Ep. 08: – Covid-19 Economic Market Update

Brighter Wealth Retirement

 

>>Devin Peterson (00:01):

Hello and welcome back to another episode of Brighter Retirement Radio. As always, I’m your host Devin Peterson, and in today’s episode I had this special opportunity to interview a good friend of mine, Kurt Brown, on the topic of the impacts of COVID-19 on our economy. I’ve been looking forward to this conversation for many weeks because Kurt is the best personality and individual to dive into the technical aspects of the market, but really simplify it to something that we all can understand. So Kurt Brown is currently the Chief Investment Officer of Town Square Capital, but he comes with 25 years or more of experience working in the capital markets, starting with Wall Street. He’s worked with fortune 500 companies and endowment funds all the way down to bank trusts and individual retirement accounts. So inside of our discussion today, I want to give you a little bit of an insight into what we’re going to be talking about as encouragement for yours or listeners to dive in and to listen to this full interview.

>>Devin Peterson (00:57):

My primary focus in this interview was to really have us all understand the impact that the COVID-19 is really done to our economy. And we do that by talking about first how this market correction differs from those of the past. We talk about longterm impacts both positive and negative that are coming from this recent market downturn and that how this really differs from or is similar to recessions or depression. Kurt absolutely will share his opinion on the definition of those two and why it’s actually irrelevant and we shouldn’t really focus on that. But the primary takeaway that we talk about here in this interview for me at least, is to really seek to understand why the market is so volatile and how the market can be increasing while the economy is still basically shut down. So I think this episode will leave you with a good understanding of the volatility of the market, how news impacts the market and how the market as a whole is trying to look forward to what the economy will look like and how models really right now are coming up short. And it’s so difficult to model exactly what this will look like in the future.

>>Devin Peterson (02:08):

So I’m so excited to introduce Kurt Brown and start this episode. So without further ado, here’s my interview with Kurt Brown.

>>Devin Peterson (02:23):

I am so excited to have you on our podcast today. This is a conversation that I’ve looked forward to having for the last several months as I put together my ideal podcast guest list because of the expert background you bring working in the capital markets. But even more than that, it’s your fun electric personality that really can make investments a little bit simpler for us to really understand. So thank you for joining us today.

>>Kurt Brown (02:55):

Hey, I appreciate being on here. I understand. I’m in one of the prime spots on the podcast. So honestly, I love this, and you and I don’t get to hang out enough as it is, so this will be kind of fun to hang out.

>>Devin Peterson (03:09):

Perfect. Perfect. Well, I don’t think that this podcast can be ever more timely as we’ve experienced some significant market volatility, almost hard stopping volatility for a lot of our clients. As you know, that we work with baby boomers, pre retirees and retirees that are getting excited to move into retirement and start using their investible assets or several years into retirement. They’re very much aware of the urgency of these and how these assets support them. And so I think this conversation is very timely as we really seek to understand, is it okay to breathe? Is it not okay to breathe? What do we do next? So my goal or intention here for this conversation is to really tap into your experience of working in capital markets for over 25 years. I’m seeing many declines. I’m seeing many market recoveries and working with the full gamut of heavy corporate accounts down to individual retirement accounts.

>>Devin Peterson (04:12):

I’m really looking forward to seeing some of the insight that we can gather here and let’s see if you and I can solve a few of the world’s problems. I know we don’t have a ton of time together, but let’s see what we can start checking them off the list.

>>Kurt Brown (04:24):

That is is a very nice intro and I appreciate that. I’ve been in the capital markets business for 27 or 28 years, and started for the New York Stock Exchange and you kind of think I’ve seen it all now. Like it’s kind of funny you start becoming more of the “veteran guy,” because you still mentally feel like a kid sometimes, but then you have something like this and there’s no playbook for this right here.

>>Kurt Brown (04:51):

There’s no playbook for a virus that shuts our whole economy down. We’re having conversations like this, dozens of them a day and, we’re all kind of in this together. Let’s talk through some of it. So obviously it’s just like you mentioned, you’ve been around, you’ve seen some of these up and downs. This is a bit different than what you’ve seen in the past. So how economically or foundationally in the market, how is this market correction different from those of the past? And it’s funny because there’s been a dozen kind of bear markets and recession since World War II and they’ve all been caused by really different types of things. There’s no two recessions that are the same. And this is why they’re so hard to predict is that it’s the thing you don’t see coming.

