In this episode of Fintech Zoom Answers, host Alison Southwick is joined by Fintech Zoom personal finance expert Robert Brokamp and The Fintech Zoom’s chief investment officer, Andy Cross, to look back at 2020, offer suggestions for newer investors, and provide thoughts on comparisons of today’s market to the dot-com bubble.
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This video was recorded on Jan. 19, 2021.
Alison Southwick: This is Fintech Zoom Answers. I’m Alison Southwick and I’m joined, as always, by Robert, don’t call me Rob, Brokamp. In this episode, we’re joined by Andy Cross, The Fintech Zoom’s Chief Investment Officer. We’re going to talk about the year that was and the year that lies ahead, and some investing advice, it should be fun. All that and more on this week’s episode of Fintech Zoom Answers.
Robert Brokamp: So, Alison, what is up?
Southwick: Oh Bro, Andy Cross, the chief investment officer of The Fintech Zoom, is going to join us later on the show to talk about putting 2020 in perspective as an investor, so I thought it might help if we just take a quick look back at the year, remember some of the highs and lows. I’ve cobbled this together from a few sources, including Visual Capitalist, Fintech Zoom, CBS, just all the news sources. I forgot that a lot of these things happened in the last 12 months, oddly enough. Here we go. In January, we were too busy being horrified by images of Australia in flames to pay much mind to the pandemic that was brewing in China. The fires in New South Wales raged on for nearly 80 days, displacing or killing nearly three billion animals.
Brokamp: Oh, my goodness.
Southwick: I know. Also, Kobe Bryant along with his daughter and five others tragically died in a helicopter crash on their way to a youth basketball tournament. That feels like a million years ago.
Brokamp: Yeah, it really does.
Southwick: In February, Trump was impeached for the first time and eventually acquitted by the Senate of charges of abuse of power and obstruction of Congress. Meanwhile, COVID-19 continued to spread. While we may never know the name of patient zero, in March, we learned about South Korea’s Patient 31 and the devastating effects of a super spreader. One person spread the virus to as many as 1,160 fellow Koreans.
Southwick: Off to the races, by which I mean just starting to get an inkling that things could get really bad, because in March, the S&P 500 erased over a third of its value in under a month, the fastest 30% decline ever recorded on the benchmark index. I’m just now learning that some genius coined the phrase BEACH stocks. I cannot believe I have not been using this all year. BEACH stocks; booking, entertainment, airlines, cruises, casinos, and hotels. I could have been saying BEACH stocks this whole year.
Brokamp: [laughs] I’ve never heard about it until now either.
Southwick: Genius. Well, it’s sad, because BEACH stocks were hardest hit. Actually, you could say BREACH stocks and then get restaurants in there too.
Brokamp: That’s true.
Southwick: We’ll stuff them in under entertainment. BEACH or BREACH stocks lost $332 billion in value in one month. Things here become a blur for me personally, because everyone was just baking bread, pondering the next case scenarios if they ran out of toilet paper, Zoom scrolling. There was lots of talk about flattening the curve. Dr. Fauci became a celebrity, as did Dr. Deborah Birx’s many scarves. In April, we began to see the devastation of the pandemic in the job market, 22 million people filed for unemployment. But then, the stimulus checks came to the rescue. The CARES Act delivered $2 trillion to help Americans weather the storm. In case you forgot, $603 billion went to individuals, $500 billion went to the large corporations, $377 billion went to small businesses, $339 billion went to small governments, and about $180 billion went to public services like hospitals. Also in April, oil prices went negative for the first time in history. Futures contracts for WTI oil fell to a stunning negative $37.63 on April 20. That means producers were actually paying traders to take oil off their hands. April showers brought May social unrest after the killing of George Floyd on May 25 by police, the Armed Conflict Location & Event Data Project recorded over 7,750 Black Lives Matter link demonstrations over a three-month span. Meanwhile, in a reversal of fortune, work-from-home stocks soared. For example, Zoom‘s market cap skyrocketed to eclipse the top seven airlines by revenue combined. Actually, anything from home did well, so that was nice.
As some stocks soared, people grew bored. No sports to bet on, we’ll try the stock market. More than 10 million brokerage accounts were opened in 2020. While Robinhood became the poster child for the movement, traffic to TD Ameritrade, Fidelity and other brokers doubled their website traffic. But it wasn’t all fun and games. Of course, in June, a 20-year old customer died by suicide after seeing a negative balance of $730,000 in his Robinhood account. That still stuns me.
