“There are risks and costs to action. But they are far less than the long range risks of comfortable inaction” – John F. Kennedy
Good afternoon, ladies and gentlemen. This is Bryan Rigg, with Rigg Wealth Management. I’m here with both my partners, Gary Bilyeu and David Rigg. All three of us are Marine Corps officers, so we take a lot of lessons from military history. There’s a lot that military history, and history in general, will help us learn about investing. Recently, we just had the 75th commemoration of Pearl Harbor. That can teach us an awful lot about risk in a positive way, and also a negative way.
A positive way is when you look at Admiral Isoroku Yamamoto, who basically planned that attack. He was very worried of what that would do in America, and what type of enemy that would create in America, but he was told by his superiors to do it. They took a calculated risk, and they were extremely successful in surprising us at Pearl Harbor and embarrassing us, sinking some of our finest battleships, killing 2,400 of our servicemen, and destroying, basically, our Pacific fleet.
Luckily, our aircraft carriers were not there. They were out on maneuvers, but nonetheless, it was a smashing success. But was the risk worth it? If you look at the risk that we took later, six months after that, at the Battle of Midway, we were not supposed to do what we did, which was sink four of their carriers. We were successful in doing so, and it turned the tide of war. Eventually, as we see, two and a half years later, we’re decimating all of the Japanese empires. We’re bombing their cities to the ground, and then we hit them with two atomic bombs.
Making a nation that swore it would never surrender, making its head of its government a god in human form, the emperor ‑‑ many people felt he was a living god, to change his mind and surrender his nation over to America. That risk that Yamamoto took in attacking Pearl Harbor, was not a good one when you look at it long term. It was a calculated risk, but it was one done with not the proper knowledge. Midway, we took a calculated risk. We put a lot of our Airmen at risk.
All of our torpedo bombers basically got slaughtered and killed, but that actually opened up, unintentionally, a window for our dive bombers, and they went in, and they took out four of the carriers that Japan had and they couldn’t replace, moving the momentum of the war in our favor. You study what we did, the calculated risk. We were able to back it up with an industrial complex that was able to ensure success. When you look at the risk that we were taking, we were being very methodical. We were being very judicious in how we were implementing the war effort and how we mobilized our society.Here we have a positive and negative example of what risk can do for you. It can be very disastrous for you if you don’t back it up with proper knowledge and understanding of what you are doing. Conversely, if you take the risk, and you know that you have the support that you need, the knowledge that you need, you can be successful.
John F. Kennedy, one of our most successful presidents, said, “There are risks and costs to action, but there are far less than the long‑range risks of comfortable inaction.” He was a Navy officer in World War II. He knew what it meant to lead men and take risks.
One thing I also want to say here is that doing nothing is the worst risk you can take, and that’s one thing that we’ll be talking about.
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Show 9 Segment 1 Radio Transcript
Host: “RIGG Wealth Management offers securities to Broker Dealer Financial Services, Member SIPC and advisory services through Investment Advisors Corp and SCC registered investment advisor. RIGG Wealth Management is not a subsidy area of Broker Dealer Financial Services. Neither RIGG Wealth Management nor Broker Dealer Financial Services offer legal advice. Client should consult their attorney of choice on all legal matters.”
“Opinions expressed on this program do not necessarily reflect those of Broker Dealer Financial Services. The topics discussed and opinions given are not intended to address the specific needs of any listener.”
“Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk. Examples mentioned are for illustrative purposes only, individual results may vary. Past performance is no guarantee of future results. Investing involves risk including loss of principle.”
“Rebalancing can entail transaction costs and tax consequences that should be considered when determining a rebalancing strategy.”
Host: Welcome to “Wealth Strategy” with Bryan Rigg for every Sunday at one o’clock on KLIF. Bryan is a celebrated Yale graduate, adding a PhD from Cambridge, a former officer in the Marine Corps, a man of profound integrity and honor, and your wealth professor.
Please, welcome your host for the next hour, Mr. Bryan Rigg.
Bryan Rigg: Good afternoon, ladies and gentlemen. This is Bryan Rigg, with Rigg Wealth Management. I’m here with both my partners, Gary Bilyeu and David Rigg. Thanks so much for joining us today. Our topics that we’ll be exploring today are risk, and then we’ll be talking about contrarian investing. As many of you know I used to be a professor at SMU, an American military university. I have looked at a lot of historical events, especially in the military. All three of us are Marine Corps officers, so we take a lot of lessons from military history. There’s a lot that military history, and history in general, will help us learn about investing. Recently, we just had the 75th commemoration of Pearl Harbor. That can teach us an awful lot about risk in a positive way, and also a negative way.