>>Kurt Brown (05:45):

That’s the thing that derails you is. So almost by definition you don’t know. Maybe if we have time, we can talk about the flip side of the coin, which is there’s also remarkable similarities to how markets respond to all of them no matter what causes them. There’s a lot of consistency in terms of the differences. I mean, when in American history do you take almost a whole economy offline for even a couple of weeks? I mean no matter what happened in this country, even wars, even World Wars, and 911, these really exogenous events, you still aren’t saying every restaurant and school, it has to stop operating. It’s unprecedented. That’s why people that are coming out when making their estimate and saying, this is what we think earnings are going to be this year, your GDP.

>>Kurt Brown (06:42):

We’re a little early. They’re guessing. Wildly guessing. So in terms of comparing this to the past, there’s a couple of different indicators that we can look at. It’s how sharp the decline has been or how sudden it has been over the past. It’s also really how it’s fundamentally been effected or started really by a government order. This is not the market speaking for itself as far as it was unhealthy or something like the recession back in 2007, 2008, 2009. It wasn’t something that was caused by something in the general market. It was literally the politician coming out and saying, stop and you can’t move forward. So it’s very, very different. It’s one of the reasons we’re seeing such tremendous amounts of stimulus put into the system by the government.

>>Kurt Brown (07:40):

They feel partially responsible for the welfare of small business owners and whatnot in this country. It’s something very unique. Many people are frustrated with it. There’s a lot of people around this country and we all know this. We’re watching the media that wish we didn’t have this and we were back to work. So tensions will continue to probably rise through this and there’s going to have to be some very hard decisions made in coming weeks. There has to be a balance between the human impact of the virus. How bad is it versus the long run human impact of destroying your economy? I mean, these are not easy questions. Both sides have tremendously valid arguments. The media loves to oversimplify this and make this binary. This is not binary. We notice we’ve even been here before and so we’ve got to be creative in our solutions to this as an economy. How are we going to reopen? When are we and what response simple measures can be taken to reopen it? There’s going to be some of the more important conversations we’ve had as a society in a long time.

>>Devin Peterson (08:54):

Absolutely. Something that I’ve heard quite a bit on the news and the social media is, are we making the cure worse than the problem? And I think that really speaks to your comment about this being very multifaceted, kind of a complex problem that we’re solving because it’s not just this pandemic. What additional problems are we causing because of the cure and how does that really affect, or what kind of model can we build so that we can understand the impact of that? It’s very, very, very, very difficult to see.

>>Kurt Brown (09:29):

Well, we don’t have a lot of time because every week the amount of damage being done to the economy continues to surge. So I’ll give you a couple of numbers to put to this. In three weeks we’ve had people, American workers, file for initial unemployment claims between 15 and 16 million workers. To put that into perspective, the largest single week ever in American history was 695,000 claims. Just today in seven days, it was 10 times larger than the single week ever in history. So, if every week 3 to 6 million new people are filing unemployment claims, that’s something that can be a little tricky to rectify quickly and, so for each week of damage it can take several quarters to get those people re-employed if those businesses are not in a position to be able to reopen right away. We’ve got to be working on solutions for this.

>>Devin Peterson (10:42):

Yeah. And I like how you mentioned that every day the impacts of this seem to surge or compound or become more complex, where I believe some of the damage that’s done is temporary. Yeah. But some of it really might be blasting. So as we kind of move into this next question that I had for you is, what do you see as the longterm effects of this? Probably just the pandemic, but our economic response to the pandemic.

>>Kurt Brown (11:13):

You know, I really think that we all know probably business owners that have intentionally let their workers go so they can receive unemployment benefits with the understanding as soon as we’re open for business, we’re going to bring it right back. Okay. So the recovery, so to speak, part of the recovery will be very quick and it’s one of the reasons that you’re seeing the stock market, for example, act so good in the last two weeks because the virus data’s been better than feared. And so the market is starting to think we’re going to reopen the economy quicker than maybe we worried.