Brokamp: Yeah. That was such a sad story.
Southwick: In July, Tesla ((NASDAQ:(TSLA))) became the most valuable automaker. Did we ever think we would be saying that? It will later go on to join the S&P 500, and Tesla‘s market capital increased by more than $500 billion before 2020 is over. For weird news, in July, people reported receiving seeds from China in the mail including mustard, cabbage, morning glory, rose, hibiscus, and mint. It was weird, whatever. Moving on. In August, a huge Fuel Tech explosion in Beirut, Lebanon, killed more than 178 people, left more than 6,500 injured, and 300,000 people homeless. The most active year on record for wildfires kicked up in the Western U.S. states, devastating parts of California, and Oregon. In businesses, the shortest bear market in history ended on August 18th when the S&P 500 exceeded previous February highs.
On to September, weather forecasters had started to dig into the Greek alphabet after running out of names for tropical storms and hurricanes. The 2020 Atlantic hurricane season spawned roughly 30 tropical storms, breaking the former record set in 2005 of 28 storms. We also lost human rights hurricane Chief Justice Ruth Bader Ginsburg in September. COVID breached the Oval Office wall in October as Trump and roughly 25 people in his orbit came down with the coronavirus. November brought the presidential election. That was a whole thing. I don’t need to remind you. [laughs] By the way, in December amid the third wave of COVID cases, a literal shot in the arm came as vaccines started being distributed in the U.S. Yeah, it was a heck of a year. Not only everything I just mentioned happened, but everyone on the Answers crew had a family member or someone [laughs] close to them die. What? Crazy. There were some weeks, I’m not really sure how we got the show. [laughs] We did it, and I’ll do it all over again in 2021. Yeah, Bro. That’s what was up in 2020.
Brokamp: The S&P 500 was up almost 20%, the Nasdaq was up more than 40%, and even boring, old bonds returned more than 7%. Last year was just one in a string of good years. In fact, the S&P 500 has posted a negative return in just one year since 2008, and that was just a measly 4.5% decline in 2018. This lost money in just one of the past 12 years, whereas if you look at the average annual returns since 1926, the market loses money in about one out of every four, so pretty remarkable. Given this exceptional run and the unique times we’re living in, we thought it would be a great time to bring in one of the Fool’s most experienced and respected investors, the company’s Chief Investment Officer, Andy Cross. Andy, welcome back to Fintech Zoom Answers.
Andy Cross: Hey, Bro. Hey, Alison. That’s a very kind intro, Robert. Thank you for those nice words. Yes, it’s been an incredible run for me here at The Fintech Zoom just to be at this wonderful organization.
Brokamp: Just to give people an idea of your tenure, The Fool now has 564 employees. If we were to list them all by their tenure, do you know where you’d fall?
Cross: When I started, I was the 19th employee. I think I might crack the top five. I’m close to the top five, four or five I would say.
Brokamp: Very close, No. 6.
Cross: No. 6, I can’t even get into the top five.
Southwick: Who do I got to kill?
Brokamp: That it includes Tom and David by the way.
Cross: Who do I have to get rid of? Exactly. [laughs] Who’s got to go? Yeah, I’ll take it top six is pretty good in this organization.
Brokamp: We’re coming up on your 25-year anniversary this year. By the way, I’m No. 27. Rick, I don’t know you, but you’ve got to be top 40. Alison hasn’t been here as long, but she just celebrated her 10-year Fool-versary.
Southwick: 10 years.
Southwick: Time flies.
Brokamp: We have some veteran Fools, but you’re the most veteran, Andy, and the CIO. What stands out to you when you look back at 2020?
Cross: Gosh, what an incredible year really. It seems like if you just go back every 10 years, it seems almost like we’ve seen this incredible year and starting, just going back to 2000 with the tech bubble bursting then we have 2008. Then we have 2020 with an incredible year that really tore the social fabric, economic fabric, financial fabric, and political fabric of our society, as Alison pointed out in so many great ways in her piece. When I think about the markets in general for investors, we saw a massive amount of new investors coming into the market, which in so many ways is great, Robert. That’s great to see so many investors get into investing in stocks, which we think and we’ve demonstrated over the years, is one of the greatest ways to create wealth for regular people out there to be able to truly embrace the best of investing. I hope they’re doing that. I’m a little worried that maybe they’re not as much.