A positive way is when you look at Admiral Isoroku Yamamoto, who basically planned that attack. He was very worried of what that would do in America, and what type of enemy that would create in America, but he was told by his superiors to do it.
They took a calculated risk, and they were extremely successful in surprising us at Pearl Harbor and embarrassing us, sinking some of our finest battle ships, killing 2,400 of our servicemen, and destroying, basically, our Pacific fleet.
Luckily, our aircraft carriers were not there. They were out on maneuvers, but nonetheless, it was a smashing success. But was the risk worth it? If you look at the risk that we took later, six months after that, at the Battle of Midway, we were not supposed to do what we did, which was sink four of their carriers.
We were successful in doing so, and it turned the tide of war. Eventually, as we see, two and a half years later, we’re decimating all of the Japanese empire. We’re bombing their cities to the ground, and then we hit them with two atomic bombs.
Making a nation that swore it would never surrender, making its head of its government a god in human form, the emperor ‑‑ many people felt he was a living god, to change his mind and surrender his nation over to America.
That risk that Yamamoto took in attacking Pearl Harbor, was not a good one, when you look at it long term. It was a calculated risk, but it was one done with not the proper knowledge. Midway, we took a calculated risk. We put a lot of our Airmen at risk.
All of our torpedo bombers basically got slaughtered and killed, but that actually opened up, unintentionally, a window for our dive bombers, and they went in, and they took out four of the carriers that Japan had and they couldn’t replace, moving the momentum of the war in our favor.
You study what we did, the calculated risk. We were able to back it up with an industrial complex that was able to ensure success. When you look at the risk that we were taking, we were being very methodical. We were being very judicious in how we were implementing the war effort and how we mobilized our society.
Here we have a positive and negative example of what risk can do for you. It can be very disastrous for you if you don’t back it up with proper knowledge and understanding of what you are doing. Conversely, if you take risk, and you know that you have the support that you need, the knowledge that you need, you can be successful.
John F. Kennedy, one of our most successful presidents, said, “There are risks and costs to action, but there are far less than the long‑range risks of comfortable inaction.” He was a Navy officer in World War II. He knew what it meant to lead men and take risks.
One thing I also want to say here is that doing nothing is the worst risk you can take, and that’s one thing that we’ll be talking about. Yamamoto, that risk, even though it was unsuccessful, when you look at a lot of the Japanese policies at the time, it was, indeed, a calculated risk, but it didn’t have all of the knowledge that it should have had.
Any military historian who studies that can explore those in more elaborate form. When you look at the risk that Nimitz and Roosevelt were taking with Midway, it was calculated on even if we were to be unsuccessful there. We had the industrial might to start projecting more and more power against Japan.
Even if we were unsuccessful there, it would have helped push the tide of war in our favor. We had the knowledge and background for that, and we were feeling very confident six months out from World War II.
Risk is something that we take every day, when we get into our cars, when we do business deals, and so on, and there’s several cases out there that we don’t think about, that we’re taking risks, but we are.
These are the topics that we like to talk about, especially when it comes to investing. My partner and brother, David Rigg, has gone over a lot of issues also historically about risk and investing, so I’ll turn it over to him now to go over some of the things that he’s come up with.
David Rigg: Thank you, Bryan. I appreciate it. To bring up your John F. Kennedy quote in talking about inaction being the worst thing that you can do, what’s important about risk is, obviously, how you manage it, and how you deal with it.
If you take no risks, you’re not invested in the stock market, the risk is the stock market goes up, you don’t make any money. Yes, you do have a risk of being invested in the stock market, and possibly that could go down, so you are running risk, but doing nothing, you don’t get any benefit out of it.
What’s important is how you manage that, and even inaction is possibly the worst thing that you can do. We can look at this. Sometimes it’s no fault of your own. For example, you can look at the Affordable Care Act. The promise was you could keep your doctor, and you could keep your plan. Your premiums would go down.
Through no action of their own, Obamacare was passed. People were put into Obamacare. None of those things happened. That was a risk. They didn’t do anything to be involved in it, but they ran that risk.
Now, with the election, you’re talking about changes in Obamacare, you’re talking about either the elimination or repeal of it, or some drastic changes. The same people that were subject to the risk of it being implemented are now going to be subject to the risk of it being repealed, due to inaction. Nothing that they were responsible for at all.
