Paul Adams – Creating a clear path to financial independence. The big question most people can’t answer is, how much money do I need to live financially free? My next guest is a financial advisor and coach who helps his clients understand the timeline and dollar amount to achieve financial independence. In this episode, he shares what strategy he helps his clients with, his biggest investment success, and his biggest investment mistake. Please welcome, Paul Adams.
Payback Time PodcastPayback Time is a podcast for investors. The goal of this podcast is to help make investing approachable and easy to understand. We will interview beginner and experienced investors and ask them to share stories on how they got started, what challenges they faced, what mistakes they made, and what strategy works for them today. The overall objective is to provide you with a roadmap that helps you become a better investor.
- (01:01) – His background history
- (02:58) – Employment history
- (04:46) – Thoughts on formal education
- (07:55) – His investing background as a young investor
- (13:14) – Type of funds he holds
- (14:24) – Fees to Avoid
- (16:16) – His strategy and mutual funds fees
- (17:49) – What is his personal investing strategy?
- (25:49) – How his strategy meets the 4Ms vision
- (29:36) – What type of funds does he invest in?
- (31:07) – How many different funds does he hold?
- (33:03) – The beer market investment strategy.
- (33:37) – Percentage of his income he invests
- (25:08) – Real estate gains strategy
- (35:49) – His biggest investing success and mistake
- (39:36) – How to manage emotions when investing
- (48:40) – The best investment advice he ever received
- (48:52 ) – The worst investment advice he ever received
- (49:56) – Guest contacts
[00:00:03.430] – IntroPayback Time is a podcast about building businesses wealth and financial freedom. We try to uncover the challenges our guests faced, the mistakes they made, and the steps they took to achieve their goals. The overall objective is to provide you with a roadmap that leads to your own success. Sean Tepper is your host. Are you ready? It’s payback time.
[00:00:32.790] – SeanThe big question most people can’t answer is, how much money do I need to live financially free? My next guest is a financial advisor and coach who helps his clients understand the timeline and dollar amount to achieve financial independence. In this episode, he shares what strategy helps his clients with his biggest investment success and his biggest investment mistake. Please welcome Paul Adams. Paul, welcome to the show.
[00:00:59.530] – PaulHey, it’s great to be here. Thanks so much for having me, Sean.
[00:01:02.030] – SeanGlad to have you here. So why don’t you kick us off and tell us about your background?
[00:01:05.910] – PaulSo my background starts maybe most people wouldn’t tell it this way, but my background as a business owner and entrepreneur really started when I would ride around all summer with my dad for his business. And my dad had an opportunity to buy a business from a buddy of his. It was a gravel pit before he met my mom. And if you’re not familiar with the business model of gravel pit, people pay you to take money out of your hole for decades, and then they pay you to put dirt back in your hole for decades. So it’s like a money printing machine. And he said no because he was very comfortable with the role he had as one of the top construction managers in the state of Colorado at the time. And that company sold, and they didn’t need my dad as an executive anymore to let him go. So we followed my mom’s career as I was growing up. And while driving around in whatever entrepreneurial endeavor my dad was in, he would find a reason at least twice a week to say, this is why you need to work for yourself. And so I kind of brought up on this idea that I needed to be financially independent and work for myself.
[00:02:09.450] – PaulAnd that started me on a path where, frankly, I thought I was going to be in the military and what I was going to do is just save a lot of money. So I read at the age of 14 investing for Dummies. And then when I started earning cash while I was busing tables, I began to take all the paychecks. I would live off my cash, deposit the paychecks, and gave them to a financial advisor my parents had introduced me to, which I’m sure I’ll have reason to talk about more in a minute. And that kind of started me down the path of understanding finance. And then when I couldn’t go into the military because of a pre existing asthma condition, then the only thing I had studied up until then was money. And so I just kind of naturally ended up in an internship that turned into a full time career. But I started when I was 18.
[00:02:58.010] – SeanNice. And how long did you work at a company before starting your own practice?
[00:03:03.630] – PaulSo I was an intern with the first company, which I won’t name, but it rhymes with Northwestern Mutual. And then I transitioned and really started building my own brand on a more independent platform from there.