We maybe have some work to do on the education front for that, but we’ve seen so many investors go in and we saw the market just go through this massive volatility in February and March. Then very quickly rebound for the most part and just continued to move higher and higher as the tailwinds of investing, especially in companies that are leveraging technology and are benefiting from the explosion of cloud computing and the remote workforce and distributed tools for those companies that have the flexibility to do that, and to benefit from so many of us being in quarantine and being more online than on the streets. We saw the markets rebound, gosh, 70% from those lows in March. That’s just been an incredible return for investors who truly hopefully have had the patience to withstand the volatility we saw in 2020.
Brokamp: To hit on the topic of the new investors. When we look back on as Robinhood, or as Alison mentioned, every other brokerage also saw increased interest, but if you were talking to a group of people who just started investing last year, what would you say to them? Should they expect that that was normal?
Cross: Oh, my gosh, no. Of course, that year was not normal and I think if you just started investing in March, April, the summertime really, first of all, again, congratulations, that’s great to get started. You’ve seen these dramatic returns in so many asset classes, growth obviously last year was the big winner as it has been for the past five years or so. Just looking at some of the asset class performance, the Y category of growth has really been the dominant story over the last five years. It hadn’t always been that case, but it certainly has been for the past few years. So many assets really did perform so well, Robert, as you talked about at the beginning of your piece of the intro for today. You can’t always expect that. We know markets every year or so fall 10% every couple of years, 15% every four years, they may fall 20% in every decade, maybe 30% as we saw this year. Really understanding how markets work, the ability to invest, to be able to be patient with your investing.
My worry with so many new people coming in, is there’s so much trading going on. If you look at so much trading going on, we just saw in December, reports have been coming out that the massive amounts of trading activity we’re seeing over the marketplace of investing, which is not on the Nasdaq or the NYSE, the New York Stock Exchange, but these are much more, a little bit less structured and regulated and sophisticated markets. We saw the trading activity in December go over a trillion shares in December, which is a record we haven’t seen in the past 10 years, and a lot of that is in penny stocks, and that’s my big worry. You have so many individual investors now who’re getting in, and just not thinking about investing as truly buying great companies and holding them. They’re much more thinking about trading them. We’re seeing these massive numbers of investors go into these smaller parts, less liquid, less transparent parts of the market, penny stocks, and using much more trading vehicles to try to find these quick gains. That’s really dangerous to think about, and if you’ve had success doing that, it tends to be much more ephemeral than long term success.
Southwick: It reminds me of the dot-com bust. It’s possible that there are so many young people getting into the market that they were too young to remember the dot-com boom and bust and how everyone was trading. Everyone was making money, hand over fist and then suddenly everyone wasn’t.
Cross: Alison, I will note though, so much of the market’s overall gains, and the S&P 500 and some of the large asset classes, isn’t necessarily driven by the so-called Robinhood investors. On the fringes, on the margins, maybe they’ve had an impact to be able to be a catalyst for algorithms or whatever that have driven the prices higher. That’s not so much then. Well, they all have an impact on certain stocks, certain asset classes, and like I said before, some reports are coming out just that in some of these less liquid penny stocks, more obscure markets, over-the-counter and pink sheets where they are really getting in there to do a lot of trading. That’s what’s a little bit dangerous. That does, in some ways, remind me a little bit of the tech boom of 1999 and 2000. Hopefully it doesn’t end as badly as that did, but that’s a worry. If you have taken that approach, it’s not too late, you can pivot. It does take education, it does take understanding that really truly drives long-term market gains, as Robert said, the stock market has done very well over the long term and even over the short-term, it tends to do well. It’s just that you’re not going to get a double in a month that maybe some people have gotten this year, which the curse of the successful, I guess, is the scare there.
Southwick: Overconfidence, and then when the tide does eventually go out as the old, to butcher the Buffet adage.
Cross: Swimming naked.
Southwick: [laughs] Yes, swimming naked.
Brokamp: Since Alison brought up the dot-com bust, you’re hearing more about that these days because of other comparisons, other similarities, mostly being the outperformance of tech, the outperformance of the Nasdaq, the S&P 500 is becoming more concentrated in its largest holdings. When you hear those types of comparisons, do you put much weight into them?