Gary: Dave, what you’re talking about is what we call legislative risk. We have no say‑so in that. It is forced upon us, and we have to react.
David: The point I’m trying to make is that without risk, there’s no reward, and sometimes, there’s just risk, despite what you’re trying to do with it. Just like you said, quite frankly, that’s in most of the aspects of our lives right now. Like you said, driving here was a risk, to even do the show.
Gary: Especially with Bryan driving, right?
David: Yes. We took a bigger risk than normal today.
David: In aviation, risk management is a huge component of the training and the readiness that pilots do. Pilots, they’ll train for situations they may never actually see. They have a wealth of background information. You’re talking millions of hours that have been flown, millions of flights, a massive database.
Even though they study that, and they train for it, as you saw in the movie, “Sully,” sometimes things happen that you did not anticipate, or you could not train for. How he managed that risk was he fell back on his experience. He fell back on his training. He made a plan. He executed that plan early.
He only had a couple of minutes to make that decision, and that’s how he was able to manage that, and make that a successful outcome. Risk is something we all run, every single day.
Bryan: On that note, taking these historical lessons, or taking the most recent lesson with Sully, we take inputs, we back down on our experiences, our knowledge, and then we try to go forward and make good decisions.
With investing, we do that all the time. Last week, we talked an awful lot about indexing, and how that can help with investing. That’s something we like to do a lot here at Rigg Wealth Management. We base that on a lot of historical data as well, and how best to manage financial risk.
We’d love to talk to you about that as well, if you reach out to us and talk to us, we encourage you to call us at 972‑383‑1210. Again, that’s 972‑383‑1210, and set up a no‑charge, consultation. Come in and talk about risk, talk about financial management.
We hope you will stay tuned. We are going to have to break away here for a few minutes, but we’ll be back with you, and we’ll continue on exploring these issues of risk. We’d love to hear from you. Please, call us at the number I just gave you, or email us with questions.
Please, feel free to email me directly at firstname.lastname@example.org. That’s Rigg with two Gs, dot com. Also, please feel free to visit us at our Web page at www.riggwealthmanagement.com. That’s Rigg with two Gs, wealthmanagement.com.
Please, stay tuned. We’ll be continuing on exploring issues of risk in the next couple of segments. We’re so thankful you’re here with us today.
Show 9 Segment 2 Radio Transcript
Bryan Rigg: Welcome back to the show, ladies and gentlemen. This is Bryan Rigg with Rigg Wealth Management. I’m here with both my partners, David Rigg and Gary Bilyeu.
We’ve been talking about risk, and looking at historical examples. One quote I want to leave some of you with is one by George Patton. He said, “Take calculated risks. That is quite different from being rash.”
That’s one thing I think we like to do here at Rigg Wealth Management when we’re looking at risk in financial investing, is trying to find the best instruments out there to take calculated risks in order to help pursue your financial goals.
One thing that I mentioned week, and also in the last segment, one thing that we like to do is we like to look at indexing. We think that is a very important way about investing. As we mentioned in the last segment, there is examples out there that we like to explore, historically, looking at how risk has been managed. I think they give us good lessons about what to do, and what not to do.
David, you had a few historical examples you wanted to explore.
David Rigg: Yes. People manage risk differently. Everybody’s got their own personality. Everybody has their own comfort level with how they manage risk.
You used some World War II examples. We can go back to the Civil War and look at two opposing generals. I’d like to use McClellan on the Union side, and then Stonewall Jackson on the Southern side. Two very different approaches to how they managed risk.
McClellan managed risk, basically, by trying not to take any risks. He was very concerned with troop superiority, numbers of troops that he had. His lines of communication, his supply lines, the amount of supplies he had stockpiled. Very concerned with all of that stuff, to where Lincoln actually got very frustrated with him for inaction.
Stonewall Jackson, on the other hand, managed his risk by being very aggressive and very unpredictable. His army actually got the nickname of Foot Cavalry, because how quickly they could pull out of someplace, maneuver, march, and get to another area that the Union army never really could understand how he could move as fast as he could.
For example, and I believe it was Second Manassas, they, instead of being like McClellan and wanting all your baggage and wanting all of your material and all that, he told them to drop all their heavy gear.
They took 60 rounds of ammunition, three days of precooked rations, and they moved 55 miles in 32 hours, and then went into the attack, which was an unbelievable pace. It’s actually a bad pace now, [laughs] much less back then, but it was an unbelievable pace at that time.