[00:03:20.360] – SeanGot you. Okay. Northwestern Mutual headquarters here in Milwaukee, where indeed, yes. It shows you the footprint. Now, you were working for them. Were you in Washington where you’re based, or another state?
[00:03:33.700] – PaulYeah, I started in Las Vegas, actually. It was part of an intern program, and it was after a year and a half in that intern program at UNLV, when I had professors teaching that clients, because this is late 90s, so the professors would teach that you could get an 18% year over year return on your money, conservatively, in a good growth mutual fund. And I would raise my hand and ask questions. Like, if I tell people more than twelve, I’m already licensed, I’ll lose all my licenses, I might go to jail. I’ll definitely be fine. Why do you teach 18? And I’ll never forget this guy. He says the regulators haven’t caught up with the new economy. And that’s when I said I can’t use college as my educational source anymore.
[00:04:18.970] – PaulAnd so that I ended up dropping out of college and spending about for ten years, I spent an average about $40,000 a year on different coaching and educational programs because I wanted to go to the programs, the financial institutions weren’t teaching for free. I needed to go to independent thinkers who would help me understand how to better advise my clients on the whole of their money. And so I just did that for a decade, and I still don’t have a degree.
[00:04:44.190] – SeanThere you go. Yes. This could be another subject, and I talked about this with other people in the podcast, but I’m the believer that nowadays a college degree is a bit overrated. There are certain degrees you’re going for. Like, it is a necessity. Like, right away, I think of doctors. Right. Engineer. Right. But there’s a lot, like, if you want to get out there and start making some money and get on the fast track to financial independence, most cases, college is not your path forward.
[00:05:12.860] – PaulIndeed, yes. And we’ve talked with my wife and I about this idea that if we don’t do college, what we might end up doing is, because I have all these connections through the Entrepreneurs Organization, all my clients that are business owners, I could literally tell our clients, hey, pay our kid minimum wage to work for you. And the one promise we make is you give them a job, a new job every six months, and we’ll hire the best coach in the world to make them amazing at that job for you.
[00:05:40.800] – SeanNice.
[00:05:41.240] – PaulAnd do that. And then they would leave with four years of accomplishments instead of four years showing a piece of paper that they were able to listen to a bunch of people for hours at a time, remember the material, and take a test, which is very different than working with entrepreneurs and business owners and other business executives and producing accomplishments.
[00:06:02.050] – SeanRight. The one thing that I really struggle with even when I was in school, as I was not a great student and I don’t want to make this podcast about me, but you might relate in this regard because it sounds like a similar path. School wasn’t stimulating, and I was very bored, and I wasn’t the best student. I literally would show up, take my test, and get BS and CS.
[00:06:23.180] – PaulYeah.
[00:06:24.550] – SeanWhat do I have to do? The minimum amount of effort to get out of here.
[00:06:28.820] – PaulThat’s it. I had one whole course where he said at the beginning of the course, he said, the whole thing is going to be judged on one test that will be at the end of the semester. Here’s the syllabus. I looked at the syllabus. I liked physics a lot in high school. I was in AP physics. I looked at it was not astrology. Astrophysics. And I looked at the syllabus. I said, I think I could pass this without coming to another class. And then he said, he’s grading on a curve. So I just looked around, and I was like, none of these chuckleheads. I’m definitely going to be in this class. And I did something very similar. What’s the minimum amount of effort? Not because I couldn’t have gotten the A’s, but it was boring to be in class. And unfortunately, now taking that into a passion for learning over decades where I think a lot of kids come out of school also, I thought I had to prove I was the smartest guy in the room, which is why I’ve had many years of study after dropping out. I think a lot of kids finish school and they go, oh, my gosh, I do not want to pick up another book again.
[00:07:31.010] – PaulThey might go a decade without any serious study. And so if what we can do is produce our children, the idea of they want to be a lifelong learner, always bring in new information, I think they’ll be better served.
[00:07:41.810] – SeanYeah. Find something you’re interested in. And I’m willing to bet that the experience with your father was far more educational than what you ever learned in a classroom. Same way with my parents. But what I’d like to do now is dive into your investment background. You guys started pretty early at 14. Let’s talk about those early years. Start with what kind of dollar amount did you start with?