Cross: I do. They’re data points and as an analyst, first and foremost, I analyze data and companies in that. So, that goes into it and that goes into the fact and that’s one reason why I think so many of our services, especially in our Real Money portfolio services that we run at The Fintech Zoom, we’ve been advocating and encouraging people to hold some cash on the sidelines to help damper the volatility, perhaps in their portfolio. But also that prices have really been quite extraordinary in performance and rebounding, as I mentioned that 70% gain in the S&P 500 and Nasdaq has been doing better in tech stocks, even better than the overall Nasdaq‘s. So many tech stocks are better than the overall Nasdaq.
I do consider, Robert, it is obviously a different time and the most dangerous word in investing is, “It’s different this time”. But I think it’s important to recognize that, and understand that markets do have ebbs and flows to them. If you haven’t experienced that before, and even if you didn’t experience what we had in February and March, understanding that within the next five years we could see another 20%-30% drop. I’m not making that prediction, but history tells us, and we have seen a lot of money starting to chase fewer and fewer assets. Even though the IPO market, which is also another highlight of the year of 2020, we saw more than 400 IPOs come out really after it froze in February and March. A lot of activity, new activity coming into the markets. When that happens, the long-term trends tend to be not quite as good as when there’s not as much activity in the markets. There’s not as much encouragement to get invested.
Again, you have more and more people, more and more dollars chasing fewer and fewer assets, that has helped to bid up prices as well as low-interest rates. We can’t forget that in federal monetary policy. But that does point to some parallels with the late ’99 and 2000 period. But understanding that there’s ways to invest in that properly and if you can set up your portfolio and your mentality the right way, you can survive that kind of market condition.
Brokamp: I would say interest rates for me are one of the big differences. Now the 10-year is yielding 1%. Back then, the 10-year was yielding between 6% and 7%, which sounds outrageous now. But you could think, well, back then you could be like, “Okay, I’m going to sell some of my stocks, invest in treasuries, and make a guaranteed 6%-7%.” These days, if you want to not be in stocks, you get a guaranteed nothing to 1%. I think that probably will certainly encourage some people to hold on more than maybe they would have back then.
Cross: Yeah, it’s really interesting too, you also have far more interest and political backing of the Federal Reserve to be much more active in the markets, and that’s contributed to those low interest rates as we’ve seen in the last few years. The Federal Reserve balance sheet has doubled this year alone, as they’ve been very aggressive into the markets, and rightly so because of the conditions we saw on the economic conditions to help, really, basically, we had a recession, but stave off a financial banking crisis, when assets and money froze up in February and March. But the Federal Reserve’s balance sheet is now around $7 trillion from less than $4 trillion at the end of December, and that’s because they’re out there buying so many assets driving those interest rates, continuing to support those low interest rates. You have a Fed that’s much more willing to be aggressive than I think we saw in the ’90s.
Brokamp: You mentioned how certain types of stocks are doing particularly well, and fortunately for The Fintech Zoom, we’ve often recommended these stocks, so you have many of our members and maybe listeners who’ve owned some of these stocks for a long time. The Netflix‘s, Amazon, Tesla, Zoom more recently, and they’re finding themselves with these stocks that now make up a significant portion of their portfolio. What’s your take on how much is too much to have in a single company or a single sector?
Cross: Tom Gardner and I talk about this question a lot, Robert, and with our analyst team. Obviously, the copout answer is it depends on someone’s portfolio and where you are in your investing cycle and what you need the money for, and the kinds of holdings you do hold. In so many of our Real Money portfolios that I mentioned before, if you look at those model portfolios, some of them get very concentrated. We have one portfolio that is more than probably 20% of its position in one stock. That’s not all of them, but some of them do run more concentrated. That’s again because those stocks, we have either allocated to them appropriately or more so, and the stocks have out-performed and done very well. You just look at the companies like Tesla that’ve gone up 700% in value and we’ve been buying it and owning that in many of our portfolios. The same for the likes of Shopify or perhaps even Fiverr, a small cap of stock. It really depends on the individual, I would say. I do have some positions, Home Depot, Berkshire Hathaway, that have always been larger positions in my portfolio and I use those as more of the stable part of my portfolio, and what I’ve been doing over the past year, year-and-a-half is rounding out that with a lot more aggressive growth companies, a lot more smaller cap companies and ones that I’ve been meaning to own and follow for so many years and got some advantage of very good prices in 2020 to round out that part of my portfolio.
If you understand your company really well, the higher percentage you have in that portfolio, in your portfolio of a company, or an industry but let’s just say company, you have to be more and more comfortable understanding that company and understanding the risks that that brings to your portfolio.
