back to work. You know who you are, you need to put your money back to work. So how do you do it? First thing is, and again, I said be correct. Take a third of your portfolio right now and buy into our strategies. Okay, our strategies are doing exceptionally well. Exceptionally, I mean, we’re talking about outperformance the market buy, in some cases, 235 percent already so far this year. So if you’re looking at in that context, if you took a third of your portfolio that’s sitting in cash and put it to work, if the markets went up, guess what, you’re right, you put some of your money to work. If the markets go down, guess what, you’re right, you still have two thirds of your portfolio sitting in cash, you should then dollar cost average away. And

45:59
so again, what I would say is, is putting your money to work, getting yourself involved in this market right now is absolutely absolutely essential. So kind of wrapping things up. Well, we expect to see a major shift in leadership.

46:16
So it could be your comms, it’s not gonna be, you know, the, what we’re referring to as the Fab Five, Fab Five is Amazon, Apple, Microsoft, Facebook, Google, those five names are severely overvalued right now. Okay, with glue, there are areas of the market that are much better growth opportunities at a much cheaper price. Now, if you’ve got a huge tax ramification to get out of them, maybe you don’t want to get out of them this moment, but I promise you, when you’re looking at what their opportunity is, going forward, Apple’s not going to double the number of iPhones itself, or, you know, looking at its Mac books or iPads, it’s just not gonna happen. Twice as many people are not going to just start using Google, and so on. It’s just not realistic to think about it that way. Again, this is gonna be a stock pickers market.

47:11
So being able to sort through the best of breed and finding great companies with great growth opportunity that have not run up 200 300% in the last six months, that’s brilliant to be thinking. So many of the winners 2020 will not perform in 2021. Again, one of you know, truly comes to mind this thing about zoom for a moment.

47:38
Why?

47:40
Why is that gone up as much as it has, I have no idea whatsoever, because if you’re looking at it from my point of view, looking at it in the context that I’m looking at, you’ve got lots of competitors, a run what GoToMeeting or GoToWebinar right now, or GoToMeeting, same idea. But you’ve got WebEx, you’ve got joined on me, you’ve got teams, you’ve got four different other free services out there. So what’s going to make everybody go to zoom? And why did zoom go up as much as it did not short of a period of time?

48:13
Right now, a couple of like Tesla, now, it is so overvalued, it’s trading at 17 100 times its earnings. It’s 18 times bigger than Volkswagen Audi

48:27
18 times bigger. They sold 500,000 cars last year.

48:33
That makes them the largest seller of electric cars, but certainly nothing that’s worth

48:39
taking up as much market cap, the stock is up 11 100%. And just a little over a year, if you looked at it, where it was in the end of 2019, or where it is now it’s up 11 100%.

48:51
So be aware, again, some of the winners, I would say more than some but a lot of the winners from yesterday or are not gonna be what drives the market in 2020

49:05
reevaluate your bond portfolio. Okay. One of the things that we’ve done, I’ve deconstructed a couple of bond portfolios that came to us, people right now are being sold coupons, not returns. Okay. So if you want to sit there and get income, you’re going to have to pay a huge premium for your bond in order to get that kind of income. I was talking with

49:28
several clients that wanted income, then comes up there. We have income and alternative investments. We have income and other sources that we can be providing to you right now where you could be getting 678 percent income. It’s not gonna be found in traditional fixed income. Okay, it’s just not there. We can deconstruct a corporate bond portfolio that had a you know, again, was built with an intermediate term, it had less than a 1% overall total rate of return.

50:00
When you looked at everything involved with it, it’s just not worth it.

50:06
So if you’re not gonna pick up your money there, how do you get it? Again, come to your financial advisor app alerts, it’s a little too complicated to go through the alternatives. And again, you may not be eligible for them. But there are certainly plenty of things that we can be doing to improve upon that without going too heavily involved. And the US bond market,

50:28
a well diversified portfolio. Okay. And this is something again, that I just did a reiterate, I’ve had, you know, we received many, many, many compliments for how well, we did and last year’s market, we do feel like we performed at a plus levels, the one thing I would throw out, is we’re the people that have performed us. Definitely, if you were a large cap growth only manager, you outperformed us, by the way, we launched a large cap growth strategy that outperformed the Russell 1000 growth market by about 5%. It’s done incredibly well. So if that’s something that you want added to your portfolio, we can certainly throw it there, but be very cautious. Okay. Again, what worked last time is not going to be working with with what’s going on now. Make sure you have a well diversified portfolio under our strategies, have some growth in income, have some focus value, have some global growth there. Make sure that you are being smart about it, though. Okay, if you had, if you outperformed us, the likelihood is that you’re taking substantially more risk and the process of doing that. So again, if you’re looking at it and saying okay, well, Polaris was up 12% in the market was up time, did we do a good job? It’s a trick question. How much risk do we take, if I took 50% more risk and got 20% more return, and I did not serve you all.

51:56
So you really want to be looking at it and looking at again, diversified portfolios, both with diversified strategies, we’ll be very happy to do it.

52:06
But meet with your Polaris wealth advisor. Okay, so we have an entire team of people just sitting there waiting to meet with you, they do reach out to you take their call and set up the meeting. But really, again, these are people that are going to do revisions to financial plans are going to help you make choices on what’s out there in the way of insurance for you, and so on. Just be as open and honest with them as possible. And we can also give you a second opinion about what’s going on with your portfolio. So that’s really it for today. Again, we think that if we’re going to kind of go through what markets and things that we are, are considering we think that value is back in favor within that value is going to be performing at levels that we haven’t seen for years, we feel like we’re very well positioned already with us. We think that we can give you returns that are going to exceed what most of your expectations are depending on what indexes you’re reviewing US based upon. So again, excited about the year, feel free to reach out to me feel free to reach out to your individual wealth advisor that you work with your pillars wealth, and we look forward to a healthy, successful and you know, let’s do a little smile on our say Happy 2021 because it can’t be harder than what we went through last year. So again, thank you for attending, and we look forward to speaking with you guys soon.