>>Kurt Brown (11:52):

Even though the data in real time is bad, the market’s looking through it to say, but it won’t last maybe as long as we feared. Now the flip side of that is the second part of the recovery is harder. There are certain numbers of businesses and jobs that don’t come back. They’re businesses that had been vaporized. I already know just in my circle of friends, three or four restaurants and a dentist office I know about and, a few other businesses, service businesses that they’re gone, they’re done. They were already operating on a narrow enough margin that they can’t survive this. And so that part of the recovery takes longer. So there’s going to be this fierce bounce back partially right into the summer and then probably a multi quarter recovery to try to start replacing some of the jobs that were lost.

>>Devin Peterson (12:47):

As I think through just some of the cultural dynamic that has changed in the business world, just like this interview today, we’re doing this virtually, a lot of our teams are at home working virtually. So I wonder if there’s going to be segments of the market that we’ve never really considered vulnerable in the past. Like commercial real estate. Maybe there’s several businesses that have teetered with the idea of having a stay at home work force, but now this is forcing them to test that model, and so now commercial real estate as a whole is potentially a part of the economy that is going to really, speaking to your longterm recovery, that’s going to be a lot slower of a recovery. Because of a changing culture environment, you have to reinforce what you’re saying.

>>Kurt Brown (13:39):

Think about a few industries. How quickly our airline’s going to fill up? Okay, so then we’re going to reopen for business. The average daily traffic or is about two and a half million Americans fly on a daily basis. Right now we’re running about a 100,00 to 150,000 Americans flying a day. We reopen. There’s a couple of factors now where first of all, there’s just nervousness. Remember after 911 it took a few months before people felt comfortable getting back on a plane or doing certain things. So there’s the first part, which is just nervousness that will probably dissipate. You will eventually go to hotels and go on trips and take meetings. Okay. But then there’s a structural change. For example, I will probably on an annual basis do more zoom meetings now going forward than I ever have in my career.

>>Kurt Brown (14:35):

I’ll still sometimes go on planes for sure. Part of it, there’s sort of two legs to the recovery. There’s getting through the nervousness phase and I think most of that passes. It takes a little time, we aren’t as nervous anymore. We realize things are okay. Sort of get things back. But then you’re right, there’s some permanent changes. Will people fill up cruise ships to the same degree that they have in the past?

Probably not. There’s probably a certain demand for that that never comes back. Right. You’re spot on and these kinds of things take time. And it’s why you see certain stocks in the stock market doing okay and other stocks, and by the way, big names like big name corporations get just hammered down 50%, 60%, 70% in one quarter because there’s a fear they’ll never return to the same type of business that they were doing before.

>>Devin Peterson (15:33):

If we try to flip the coin though, is there any positives or any good things, longterm economic good things that you see come out of this? As I look back into a 2007, 2008, 2009, I see how the positive impact that the banking industry was able to have some good regulations and add their cash reserves into a point where I think it’s actually been good for us because the banks industry’s really healthy. Is there any positives that we can see from this latest market downturn?

>>Kurt Brown (16:06):

Well, so you’re talking, there’s two things there, sort of economics and they’re social and and you’re spot on. In fact, the truth is, and this might be a touch bit of a tangent, but the truth is if you had to go back in the last 20 years and pick one month to have a virus that shut our whole economy down, you may have picked March of this year.

>>Kurt Brown (16:26):

And the reason that I say that is because number one, we have historically low interest rates. Number two, our banks, to your point, Devin, they have not been this well-capitalized in about 35 years. They’re not only was higher limits to what banks had to hold on their balance sheet, banks that were going above and beyond that. So we came into this with really well capitalized banks, which is just a tremendous blessing because people have reached and panicked for cash in the last month and the banks were ready to do it. And then with the fed and the treasury helping them. But there’s other things. Personal savings rates are four times what they were in 2007, very different than going into the financial crisis, household net worth percentage of what Americans are spending on debt is at a 40 year low. It’s as painful as it is.

>>Kurt Brown (17:25):

By the way, employment was as tight as it’s been in 50 years in the US. So at least coming into this, we were in a good position. What if this virus broke out in October of 2008, we literally would have been spun into a depression that could have taken a decade to get out of. So in a weird sort of way, there’s actually little bit of a blessing. Okay. Back to the real question you’re asking, what structural changes might take place? I actually think, not necessarily in business. Are you going to see huge changes?

There’s the obvious stuff. We love this Zoom thing. We’re probably going to get on less planes a little bit less often. I actually think socially though, when you look at the Asian economies, they were ready for this.