He managed risk by using audacity and speed, and being unpredictable. This worked very well for him. He was a much more successful general than McClellan was, and it worked very well for him, right up until he was shot my mistake by his own sentry. At that point, it was done, [laughs] but up until that point, he was very successful.
Both of these generals managed their risks. McClellan never really was caught or destroyed by what he really feared. He always had his lines of communication. He always had his stockpile. He always had troop superiority.
Stonewall Jackson was never destroyed by an enemy force, because he was able to move and communicate, and do what he needed to do.
My point with all this, is that there are many different ways to manage your risk, and it’s not all a rubber stamp. It’s not the same way. There needs to be a suitable way for people to manage their risk that they’re comfortable with.
Bryan: To take that in the financial world, everybody’s heard the catchphrase, “Nothing ventured, nothing gained.” I think with Stonewall Jackson and McClellan, they bring that out, and in spades.
As far as investing is concerned, to not do anything and be scared of jumping into the market and jumping into different investments, is not historically a prudent way to go to grow your money.
But with proper diversification, with proper knowledge, especially looking at indexing, which is what we do here at Rigg Wealth Management, you can manage your risk to help achieve a lot of the goals out there that are realistic.
Not to do anything is not a good way of investing your money. Your money will do nothing if you do nothing, or if you’re worried about taking risk.
The stock market, historically, is all about taking risk, and historically, it’s averaged around nine percent. The reason why a lot of people lose money is they get worried about risk when things start going poorly, and they jump out of the market instead of what, historically, the evidence shows us, that’s when you really should start jumping in.
We’ll get into that later, about being a contrarian. Getting to historical examples, here again, we have to be very careful, especially as a nation, as an economy, of basing our decisions on proper knowledge and realistic goals.
We have used a lot of positive military examples that America has had and experienced. There’s a lot of negative ones out there. When we invaded Canada in 1812, that was a debacle, and then we got our capitol burned by the British. That was not a good risk‑taking endeavor.
Kasserine Pass, in 1943, when Rommel destroyed our tanks, we did not take proper risk and use knowledge about how to engage Rommel. In 2003, most recently, disbanding the Iraqi Army was not a good risk that we took, and we’ve seen how that has really hurt us.
Conversely, we have a lot of things that has helped us when we’ve taken risks. The War of Independence against Britain, that’s why we have a country, and those forefathers we had took that calculated risk, and it has been incredible for us in the democratic process.
Using these examples with financial opportunities, I think what all these examples teach us is inaction is bad. I think we’re clear on that one, but also basing your risk on proper knowledge.
You wouldn’t, for example, put all your money in Google, all your money in Yahoo, or all your money in GM. GM, a few years ago, went bankrupt. That’s where diversification comes in. You want to take your money, and you want to diversify it over several different holdings. Don’t put all your eggs in one basket, to use another catchphrase.
I think that’s one way of managing risk, which is proper, that historical examples teach you, that you want to diversify. You want to make sure that you’re looking at companies that have a good track record, or good ETFs that have good track records, or ETFs that focus on segments of the society that have a good track record, whether that be large cap companies, mid‑cap companies, utilities, and so on.
I think that’s very important to look at, and use historical examples to help illuminate how you should manage risk in your financial portfolio.
Gary: Bryan, can I jump in here for a second?
Bryan: Yeah, go right ahead, Gary.
Gary: I’m often surprised when I’m talking to clients, and I mention to them ‑‑ there’s two things that I tell all of my clients. The first one is, “All investments carry some degree of risk.” Let me say that again, all investments.
Oftentimes, a client will respond, “Well, yeah, the market’s risky,” or something to that effect, and they say that’s why they have their money in CDs. I point out that all includes CDs. There is risk associated. They come back and say that, “Well, they’re guaranteed. There’s an FDIC insurance.
I say, “Yes, but there is a thing called purchasing power risk. If that investment does not keep up with inflation, you have purchasing power risk. That money does not buy as much tomorrow as it does today,” and explain that concept.
Just to dovetail on what you mentioned, I also follow up with, “You cannot” ‑‑ let me say it again. “You cannot eliminate investment risk. You can manage it, but you can’t eliminate it.”
Two of the strategies that we believe in, that we use routinely here at Rigg Wealth Management, are asset allocation and diversification, and we hammer that. We believe in educating the clients in understanding these concepts, and they’re comfortable.
We do our best to educate them on all of these concepts, and they respond positively.