[00:08:10.770] – PaulI was trying to think about that ahead of our conversation. And I got to think my paychecks are only like $400 every couple of weeks.
[00:08:18.860] – SeanSure.
[00:08:19.320] – PaulAnd so I just deposited those and dropped them in. And where I dropped them into was we had a family friend who tried to sell my parents life insurance and the time it was principal and their variable universal something or other.
[00:08:34.530] – SeanSure.
[00:08:34.960] – PaulAnd my parents said, no, but our son might be interested in investing. And so God bless this woman. Now, she was relatively new to the business and been around our family a long time. She spent the time and walked me through all the life insurance illustrations and all that. And what I ended up doing is I just don’t see any need to have life insurance. So I just got some mutual funds. They were the regular old. I mean, I’ve been doing this almost 25 years. So this was 29 years ago, give or take, and it was still the 5% front end loads. All the things that we now are familiar with that were normal then that we wouldn’t dare, like I wouldn’t be caught dead putting that in front of a client nowadays. And I just started deploying the money and didn’t think much about allocations or any of that for years. And then what I ended up doing is actually cashing that out. I think this is one of the important things about investing is I was able to cash that out to parlay my early career. Because while that Northwestern Mutual does an amazing job of training, it is commission only.
[00:09:33.800] – PaulAnd when you are an 18 year old, chubby 18 year old who doesn’t have a network of people with careers and you’re cold calling and doing whatever you can to create relationships, my mom couldn’t refer me to anybody because she’s too high in the federal government. Everything was a conflict of interest. So I literally had to create my entire own market and ended up tapping those funds just for survival. And I think that a lot of entrepreneurs forget about the fact that we need to set money aside and we need to invest in other things because A, our financial independence is only ever going to live on our personal balance sheet, never on the business balance sheet. And then second is you never know when you might need to tap what you set aside outside to save the thing that’s paying for everything. In this case, the business. And so for me, probably the best invested dollars that I’ve ever had because now I work with clients two days a week. I’m 43 years old, and my wife jokes, she’s like, why would you ever retire? You’re basically semi retired now. So that was probably the best investment I ever made, was building up that early what ended up having to be used as a cushion because it saved me and allowed me to stay in this industry.
[00:10:44.580] – SeanRight on. So you sold out of the mutual funds, did you keep them in cash, or did you start to deploy them back into another asset?
[00:10:52.190] – PaulNo, they all got spent. It just got spent to keep.
[00:10:55.060] – SeanOh, really?
[00:10:55.710] – PaulNo, because you think about you’re starting a business, it’s commission only at the age of 18, while still paying for college expenses, et cetera. There just wasn’t a bunch of cash flow. So all those got completely drained, never even got rolled over to something else. But I had saved up, like, I think by the time I started the industry, I saved up $25,000, which is pretty good for back then.
[00:11:17.050] – SeanYeah, absolutely. And when did you start getting back into the market?
[00:11:23.030] – PaulI would say so I went through an interesting change. I’m talking about it from a different perspective, both as an investor and an investment advisor. So around 2005, I read a book called Unconventional Success, and it’s written by David Swenson, who managed the Yale Endowment. He originally was contracted to write the book to show individual investors how they could do what he had done managing the Yale Endowment. But because he’d always been in institutional stuff, he had to wade into the individual financial products available to people, and he just excoriated the entire industry. Mutual funds don’t actively manage. Mutual funds do not beat their indexes. The fees are too high. All that, and I found myself in an absolute moral crisis because I had been helping clients selling actively managed mutual funds recommended by the company I was primarily affiliated with at the time. Morningstar ratings, like five star funds, are a good idea, which we now know, based upon the Chicago study in 2014, that there’s no correlation between Morningstar ratings and future better performance. But that’s what we did. And I literally stopped managing money other than a few clients I still had with me.
[00:12:37.320] – PaulI started referring them all to my buddy with Bokovia, now Wells Fargo, all that, because I was like, I don’t know what I’m doing. I hope you do. And it wasn’t until 2007 really began the initial of the Deep study. But by 2009, we had found a firm called Dimensional Fund Advisors, which owns the market is how we put it, like 14,000 different securities in each of our portfolios, academically allocated, globally, diversified, with really low cost funds. And that’s what we’ve been doing ever since. The return has been about 10.7%.