>>Kurt Brown (18:10):

They were ready for a virus that can spread and wipe people out. We were not, we will be ready for the next virus. It’s sort of like we never considered before that somebody could use a plane as a weapon to kill thousands of people. And now you know what we know now and the TSA gives me a hard time every time I walked through there, 20 years almost, we’ve been doing that. This is going to be the same. We are going to be ready for this next virus. We are not going to be caught flat footed. And you look at Korea, Japan, Singapore, Taiwan, Hong Kong, these economies. They’ve had some cases of the virus, but they have managed this so much better. And their neighbors with China. They have managed it so much better than us and Europe has. And so that’s one massive thing that’s going to be different going forward. So potentially new industries created new type of companies that might help us kind of rebound out of this, out of this economy.

>>Devin Peterson (19:15):

Then we’ll be able to be created to protect against future future pandemics like that.

>>Kurt Brown (19:22):

To give you an example, I’ve been traveling to China. I have investments in China. Back from my investment banking days. I used to live in Beijing and so for years I would go to China a lot for years. When you come through the international terminal in Beijing or Shanghai, you walk through a scanner that takes your temperature. I’ve been having my temperature taken when I fly into China for 20 years. This is the kind of thing you’re going to start. You’re going to start seeing this here. I don’t know if it’s today or tomorrow, exactly how this is going to play out, but we’re realizing that a viral pandemic could happen. And by the way, this one is not that deadly. When you look at the hierarchy of viruses, we lucked out on this one.

>>Kurt Brown (20:07):

In fact, this is a real blessing because we got a preview of what could happen and it scared the hell out of us. So you think about some of the preparations that we’re going to make and take going forward. And I think on par. That’s going to be really good for the safety of our society and really good for us mentally to be able to step back into some of our normalicy. To be able to travel as much as we did and move around as much as we did. I don’t know if we’ll need a temperature reader every time we step into the grocery store. To find that same comfort, but maybe. So thank you for sure. I think there’s a lot of good things and opportunities that can be and always are created out of.

>>Kurt Brown (20:50):

I mean, in some ways, after 911, our society became a lot safer. There’s some inconveniences that come along with that. These Asian economies, there’s some inconveniences with how they’ve had to handle the virus. And as Americans, we’re not overly enthused about being inconvenienced. And yet we, through painful experience, we kind of learn. Sometimes we need to change some things.

>>Devin Peterson (21:17):

Absolutely. Well one simple thing is, I actually lived in Tokyo for two years on a service mission and the masks that everyone wears. In America, that feels awkward. It feels uncomfortable if they feel self conscious about wearing that. But what I learned from my time in Tokyo is that it was actually very much a part of their culture. Even if they had a little bit of a sneeze or cough or scratchy throat, they’d throw one of those on there and wear it to church wear to the grocery store.

>>Devin Peterson (21:45):

They’re not self conscious about it at all. They understood that they’re protecting others around them. That’s just an ingrained part of their culture where I had a conversation with my sister the other day and she said, I felt so self conscious stepping out into public for the first time with the mask that she’s wearing, which is kind of indicative of what you’re talking about. I think that the Asian cultures were kind of ready.

>>Kurt Brown (22:11):

That’s right. I’ll be honest with you, the next time I get on an airplane, when I start flying again to see clients next, the first person I see is wearing a mask, I’m going to give him a thumbs up man. I’d be like, thank you. Good job. Where before I just got to roll my eyes now I’m like, hey man, I’m all in.

>>Devin Peterson (22:25):

Absolutely. Absolutely. That’s definitely a good thing that we can learn from this. But kind of bringing it back to the market a little bit, there’s a few more questions that I really wanted to ask you because I feel like you have some good insight here is, what is the difference between a recession and a depression?

Because as I’ve had conversations with clients and a lot of our students, their recollection is many years in the past from many of these recessions, like you said, we’ve had a lot of those. Back to the ultimate example of the great depression. I think there’s a lot of misunderstanding of what really those are, what’s the difference between those two? And could this be causing a recession or depression?

>>Kurt Brown (23:06):

I might be the wrong person to ask because I absolutely hate these terms. I am a professor at a local university in the finance department. I tell my students all the time terms like recession, depression and bear market and bull market. You got to be so incredibly careful. Broad. And they mean different things. Technically a recession is any two quarter period where you’re seeing declining growth of GDP in the United States. So you could have a recession. That’s really mild, because your a little bit of back ticking to the growth rates. You know, negative growth in this country, right? You can have recessions without a bear market. The stock market might not care that GDP, our economic output had a little shrinkage to it.