Bryan: I agree with you, totally, Gary. One thing that people forget about is the purchasing power risk. If inflation has historically been around three percent, and your money is not earning at least three percent, you want to be thinking about your money going into the negative, from purchasing power.
If you have $100,000, and the next year it’s only $101,000, you’ve actually lost $2,000 in purchasing power risk. You’re actually at a negative. A lot of people have a hard time grasping that.
We’ll continue on here in a few minutes talking about risk. We’re going to have to break away for a minute or two.
We encourage you to give us a call at 972‑383‑1210. Again, that’s 972‑383‑1210, and set up a no‑charge consultation with us, and go over your portfolio, talk about risk, talk about investing. We also encourage you to look at our Web page at riggwealthmanagement.com. That’s Rigg with two Gs, R‑I‑G‑G, wealthmanagement.com.
We would love to hear from you. We enjoy hearing from our listeners. Please feel free to email me at my email. That’s brigg, with two Gs, @riggwealthmanagement.com.
We appreciate you listening to us today, and we’ll be right back, explaining history and risk and investments.
Show 6 Segment 3 Radio Transcript
Bryan Rigg: Welcome back, ladies and gentlemen. You’re with Bryan Rigg, with Rigg Wealth Management. I’m here with both my partners, David Rigg and Gary Bilyeu. We’ve been talking about risk.
The one thing I want to encourage people to think about when you’re looking at risk in your financial portfolios, you’re not always going to be successful. You’re going to have pullbacks. You’re going to have disappointments in your portfolio. We cannot ever guarantee that once you put your money in, the market’s going to always do what you want it to do, which is to go up.
We look at history, and we see that if you have proper diversification, and you get invested, and you manage expectations, that in the long run, historically, the stock market can benefit you, and usually does benefit you.
We like to look at indexing. We think that’s one of the most efficient ways to get invested, and one of the most efficient ways to benefit from what we’ve seen, historically, which is that the stock market has returned, historically, nine percent per year.
Sometimes, that means the portfolio’s down 30 percent, sometimes it’s up 20, sometimes it’s up only 2, sometimes it’s down 10, and you’ve got to manage those emotions.
One thing that I like to look at as we talk about World War II examples ‑‑ and we started out the segment about Japan’s decision, Yamamoto’s decision, that turned out to be disastrous, was attacking America, and waking up that sleeping giant.
A couple of years later, Japan was decimated, especially about the two atomic bombs. One thing, as far as managing risk that America learned this time was that after World War I, what did we do?
We punished the nations we defeated. We put horrible reparations on them, like Germany and so on. After World War II, we realized, “You know what? That policy, that risk‑taking, if you will, of punishing nations was not a good strategy.”
We had the Marshall Plan, and now, two of the strongest trading partners we have, two of the reasons why we have a very strong stock market right now, one could argue, is that we have thriving democracies in Japan and Germany.
It’s a remarkable miracle that we had these two fascists totalitarian regimes end in ashes, and then we built them back up into thriving democracies and leaders in their respective spheres in Asia and Europe as strong economies and strong governments.
We see here, America managing the risk after World War I, and in learning from it, when it was a disaster and created another war, to managing the risk more properly after World War II.
That’s something we encourage you to look at. What have you been doing poorly in the past? A lot of times, we find with clients, it’s just indecision, not doing anything, and how you can take those lessons, what you’ve learned in the past, and go forward, and create proper financial decisions with your portfolio.
I like to use the acronym that we have all used in the Marine Corps quite often, which is KISS ‑‑ Keep It Simple, Stupid. Look at indexing, looking at diversification, looking at rebalancing. These are concepts.
If these are new concepts to you, talking about rebalancing, looking at purchasing power, which Gary talked about before, trying to keep up with inflation. If these are new concepts to you, we encourage you to reach out to a financial advisor.
We hope you would reach out to us, so we can explore these issues with you, educate you about them, and then, hopefully, help build up portfolios for you.
Gary, you were talking some risks that you wanted to explore, and some aspects of investing that risk teaches us.
Gary: I know we need to move on in a second, but I wanted to go back and just a couple of quick points on risk.
As we mentioned, all investments carry some degree of risk. We try to manage that, and I think, we, at Rigg Wealth Management, do a very good job of explaining that, explaining to our clients, and hopefully, they understand it. We try to put it in simple enough terms for the novice investor, but also the more sophisticated, and the more sophisticated, I think, understand this.
We’ve gotten feedback from our listeners that some of the terms and concepts that we use, they wanted us to clarify or give them a little bit more information.