[00:13:11.860] – SeanThat’s pretty good. Since 20 09.
[00:13:13.630] – Paul20 09, yeah.
[00:13:14.790] – SeanYeah. That’s great. Now, Dimensional, they are lower cost mutual funds. Is that correct? Or they invest funds and ETFs.
[00:13:22.320] – PaulThey also have ETFs.
[00:13:24.080] – SeanOkay.
[00:13:24.780] – PaulSo if think about. I think. The easiest way to understand what Dimensional does in a very back of the matchbook. And their senior executives probably get a little disturbing me and making it this simple. But being in a position where you owned in the market. Taking out those securities that have attributes that are not correlated with positive outcomes. So those get taken out. Like company bouts. Claim. Bankruptcy. Things. IPO is not in the portfolio, but you own everything else. But then what they’re able to do is hold inside of a specific market, say, versus a small cap ETF that’s based on an index that some of those small companies are no longer small companies in six months, but they’re still in the portfolio until they reconstitute a year from now. And Dimensional Funds is able to keep those in this case example, the small cap all in small cap, but when it’s time to sell something, you don’t sell it immediately because the index got reconstituted. They’re able to be patient. They’re buying impatient. They’re selling to fill up those components of a client’s portfolio.
[00:14:24.530] – SeanEarlier in the podcast, you mentioned the higher fees that can be associated with mutual funds, and you would never put those in front of your customer. What kind of fees are we looking at with Dimensional?
[00:14:34.850] – Paul26 basis points for our fully deployed portfolio.
[00:14:38.900] – SeanGot you.
[00:14:40.010] – PaulSo not quite as cheap as the cheapest indexes like Vanguard S Amp P 500, but super reasonable. Primarily the reason we use them is by tilting to small cap, tilting to value for the people that want to have an adviser that’s managing their money and helping guide them on outside financial decisions than just the portfolio. Their aim is to get an extra point to a point and a half per year over time.
[00:15:06.750] – SeanGot it. Okay.
[00:15:07.690] – PaulBecause they tilt the small cap to value into more profitable companies. And we tell our clients that the aim is you got to pay us and to be in your life. But what Dimensional does is, through the tilt, produces enough additional return over time that effectively handles our cost of being in there, helping them make better decisions on everything on the margin outside of the specific portfolio, like what kind of account should it be in. How do you begin to put your chosen real estate? We have a client we’re helping guide by a business right now, but we’re just comfortable from those. Other than our initial upfront fee, we’re just the asset management fees.
[00:15:42.450] – SeanYeah, I assume an AUM fee.
[00:15:44.930] – PaulYeah, we do an AUM fee if they choose to work with us. But initially, clients go through an application process, and then if we make them an offer after reviewing their application, then we charge a fee upfront, which ranges between for most people, it’s between $5,000. And that has us walk them through a four month coaching process, after which, if they want to keep managing their own money and then they want to retain us, they can pay monthly. Or if we’re managing their money, we just continue to renew the coaching agreement over time.
[00:16:14.020] – SeanNice. Okay, that’s pretty straightforward to jump back to the basis points for the audience. 26 basis points. 26% is really good for a mutual fund because especially one person that’s been a mentor to me and my audience is still town. And he’s talked about when you start getting to that 2% right there’s mutual funds that charge you that or more that can really eat into, for example, and you know this, but let’s say you’re returning 7%, but then you’re paying 2% to the mutual fund company. There you go. You take that seven down to five and compounding that, over time, over a lifetime, it can be millions of dollars you’ve lost.
[00:16:57.250] – PaulWell, and another interesting thing your listeners can do is if you check out, you and I were talking before we started recording about the website personalfund.com and people dr. Sharkinsky designed that. It’s not the most beautiful website, but his analytics behind it are amazing. And what they do is actually give you a sense of not only what are the costs that you got disclosed? Well, you hope got disclosed to you by your adviser or whatever commercial soldier that fund and the internal trading costs because those advisors are the managers. The mutual funds are trading so much, trying to outperform the index that they voluntarily said, I want to be compared to. But all that trading creates additional costs. It’s like somebody running with a parachute trying to run faster, but it’s only going to increase the resistance.