>>Kurt Brown (24:07):

Take bear market for example, right? Technically a bear market is when the market drops from its high water mark, down 20% okay. Well twice in the past 12 years we’ve had drops of 19.6% and 19.8% and so technically we didn’t have a bear market. So then people run around on TV and they say, it’s the longest bull market on record. And then what did they do? They kept people from making good investments because they were sending the message, the market’s too expensive when really we had two bear markets in that. And the only separation was as a technicality on the exact definition. And so the recession to depression is sort of the same thing. It depends on who you’re talking to. It’s a little bit in the eye of the beholder. But if you go multiple years over years with negative economic growth, now technically you’re in a depression, I don’t know what to call any of this other than to say it sucks when our growth goes backwards.

>>Kurt Brown (25:07):

There are economic forces at play constantly, and then the markets are representing the greed and fear tug of war around what that information is. And that’s why these things kind of drive me crazy. So I don’t know if that’s helpful, but it is important for people not to get too hung up on the terms because again, they give you one other stat. If you go all the way back to the Great Depression and you look at every technical recession, and it’s normal to have a couple of recessions every 10 years. That’s kind of normal. A little shrinkage to the economy every 10 years. It’s totally normal for it to happen a couple of times. The stock market has always 100% of the cases bottomed before the recession is over 100% of the time. By an average of five months, the stock market bottoms before the recession is officially over.

>>Kurt Brown (26:13):

But so many people have talked themselves out of making good investments because they think we’re in a recession. So their automatically in their mind think it’s off the table. So if you ever go back in US and European history and you want to make investments in stocks, you actually should be making them in the recession. That is the best opportunity to be buying your returns going forward or almost twice as much as buying stocks in any other year. So you have to be really careful with the characterization of this opportunity is actually being created in the recession. That’s when opportunity gets created. I got a little bit of chip on my shoulder.

>>Devin Peterson (27:04):

I love that. Because it kind of leads into this next point that I wanted to ask you is, have we hit the bottom yet and can the market grow? Well, the economy is still shut down. And the reason why I asked this, we have a lot of people mentioning, obviously the market had a steep decline, then it hit a low and then it’s been kind of rebounding on the last couple of weeks. However the market, the economy as a whole is still primarily shut down and it will be for the next, who knows how long. From your capital market experience, how do you kind of read that were naturally the government is stepping in and infusing a lot of cash into the economy?

>>Kurt Brown (27:50):

A lot of these, for the small businesses there, there’s a lot of positive talk on the news and that’s what’s causing some of this optimism. But it’s not really the bottom. Can we grow if the economy is still shut down, it’s actually, it’s one of the most important questions you can be asking it. This is an imperative conversation to have for anybody that owns stocks and bonds. And here’s why.

>>Kurt Brown (28:19):

For example today’sThursday, last Thursday, both Thursdays there were over six and a half million new jobless claims announced to the country early this morning before the market opened. Market’s up very nice today. Last Thursday, it was up huge and my phone is blown up with people sending me messages saying, how on earth can we have millions of new unemployment claims and the stock market goes up? How’s this possible? The answer is in this, think about a few weeks earlier, the stock market from February 19th to March 23rd dropped 33%. Third of the biggest market in the world got clipped in just over three weeks. It’s unprecedented. There’s no bear market in history that’s ever come close to dropping 30% in 22 trading days. It’s the ferocity, just the fear, the ferociousness of the selling. I’ve only seen it about three or four other weeks in my career in 30 years.

>>Kurt Brown (29:28):

So when the news actually comes out, we have already priced into the market a tremendous amount of fear because when the market was diving 33% in three weeks, we had no news. We had no one in claims yet. We were completely guessing how bad this was going to get. And there has a tendency to be in all markets, a sell first ask questions later mentality. So it really is confusing for people because the first leg down is always ferocious. My mentor in New York used to always say to me, markets take the escalator up and the elevator down. And so markets just get hammered in moments of fear. But then as the weeks and months go by, we get our heads around the reality. And believe it or not, the reality of 6 million jobless claims every week for a couple of weeks was actually a little bit better than what we initially feared.