I’m with you, KISS. Let’s keep it simple. Some simple explanation, taking some time to define some of these, it will help when they do come in. It’s not the first time that they’ve heard what purchasing power risk is, or liquidity risk, all these different types of risk.
There are many, many types of risk associated with investing. Dave mentioned earlier about when Congress or the president does an executive order, and changes things. The Affordable Care Act was a good example.
That is legislative risk. We can’t control that. One thing that you mentioned about markets, when they go up and down, and you used some examples about it going up 30 percent or losing 30 percent.
That’s volatility. We see that as an opportunity. If the market stayed constant, the same price, we would never be able to realize the gains, or losses as well, but volatility is not necessarily a bad thing.
When the market goes up, that maybe an opportunity, if it’s appropriate, to buy, or may be an opportunity to sell. That’s what working with us, we understand your specific situation, we understand those risks that are at play, and help you as the individual.
No two investors are the same. Dave, I think what you were talking about earlier in your example, between the Civil War example, is their risk tolerance. McClellan had a very low tolerance for risk, where Stonewall Jackson, very high tolerance. They were working in their comfort zone. One of them was rewarded more than the other.
Bryan: What’s interesting here, from a historical perspective, a lot of people are very risk‑adverse, but when you look at what people are interested in, for probably every biography on McClellan, there’s probably about a hundred written on Stonewall Jackson.
People pride at this. How did he manage this? How did he benefit from this? The one thing that ‑‑ I’m going to shift gears ‑‑ when we’re looking at risk and focus on with investing, is that I think one thing that great leaders do, one thing that great investors do, is that they’re contrarians.
They manage the risk well, and they look where opportunity is, or to use a little bit of what you were talking about, manage volatility.
Why a lot of people do not benefit from the stock market. You hear of some of those people at coffee or book clubs saying, “Why go on the stock market? You’ll just lose your money.”
I think a lot of times, the reason why people do that is because they chase performance, or they buy things at the highs. “The stock market’s been doing great. It’s been doing great for three or four years. Now I’m going to put my money in,” and all the sudden, it goes down. That’s the worst time, a lot of times, to put money in.
What we like to do with managing risk is look at contrarian views. Basically, that’s a simple way of saying you look at things that are at a discount. If I had to Mercedes out there for you, and they were exactly the same, and I say, “OK, you can buy one at $50,000, and you can buy at $10,000,” you’re going to buy the one at $10,000.
If you have a stock that’s right now trading at historical highs, at $40, but yet, if you wait around, you can find a stock that’s similar to it, that’s trading $40 below where it went public, then you may want to look closer at the one that’s trading at a discount or trading below book value.
Here at Rigg Wealth Management, we try to do that. We look at the stock market, and we are a contrarian firm in many respects. We look where there are discounts out there to benefit our clients. One thing that’s going on right now that we’re focusing on a lot with our clients is looking at energy. A few years ago, it was at $120 a barrel, now it’s trading around $50, $55 a barrel.
Here’s an example of finding something that’s at a discount, and we feel there is opportunity there.
We find this also with senior loans. A lot of them are trading below book value, where they’re at, and a lot of times, they’re structured like an index fund, where you have hundreds of holdings within a senior loan, a ETF, if you will, or a security holding.
Looking at opportunities is looking at where things are trading at a discount, and a lot of times, that’s called contrarian investing, because most people don’t do it, ironically. That’s something, I think, people need to really take away.
Gary: I’m glad you said that, Bryan. For our listeners, I’m always trying to be conscious of those that maybe have not heard of this term or this concept. I have two small kids, and contrary has a whole new meaning.
Gary: Getting it back to investing, it’s just like the name implies. It’s just an investment strategy that’s characterized by purchasing and selling in contrast to the prevailing theme, or what everybody else is doing.
We look at that. If it’s the right move and appropriate, then we may move there, but we always take a step back and evaluate the investment. We understand our clients’ needs and what their investment goals are, and if it’s appropriate, we may do the opposite.
Bryan: Yeah, Dave?
David Rigg: I think what people need to really take a look in the mirror and think about it is every day you get up, you’re at risk, quit thinking you’re not. If you’re sitting there listening to us right now, and you’re eating your Snickers bar, you’re at risk or either sugar shock…
Bryan: Heart attack.
David: …or a heart attack. A lot of the people we talk to, they’re risk‑adverse as far as the stock market is concerned or investing is concerned, but they’ll ride a motorcycle without a helmet, or they’ll text and drive.