If that company and that stock underperforms, if that stock falls 30% or 35% like we saw in February and March. But the rest of the market does not fall that much because that stock has, for whatever reason, reported poor earnings or is just starting to face competition, whatever it might be. Just look at Zoom Video. We’ve seen Zoom Video pullback 35% from its highs earlier last year. I think you have to understand how that impacts your portfolio and then what that does to your mental capacity. Because the last thing you want to do is be scared out of the markets when you have one of your stock’s going through a volatile period at 5% kicks that off, if 10% of your portfolio or 15%, whatever that number is, you can just run that through your mind and understand how that’s going to impact your portfolio and whether that’s going to scare you or encourage you to buy more and go shopping.
Southwick: Yeah, last week on the show, we had Sean and Megan and they said something that was pretty fascinating to me, is that Fintech Zoom investors in general tend to be a bit more accepting of risk and excited by it. But as Sean and Megan pointed out, and they’re going to be working with people who have higher net worth, they have been doing this a while. For a lot of our members, they just carve off this amount of money and it’s their play money. They could be 100% in Tesla and totally fine because you know what, either I’m going to leave that money to my kids or I’m going to go buy a new Tesla or two, or three, or four. It was interesting to me because it made me realize for some people, they have their play money and they could be super aggressive. For others, like myself, we play a little bit more around the fringes. [laughs] We maybe couldn’t take so much risk and so much loss, and everyone’s situation is so different.
Cross: Yeah, it’s true. Obviously, Sean and Megan are far smarter than I am when it comes to the allocation, thinking through and those points are so well said. It also depends on what other assets you have and Robert, we’ve talked about this before. Other income you have coming in. The more concentrated you are in your portfolio in stock or an industry, obviously, the higher the risk potential for increased volatility your portfolio is going to be. Perhaps even permanent loss depending on how that stock performs. I just think it’s helpful for people to think about those through the lens of playing the game forward, if stocks perform this way, because we’ve seen them perform the other way. We’ve seen them over, since April, June, rebound so aggressively and that’s been so nice, but it can go the other way too and if you didn’t experience February and March.
We know, by the way, we have a lot of members as we started doing more and more Fool Live, who experienced that and took it and said, “I see this, I’m ready to continue investing, because I have my portfolio setup, I have that cash on the side. I’m ready to go.” But if you did not, play that forward and how that’s going to hit your portfolio. By the way, our stocks, Robert, as you mentioned, have performed so well, but they do tend to underperform and perform worse than the market when the market goes through this massive, those big dislocations and drawdowns.
Brokamp: Yeah, for a class I recently took, speaking of the dot-com crash, I looked at that decade from end of ’99 to the end of 2009. Many stocks ended up doing very well. Eventually, really struggled. Apple and Amazon were flat to down for several years. They turned up. But Microsoft after the end of the first decade of this century, still down more than 4%. The Nasdaq itself was down more than 40% even after a decade. Getting back to the very first point about new investors, I do hope that newer investors realize that to go into a bear market and then in a bull market within the same year is pretty rare. It generally takes three to five-years for stocks to recover.
Cross: Yeah. Really the desire to get these five-, 10-baggers, two-, five-, 10-baggers, so companies go up two times, five times, 10 times in value. While we’ve seen some extraordinary performance, I mentioned Tesla and Fiverr over the past year that are up 6, 7, 8 times in value, that does not typically happen in a year. It takes time. It’s the buying and the holding. The buying is one thing, it’s the holding that is the other. As we’ve talked about with spiffy-pops, you tend to really only see spiffy-pops because you’ve held those companies for so long that the stocks have appreciated to a point when that stock moves in one day, you get that spiffy-pop where it goes up more than the price you paid it. It takes time to do that. I think the concern is, for the newer investor, especially those who may be a little bit more active in the markets, trying to find those quick gains. They don’t have that time perspective, and what we’re trying to do is help them understand market history, market psychology, and understand the ebb and flows of those markets. The best way to ultimately see those gains is really for the buying and the holding part, not the buying and the trading part.
Southwick: Andy, I’m not necessarily a new investor, but I could use a good reminder from you this year, because I feel I was like, “Okay, well, the market is going to fall again. We’re in a global pandemic, it’s going to fall. It’s going to fall. I’m just going to sit on the sidelines and wait and wait and wait.” I know it’s horrible. We’re not supposed to time the market blah, blah, blah, blah, blah. But then now, I feel like I missed the run up on all these stocks and so I’m like, “Well, I missed my chance there. I missed my chance there.” I need you to give me some good words. [laughs]
Cross: Well, Alison, you’re not alone. I think when I look back over the past year or so, my biggest probably investing personal mistake was not putting money aggressively fast enough in March and April. I started investing in a lot, but not as much as looking back to it, of course, hindsight’s 2020.