>>Kurt Brown (30:35):

So you’ve got to remember that the market is looking forward and is saying, what will this look like? Not what does it look like today. That’s why everybody’s trying to key on when will we reopen the economy? How many weeks of this? My own personal opinion is the market is ready to be offline, have our economy to be offline for eight weeks. I do not think the stock market is ready for us to still be in quarantine in June, July, August. It is not ready for that. And so I really believe the answer to your question about have we seen the bottom is actually more of a function of how many weeks we have to stay closed. We were prepared for some and so the market’s feeling a little bit better. The cases look better around the world, the death rates look a little better than we feared, right?

>>Kurt Brown (31:24):

So the market’s feeling a little bit better if that hooks back lower and expectations get worse again. Okay. I do think you’re going to see a whole other round of volatility. The market could trade back down for a little while and maybe even go back down to where we were before.

>>Devin Peterson (31:41):

Yeah, I appreciate you sharing that because I’m there obviously for all of our listeners, we would love some very specific advice to like buy this now. But I think you’re right and I appreciate you sharing that. It’s tough for us to see the level of the market and think that is the bottom or this is the top and then make investment decisions based off that. And you never know. And honestly, this last month has exhibited every single hallmark of massive market bottoms in market history.

>>Kurt Brown (32:24):

It mathematically very easily could have been the bottom. We saw tremendous panic and fear. We saw the highest VIX readings ever in history. We saw billions and billions pulled out of the market in a two week window. That’s fear. We saw erratic and emotional trading. There were mornings that I saw big cap stocks moving in $10 increments within a few minutes. It’s pure hysteria and those are always the hallmarks of market bottom. We saw it in 2008. We saw it at 911. We saw it in 1997.That is the hallmark of market bottoms. Now, no one exactly knows why, but for people that want to make investments, you have to be disciplined enough to say number one, I will not pick the bottom. Accept It. I will not pick the exact bottom. Nobody will. Number two, I’m going to do nibbling in great assets through the chaos.

>>Kurt Brown (33:27):

So I personally have an amount of cash I want to invest through this COVID-19 crisis. I think it’s an opportunity. Of the amount I want to invest. I’ve only invested in 30% of it so far. So I’ve got this new cash. I didn’t buy enough down there on March 23rd, but I bought some and I bought some on March 17th and I bought some on March 29th. I mean, you have to be disciplined enough to nibble when you see those kinds of opportunities. Truthfully, last few days, I haven’t bought anything. You know, we’ve had this massive balance and I’m trying to digest now how bad is this going to be? So I’m being a little bit patient. I at least bought some and now I can be patient. But it’s a real suckers game to try to identify when and how bottoms are exactly going to happen.

>>Devin Peterson (34:17):

Would it be fair enough to kind of look back with certainty and know that we were at one point and now we’re here. So at any point if you do invest new dollars into the market, at least you’re kind of looking with certainty. This is where it was. This is where it is now and in the next couple of years it’s got to go back to at least what it was before, right?

>>Kurt Brown (34:36):

Yeah. And there are certain companies, here’s what ends up happening in times of panic and we saw this a couple of weeks ago, everything gets thrown out. Everything. There’s something we call correlation in our business. It’s a mathematical computation of the movement of all assets and how correlated are they in their movement? And when you get to all a hundred percent correlation, it’s only happening, you can count on one hand in a hundred years when that’s happened and it happened here two weeks ago, what you’re saying is investors are not discriminating between the quality of anything.

>>Kurt Brown (35:11):

They are throwing everything out. So from the best companies in the world to those that will file bankruptcy this year, they’re throwing them all out. Okay. In that moment, if you and I had a whiteboard and we said, what are the best brands in the world and how often do I get to buy those on sale? Okay.

Even in oil, even in hotels or airlines. There’s opportunity that gets created in there and, and now it behooves us to say, I have to just buy the best of breed assets. I don’t know, these junky companies, there are lottery tickets. Some of them might survive, but I don’t know. So when in doubt you buy really high quality and you nibble and you just know if you and I Devin, had dinner together tonight and we said, and I asked you give me five days in the last hundred years, you wish you could have bought stocks, you would have given me October 1929, October 1987, November 2008, March of 2020. It exhibits all those characteristics. Right. Yeah. Awesome.