Everybody is at risk. If you’re not investing, if you’re not saving and putting away and getting in the game, you’re at risk for not having enough money at retirement, period. Period.
Bryan: I’ve been saying this in several shows, and I want to say it again, especially for our new listeners, 50 percent of all people who retire today have 50 percent less than what they need. Not than what they want, but than what they need.
50 percent of the people out there need good plans, need to start learning about how to manage risk, to your point, David.
Gary: Bryan, Dave mentioned a helmet, and I just…How did we ever make it here as kids on our bicycle? I didn’t know what a helmet was. None of us did. How did we ever make it? Now, it’s unusual or unique if you see a kid riding his bike without a helmet.
Bryan: The reason why that is, or on a ski slope, for that matter, when we were growing up, nobody wore helmets on ski slopes. The reason why is that there were so many cases out there of people falling off their bikes, or hitting the ski slope, and dying or having brain injury.
One of the students I had at SMU a few years ago, just two years ago, was skiing without a helmet, and went down and died. A lot of times, our lessons about how to manage risk are written in blood, unfortunately.
Looking at financial risk is something that we like to look at historically and how best to manage that, and we would love to help you manage that risk.
If you know you need to do something, and you haven’t done it, please reach out to us. Call us at 972‑383‑1210. Again, that’s 972‑383‑1210. Also, visit our Web page at riggwealthmanagement.com. That’s Rigg with two Gs, riggwealthmanagement.com. We love hearing from our listeners.
Please feel free to email me directly at email@example.com. Again, that’s B Rigg with two Gs, @riggwealthmanagement.com, with two Gs.
I’m going to leave you with another quote by a famous Jewish rabbi, Nahmanides. He said, “The risk of wrong decision is preferable to the terror of indecision.”
We’ll be right back.
Show 9 Segment 4 Radio Transcripts
Bryan Rigg: Welcome back, ladies and gentlemen. This is Bryan Rigg, with Rigg Wealth Management. I’m here with my two partners, David Rigg and Gary Bilyeu.
We’ve been talking about risk and contrarian investing. With the contrary investing, a lot of people ask, “Well, give me some examples of how that works.”
By way of illustration ‑‑ a phrase that I like to use ‑‑ in 2008, 2009, what did we have? We had one of the biggest stock market corrections in the history of the stock market. We were up at 14,000, and then we went down to 6,700. A lot of people were just scared.
They were pulling their money. They were putting it in the cash. A lot of times, they were pulling their money when it was down 30, 40 percent.
Not a wise choice, but here again, unfortunately, human beings, our adrenal glands are too big and our frontal lobes are too small. A lot of times, we are driven by emotions and not driven by logic and reason, unfortunately.
A lot of people pulled back. A contrarian view of investing at that time would have been looking at your bonds and looking at your cash holdings, and dumping all of that into a diversified stock market portfolio.
We would like to look at ETFs and getting those holdings, those equities at historical lows, and then coming back. Now as we know, 20,000 is where we’re at with the stock market.
Had you put all your cash into a diversified large cap ETF back in 2008, 2009, when it went down to 7,000, your money would be twice or three times what it is now. That would be an example of a contrarian investing strategy.
Another one that I like to look at ‑‑ back in 2010 and 2011 ‑‑ was real estate was in the hole. That’s when you would want to put money into it, not pull money out of it.
Then, of course, I just gave the recent example of energy. Energy’s been around for a long time ‑‑ petrochemicals ‑‑ and many analysts and economists looked at the potential of getting away from oil and gas.
It’s not going to happen for probably another five decades. It may be six decades. It’s going to be around for a long time. It is a solid investment strategy, especially if you practice diversification.
I think it’s very important to look at these contrarian investing opportunities out there, because that’s one way of managing risk, which we’ve been talking about.
Gary: Bryan, can I add one thing?
Bryan: Yeah, please.
Gary: I think when we talk contrarian investing, a lot of times, our clients think that we’re pessimistic. The crowd is doing this, and we may or may not want to go along with the crowd, and so they think we’re pessimistic.
That couldn’t be further from the truth. I think that contrarians as a whole believe that certain crowd behavior among investors can lead to opportunities. It can lead to opportunities, and we look at that.
If the opportunity is right and appropriate, then we try to take advantage of that opportunity, but it’s not pessimistic or pessimism. It’s just looking at an opportunity.
Bryan: Yeah. When you do that there are risks in doing contrarian investing. When I started seeing the energy market go down 20, 30, 40 percent, I thought that was a wonderful time to get involved with it.