[00:17:47.090] – SeanYes, great metaphor. Love that. What do you personally invest in?
[00:17:53.080] – PaulWhat’s your strategy? I’ve invested in everything from other businesses to pre IPO stocks to piece of intellectual property, real estate, commercial and residential, all of that. And what my wife and I have chosen to do in our lives is we want really simple lives. A great example would be driving through Oregon. We spend a lot of time in our RV other than this year, since 2017, we’ve averaged over 80 nights a year in our RV. So we travel the country for a month or more at a time, things like that. And is it a part of that simplicity, like not having anybody called me saying that there’s a problem with an employee or that there’s a problem with this particular commercial property? We lost a tenant report, whatever it is that I would have to deal with. And we dealt with all that in the past, and now we’ll look at a really amazing piece of real estate and we go, well, that’s going to take some amount of time, but we don’t know what it is. And I have gotten almost militant in doing as little maintenance of my adventures as possible, right. Even in my own business, if I invent whatever it is, we’re going to build this big, long fence.
[00:19:05.820] – PaulPart of that invention is who are the people that are going to build the fence after? I’m willing to build the first segment and show you what it should look like after that. I don’t want to do it. So that’s why now we don’t go anywhere near real estate. Not that I’m against it. We advise our clients on how to get in that market all the time. I just don’t want to have to think about it. So a investments now are either in whole life insurance, cash values, so we have a higher return on our liquid funds over time. Coupled with the DFA 8020 portfolio, they’re the exact same ones our clients have.
[00:19:37.510] – SeanOkay. No, that’s really good to know. And we do bring on a lot of real estate investors on this podcast. And when talking to that audience, you’re right, there are risks there. There can be a lot more maintenance. And if you want to be a landlord, like, sign up for fixing pipes and changing light bulbs. Right?
[00:19:56.560] – PaulYeah. And you can mitigate a lot of that, but it requires some complexity. Just like having a gardener, it can be more complex to manage somebody else, especially initially, than to just go trim, pull a couple of weeds yourself. I’ve still had gardeners for many years, but when it came to my money, it just seemed like that’s the one that’s going to distract me. I’m most likely to get myself. If I was a real estate investing, I’d be looking at 20 properties a day online, looking for the next one. And I love how focused I could be when I’m with a client or with my family, because I’m not thinking about all that other stuff.
[00:20:34.140] – SeanRight. You mentioned that you invested in businesses, I assume private businesses, not stocks. Is that correct? Do you still own?
[00:20:42.840] – PaulI do have one great stock store.
[00:20:45.410] – SeanOkay, please share.
[00:20:48.110] – PaulStock, as I remember, I think it was called Mankind, and Alfred Ban, dr. Alfred Band, who created, I think it was the insulin pump, the artificial heart. Like, huge accomplishments, lots of money backing this deal, no debt, and all they had to do is get through the trials for FDA and secure a good co marketing agreement with one of the biggest pharmaceutical companies. And this thing should have gone 100 X.
[00:21:14.900] – SeanSounds like theranos story to me.
[00:21:17.020] – PaulOh, it’s actually better than theranos because everything they did work. This was an inhalable insulin. Never again would a diabetic have to penetrate their epidermis with a needle and be able to inject insulin. They could just do a puff on an inhaler. And it all worked. They stayed relatively debt free through the trials. They got all the approvals they needed. They co marketed with, I think, Snofi, which was a huge win, and doctors and patients wouldn’t change the habit of being used for cooking themselves, that’s it killed the whole thing. And it was all about betting on this individual company and an idea, and maybe if I bet on ten of them, it would have worked. But this one it didn’t. And it didn’t work. Even though the plan came to fruition. And what I left that with that was in my early twenty S. I left that opportunity realizing that the amount of information that’s priced into the market is far more than we as individuals can hold. And that some people probably can do some investing on their own and get a higher rate of return. By investing the time and energy. Things like Tykr.