>>Devin Peterson (36:21):

Well, Kurt, this has been so insightful as we’ve gone through this. I just have a couple more questions. I know the questions up to this point have been specifically like investment capital markets, but taking a bit of a more comprehensive look at those that are in retirement or planning for retirement. I know you’ve kind of been in the more behind the scenes of the investment world and now you’re a little bit more part of a comprehensive team that’s working directly with investors and advisors. But from your perspective as a Chief Investment Officer, what are some of the benefits of folks having a plan and working that plan? Sticking to that plan?

>>Kurt Brown (37:07):

Oh man, I’ve been talking about this every day for a month. Let me sell against myself a little bit. I’m an investment. I’ve spent my whole life building portfolios and overseeing assets. But here’s the thing. The truth is I’m not important. I’m not the actual important guy in the process that I’m going to give you a stat that sells against myself. I did hear of all retirement plan returns. Well since the great depression, 70% of the return has been about being invested at all. In other words, if you pick the worst funds and the worst investments, you still made 70% of the return if you just stayed invested in it. Right. Okay. So my point is, is that the plan is everything. We oversee about 5 billion in total assets. We’ve got a couple of billion at Schwab and TD Ameritrade and some of the big brokerage houses, Fidelity.

>>Kurt Brown (38:10):

So I talk to them on a weekly basis and I really want to know what is going on, what are investors doing? And we haven’t seen a lot of clients panic. I’ve seen very few call and say, okay, take me to cash after you. I mean it’s normal but not that many. But the people that have their brokerage accounts themselves at Schwab and Fidelity, they’ve seen massive numbers of people clicking buttons, sell everything in my account right now. I just this morning talked to somebody at TD Ameritrade, a very senior person there. Almost everybody that has done that in the past month. The market is much higher now than where they did that. Right? So if you don’t have a plan, the emotion of a moment will hijack what you do because good planning lets you sleep well at night saying these assets are under stress right now.

>>Kurt Brown (39:03):

But it’s over here in bucket three or bucket four, my longterm really growth oriented money. I’ve got this other part of my plan that allows me now not to worry about the next few years because I’ve taken care of those things and it’s why I’m such a big fan of people having advisors. For example, we don’t take clients directly at my firm for this reason. They have to work with an advisor to build a plan because no two people are the same. In fact, when somebody grabs me and my family or my circle of friends and they say, hey, you’re an investment guy, what should I do? I just laugh and I don’t answer. I say, you create a plan. I can’t tell you what you should do.

>>Kurt Brown (39:46):

I mean, the most exact dramatic examples I can give you. I have a 95 year old client in San Francisco. He’s been a client of mine for 20 years. The guy has never owned a single bond his whole life. Incredible. It’s a badge of honor. He’s 95 and it flies in the face of every financial planning book you’ve read that he would own nothing but the highest growth assets on the planet. It’s perfect for him. All of that money is going to go to his heirs. He doesn’t want to bury them in a bunch of conservative treasuries and things like that. We’ve got a 45 year old client out here in the mountain states, 45 years old, doesn’t own one stock. This guy owns all muni bonds. This guy cannot handle the volatility of the stock market. He takes tremendous risk in his day job as a tech executive and all his money’s immunities and he sleeps really well at night and I can’t talk him into buying a stock.

>>Kurt Brown (40:39):

So everybody’s plan, there is no imperative, right or wrong. There’s tools in a toolbox and then you’ve got to use those tools to sort of build what you need. I literally cannot stress this enough. Can I give one other stat on this debit? Do we have time? Okay. Remember Y2K, number 12/31/99 we weren’t sure if the planes were going to fall out of the sky or if computers were going to explode on our desk or if you got up the next morning and you put a $100,000 in the S and P 500 and this last December 31st that we just had, 20 years later you sold your S and P 500, index fund, whatever. The $100,000 turned into $325,000.Pretty good rate of return. In there we start two massive bear markets. The 2002 dot com collapse and then the 2008 financial crisis.