Historically, when you get into an asset class that’s down 30, 40 percent, that’s a good time to usually jump in.[laughs] But then the energy phase went down another 20 or 30 percent. Those were very interesting phone calls sometimes with clients.
Now that it’s come back, and they’re seeing the dividends, they see the benefit of it, but it takes time sometimes to realize these strategies work.
Gary: You and I both fielded many, many phone calls over that. We saw that it was declining. Nobody knew where the trough was ‑‑ where it would bottom out ‑‑ but we had some good ideas, and we also applied just a little bit of common sense.
If you thought that America was going to shift away from fossil fuels, then don’t get into that industry, but we had to have those discussions with our client.
As you mentioned earlier, a year and a half, two years ago, prior to that collapse, it was at $100, over $100 a barrel. We’ve seen the oil and gas industry go up and down, like the overall market.
We just believe that we have an insatiable appetite for fossil fuels. We believed it was going to come back, and it did.
Bryan: Absolutely, and this is where, like you were saying, just use logic sometimes, will help. Do you go and gas up your car? If you invest in this sector, every time you gas up your car, you’re getting a little bit of a return on the money that you are investing in that car, putting the gas in there.
When you look at energy consumption, just the last seven years, it has historically gone up every year. When you look at what China and India are doing, according to Franklin Square research, China’s going from three barrels per person being used per year to nine barrels per person.
That’s 1.6 billion people in the world. We don’t have enough OPECs to support that, so when you look at the demand, historically, and what that’s telling what’s going on in the future, it’s a good play that can help realize profitable gains in a portfolio.
David Rigg: You’re exactly right. As long as the world’s population is going up, we’re making more petroleum users. That’s the way it’s going to be for the long term.
When we were talking earlier about legislative risk. You can also look at the green energy movement. A lot of the support for that was governmental support, whether it was subsidies or propping it up for tax abatements and things of that nature.
As soon as they timed out, or they quit doing that, they were no longer viable.
Bryan: On that note, I want to let everybody know that we’re neither for nor against clean energy, green energy. I would love to be able to find an efficient way to use solar energy and wind energy so we can get away from dealing with horrible and corrupt countries like Saudi Arabia, that export terrorism everywhere.
It’d be great to get away from oil, but realistically, that’s not going to happen for a long time. When you look at risk, a lot of people, a few years ago, were very big about trying to get into wind energy and green energy, and it has really…
David: Pulled back.
Bryan: Yeah, those sectors have been pulled back, and they have hurt an awful lot of getting money and being profitable, especially when you look at the government. If they ever pull that support, it’s not economically viable right now.
Though we’re getting better technology, but these are other risks that we look at. I’ve had a lot of clients come to me saying, “Hey, I want to put everything in First Solar,” which was a stock there.
I said, “Well, that may not be the wisest choice to do. I can understand if you’re passionate about it, maybe it being part of the portfolio, but here again, let’s diversify. Let’s diversify over many different energy sectors, and see what happens.”
Gary, did you have a thought?
Gary: No. Well, yes, of course I do.[laughter]
Gary: This concept, contrarian investing, it’s not unique to us, but very few practice it. I think that we do a very good job of staying focused on that. We don’t just run with the crowd and do what everybody else is doing.
That’s where you come up with the bubbles, like the dot com bubble. When those dot com stocks were rising to historical levels, and they just kept closing higher and higher and higher, people wanted to jump in there. They wanted to buy at the highs. Many of them were overpriced.
It wasn’t the wisest decision, but they forgot about all the other sectors. They forgot about real estate. They forgot about the financial industry, and those were very good bargains. Discounted prices, that’s what we call a “bargain”.
When the dot com bubble burst, real estate, the financial industry, and many other sectors roared back.
Bryan: Here at Rigg Wealth Management, these are the concepts that we like to explore. We like to utilize the information we get by conducting such analysis to build out good portfolios.
Warren Buffet is a famous contrarian, and he has used a lot of the concepts that we like to focus on to build out a huge empire.
I love Winston Churchill. He was a master at managing risk. One of his famous quotes, he says, “Democracy is the worst form of government except for all the rest.”[laughter]
Bryan: He also said, “Play the game for more than you can afford to lose. Only then will you learn the game.”
Most people are wired to not take risks, to be averse risk, but you have to take risk in order to be successful with your financial portfolio.
We hope to hear from you. Thank you so much for listening today, and have a wonderful rest of your afternoon.