[00:22:24.320] – PaulBeing able to use that. You might be able to get a higher rate of return. But you’re going to have to do it because anybody else that can achieve a higher rate of return if they can produce 20% a year. They’re not going to tell you how. Because too many people do that will compete away the gains they have. And so ever since then, I’ve been a no to individual stock acquisition, no matter how attractive it looks.
[00:22:44.390] – SeanReally? So individual stocks you see away from, and I’m categorizing well, I’m going to put this in a different category. Like, I’ve invested in private businesses, not public. And that is highly, highly risky, as you know, because you lack the financial transparency. There are even younger businesses, they could go under. Whereas with Tykr, we are all about investing in individual stocks. But our screener is looking it’s highly rigorous. So it’s looking at the best of the best, the most financially stable and kind, of course, steers people away from the risky ones out there. I’m going to mention, yeah, your software.
[00:23:21.320] – PaulWould have never had me buy.
[00:23:23.240] – SeanOh, gosh, no. That would be for those that know the Tykr rating. Yes, exactly. Definitely overpriced a scoring system of zero to 100. Probably would have landed at like seven. Yeah.
[00:23:37.550] – PaulBut I think one of the things that can happen to all of us, we get seduced by a good deal, by a good story, we take action, and it’s the ability to back away. So just by backing away, which one? Slight correction. My apologies for this. I do have another private investment right now where we bought me and a group of other Christian business owners with the idea that what we could do as an investor group is also mentor and grow the employees for their next generation of growth. And so we bought a kind of a funny company, one of the only FDA certified launderers to launder, surgical gowns, etc, for, I think, one of the only ones, period, in the Pacific Northwest.
[00:24:20.990] – SeanI like it. It’s a boring business. Warren Buffett principal the boring business. But a necessity. You have to and I’m sure the laundry facilities, the chemicals, I mean, we’re talking best of the best here because of course, you can be dealing with blood and I’m thinking of DNA and stuff like that. Yeah, that’s really interesting. I love hearing people invest in really niche and really boring businesses. It blows my mind. Gets me thinking sometimes, like, why didn’t I think of that investment? Yeah, like, for example, in my area, you’ll hear people about investing in boxes. Well, how exciting is that? Not at all. But companies like Amazon, all the shipping they’re doing. They need boxes, they can’t get them fast enough. So boring. But necessity, yes, we say the same.
[00:25:12.390] – PaulThing about the profitability tilt. There’s a lot of very profitable companies out there that aren’t making any waves, are not in the news, and they’re just year after year delivering results for their stockholders and customers. And those won’t get in your portfolio unless you have a screener like Tykr or you have a portfolio that’s already been set up that’s ready for you to plug and play into. Because you’ll never see those on the news. You’ll never see Jim Cramer yelling about them because there’s nothing to yell about. They just do their thing.
[00:25:41.740] – SeanThat’s it. They keep their head down for buy value to the customer. That’s it. No prideful, bragosis behavior.
[00:25:48.480] – PaulTotally.
[00:25:49.090] – SeanI love it. I want to circle back to a comment you made about the behavior of humans, especially with not adapting to this Aerosol product, as opposed to they would still take a shot. It shows you that in some cases you can’t change human behavior. And I would like to touch on here a little bit is 20 17, 20 18. There was the marijuana stock craze, and I never got behind it because in our world, in Tykr, we not only look at strong financials, we look at the forums. You get the margin of safety, which is that first m the math, but we also look at the meaning, mode and management that you can’t really measure with numbers. You got to understand the business model. Will it be around? Understand the competition and then understand the management. The issue is always two things. One, I always touch on in the podcast, which is the competition. It’s a fairly easy business to start. I only know this because a friend of mine’s father as a dehumidifier manufacturing company, and he’s like, yeah, a lot of my customers are starting a marijuana business. All they need is a $500 dehumidifier and they’re off and running.
[00:27:00.450] – SeanSure, you need some regulations, but there’s no mother. The other thing is, I’d love to hear your feedback on this is I’ll talk to people about that are pro marijuana stocks, and I’ll be like, for example, we’ve got the Milwaukee Brewers huge stadium here in Milwaukee, American Family Stadium. And are you going to walk into that stadium to see people waiting in line for gummies, or are they going for the beer and the broth? In my opinion, 99.9% of the time, it’s always a cool beverage coupled with a nice burger or a broth. It’s never going to be the gummies. And people push back on me on that. But I’m like, you can’t change human behavior. That’s my thoughts. So I’d love to hear your thoughts on that.