>>Speaker 1 (41:33):

You still did 325% return. Not bad. If you just missed the best 10 day window in 20 years, you have half the money. You have $162,000 are those 10 consecutive days like a window? Like separate? You can’t miss that window and here’s what surprises people of all of the 20 best single days in US market history. 17 of the best 20 took place while the market was down more than 20% from its high. In other words, any bear market was our 17 of the best 20 days. We’ve seen 3 of the best 20 in the last two weeks. So think about if you sold two weeks ago, now you’re really stressed because you’re like, okay, the market bounced. 24% said, now what do I do? Do I go back? It’s a head game. And why you absolutely have to have a plan in place that prepares for things like this.

>>Kurt Brown (42:36):

It’s still stressful. It’s stressful for all of us. But, but the plan will save you from yourself.

>>Devin Peterson (42:41):

I appreciate you sharing that. It’s an individual plan. I had a couple of examples that shared where these clients are at two ends of the spectrum. Their goals are completely different. They’re different ages. But it does take the emotion out of it. And so for all of our listeners that are concerned and worried about their finances and stress about what the market is and they’re checking the stock market every day, having to plan really takes that emotion and calms it down. It gives them some peace of mind or a green light really to move forward and live life according to your plan because that’s how it was set up from the very beginning. So that is for kind of bringing it back home to that hundred percent accurate.

>>Kurt Brown (43:28):

There’s all this chatter. I got to have the 60, 40 portfolio, the 70, 30. That’s ridiculous. You need a portfolio that represents your objectives, your risk tolerances. Like a guy used to say to me all the time when I traded in New York, he used to always say, when in doubt, sell down to the sleeping point. You know, if you’re losing sleep at night, you probably have the wrong portfolio. You’ve got to call your advisor and say, okay, hold on. We got to talk this through. This is why we have good advisors. Right.

>>Devin Peterson (43:56):

Nice. Well Kurt, I know this has been a big part of your valuable time and I absolutely appreciate you joining us here on this podcast. Before we finish, however, I do want to ask you more of a personal question. This is a question we ask for all of our listeners because I’m genuinely interested in the human connection.

>>Devin Peterson (44:13):

I feel like the people connect with people and not with businesses or anything other than just real human connection.

>>Kurt Brown (44:20):

So I’m scared. I’m scared of what you’re going to ask me. You know how many hours a year do I spend being interviewed and no one ever wants to ask me a personal question. Now I’m scared.

>>Devin Peterson (44:30):

Here’s my question because I do care about you personally. I think this answer will kind of show all of our listeners what’s underneath the skin of Kurt Brown. So for you individually, what makes you feel alive, number one, and what makes you feel relevant in your life? The life of your family, life of your business. What makes you feel alive and relevant in your life?

>>Kurt Brown (44:59):

You know the answer to this question. It’s funny, it’s really evolved over the years, which I think for most people I would hope, as we mature, it sort of evolves. I was a workaholic for a lot of my early years through my twenties and thirties. I’m almost 50. I got married finally, and I have three kids under six.

Including two adopted children. My wife and I have done invitro 37 times. My appreciation and joy over being a dad is so far past what I ever could have anticipated. I mean I kind of always thought maybe I wanted to have a family and have kids, but didn’t necessarily ever feel a burning desire. And now there are moments where I think I almost missed this. With a couple of other dumb decisions, I would have missed this.

>>Kurt Brown (46:04):

All the success that I’ve had in my career and as much as I’ve enjoyed my career. Yeah. Once I held that first baby in my hands, and in that delivery room, all of it just paled in comparison. You know and I know all your listeners that are parents know, you know what this feels like. But for me personally, the fact that it’s been so hard, it was so hard to get married, it was so hard to have kids. There are very few moments I take for granted now. So for that, I’m just tremendously grateful.

>>Devin Peterson (46:44):

As we have this conversation about COVID-19 and all the different cultural dynamics that it’s added to us, if we can add that one positive impact to all this is, it’s brought us home a little bit closer to our family, a little bit more time with our children because we’ve been forced to and sometimes, frankly, God kind of has to punch us in the face and say, focus on really what’s important.

>>Devin Peterson (47:07):

So Kurt, thank you so much again for joining us here today. This conversation has been extremely enjoyable for me personally and in my profession, and I hope that that’s been the same, or I’m sure that it’s been the same for our listeners, so thank you so much.

>>Kurt Brown (47:22):

Hey, thanks for inviting me. I’m happy to come back anytime. It’s fun to hang out with you, man, even if it’s in a zoom room. I know. All right. Let’s make it make it face to face sometime. All right. Thanks.