[00:27:39.480] – PaulI think you’re right. I think that the existing habits and practices people have end up as one of the stickiest things to undo, like take Covet and zoom. We made our. Entire business location. Independent. January 2017, we made a decision. We would not meet any of our clients in person, not even the ones that are five minute drive from our office. And as a result, it made it very easy for us to adapt to COVID. But prior to COVID, a forcing structure that modified behavior, we would have conversations about, why would I meet with you? I’m in Arkansas. Why would I work with an advisor who’s in? Our employees are all over the country, too. So why would I work with you where you are? And now we haven’t had that question in two and a half years, and Zoom adaptation has gone through the roof. Innovation is always slowed by adaptation. If people don’t adapt to it quickly enough, the next level of innovation won’t happen. And I think Zoom is a great example. All these people got comfortable with online meetings, and now Zoom or some competitor we don’t even know the name of yet is going to come up with the holographic Star Wars puck we talk to yes.
[00:28:50.040] – PaulRather than FaceTime or zoom meeting. So I think you’re exactly right that the human behavior doesn’t change, no matter how good the product is. And probably you could make some comparison from beer. It’s got gluten, and we have gluten free gummies, and it’s more calories, and it’s this, and there’s no hangover or whatever you do, but that deals with the intellect. It doesn’t deal with the underlying you’d have to make the stadium stop selling beer before people would get a dummy line.
[00:29:19.190] – SeanThat’s it. And I think even if you did that, that line wouldn’t fill up as fast as you’d expect. People to still get a Coke?
[00:29:27.830] – PaulYou bet. Yeah.
[00:29:29.370] – SeanBefore they get a gummy. No. I’m glad to hear your feedback there, and you’re absolutely right on the way people behave. I’d like to keep going here and some of your investments. So you invest mostly in dimensional funds. Can you give us an idea? Because our customers like to know, what type of funds are you aiming for? More like diversified, like the market or maybe tech focused or maybe financial business focused.
[00:29:53.050] – PaulIt’s a good question. So each portfolio has 14,000 ish different securities worldwide, 42 different countries doing business in 190 plus countries. That portfolio is intended to be 65% US with a tilt across the entire portfolio us. And not toward small cap companies, because we know small cap tends to produce more returns over time value companies, because we know over time value tends to outperform growth. And we’re in a time right now where growth significantly outperformed its historical average for about six years. Very similar to what happened in the late 90s. What happened after the late ninety? S two thousand through 2010. You held the S. Amp p 500 the whole time. You lost double digits over ten years.
[00:30:40.680] – PaulWhereas an academically allocated, globally diversified portfolio over the same ten years did about 76%. So in the portfolio, we have just have a tilt to the small cap, to the value, and to more profitable companies. We’re not excluding the alternative. Like we’re not buying small cap in lieu of large cap. We’re just taking the market’s presence of small cap and owning a little bit more tilt to it, the market’s presence of value, a little bit more of it, and same with profitability. So it’s very simple, it’s not super complicated. It’s about 65% us, though. So we look at it as 55% of the world’s market cap is us, but our clients are going to be buying things in US dollars, so we just build in that domestic bias.
[00:31:22.160] – SeanSure, no, thanks for providing that transparency there. With our platform, it primarily focus on the value stocks and the businesses with strong financials, but it does find growth stocks that also have your strong financials. So you think of the Meta and Google Apple for example, are very much behaving when you look at the numbers like a value stock, but they’re performing really well. Your small cap strategy would probably find individual stocks in many cases, if you like, a little risky there. But you do have a lot of diversification within your portfolio, so it does make sense you’re protected a little bit.
[00:32:03.240] – PaulYeah. Top 25 holdings, I don’t think they ever exceed up above 13%.
[00:32:08.030] – SeanI’m curious, since you don’t own or hold individual stocks, how many different funds do you hold?
[00:32:14.440] – Paul
- We’re going through a process in coordination with Dimensional where it looks like we can get it down to eight ETFs.