Cross: You’re not alone. It’s very easy to kick ourselves in investing and look back, especially as Robert pointed out, as we know, the markets tend to go up three out of every four years in general over long periods of time. Even over rolling periods, one year the market is up probably 70% of the time, 75%, of the time historically. The markets do tend to go up and we tend to very easily kick ourselves for missing gains or not doing this or not doing that. Give yourself a little bit of some slack. I will say, but again, it’s not too late. It really does get into, if you are interested in the business and you’re following it or you think, “This company or whatever is doing very well, I want to own it.” It’s OK to just start buying a little bit, just get a little bit going. If it falls 3%, which by the way if it does, your other stocks are probably down at the same point. If it falls 3%, you haven’t necessarily put yourself out on the street because you’ve bet your mortgage, hopefully you’re not. Hopefully you’re not using margin either.
So, I will just get started in these companies and then follow along as the stocks perform or underperform. Then you can make decisions about whether you want to buy a little bit more. But I think it is dangerous and it’s taken me years to start to learn this and I continue to learn this. I think it is dangerous just to see a stock that has run up to a price and since said, “Now I missed it, I don’t want to buy that.” Institutional investors, professional investors, so to speak, will use that logic all the time. I just think that’s different for individual investors because they have different mandates, they have different constituencies. You don’t have those. You have yourself, so make sure you have your plan. The money you’re going to invest and you don’t need for the next three or five years. You can have that in the markets, so if that stock does pull down, it’s OK. But continuing to not get in on something because the stock has run up, again, for long-term investors, tends to be a little bit dangerous. But you don’t have to go all in at one time. Just buy a little bit.
Southwick: Are you saying I should go ahead and just buy Peloton, it’s fine?
Cross: It’s really interesting. Peloton, I was not really excited about that early into the pandemic. Then it really performed and then I started realizing and understanding the real competitive advantages I think that Peloton has, that I underestimated a little bit, and I still haven’t bought it. [laughs] At least I don’t think I’ve bought it. It’s one of those times when you study the business and for whatever reason, I haven’t quite owned it. Again, if it’s a business that you like and it’s a service that maybe you’ve used or that you start to understand a little better. If you want to own some of it, I think it’s OK to get a starter position and just dip a toe into that Peloton or other water, I think it is OK.
Brokamp: Looking ahead, is there anything that intrigues you and/or scares you about 2021 and beyond?
Cross: Well, in beyond, I think the impacts of climate will just be the big story of the next five, 10 years. I know we have a lot of the social wheels in our country that we continue to address and look at. We obviously have financial and fiscal challenges as well to the debt levels of our company, as I mentioned, just the Fed balance sheet, but certainly from a debt to GDP perspective and the amount of debt that our country and consumers continue to ring up. But really, I think the long term effects of climate change, the impact there, companies are going to spend, I’ll be spending a lot more time. We saw a little bit of that into 2020, as Alison pointed out in her piece with the Australian forest fires. There were more forest fires in record last year than I think in years. If not as a record, and burnt more acreage than ever before in the United States or North America. So we’ve seen the impact there. We saw just these horrible storms, also as Alison pointed out too. We’ve seen just the impacts in that way. That is going to start to have real consequences for companies. It is for individuals certainly, but real consequences for companies and I think investors understand how their companies are positioned for that, how they talk about it perhaps, how they’re thinking about it from a strategic level.
This is definitely not something that shows up in the quarterly numbers. This is really something that shows up by understanding your companies and your leadership principles. But that’s something longer-term, Robert, that I think we saw it before COVID. COVID actually is tied to that in some way. I think that’s something that investors will start demanding and start understanding. Demanding and looking forward to action too.
Obviously in the near-term, getting the health of citizens and the impact of the vaccine, and starting to think about how that impacts the opening of the economy and what that does for assets and for a little bit toward the inflation, what that means for interest rates. I don’t expect interest rates to go that much higher, Robert. I just don’t think the Fed’s going to let it go. We saw a little bit of conversations from Jerome Powell recently, that it’s just not something they’re going to be flipping on anytime soon. Worried about that taper tantrum we may have experienced a few years ago, when rates spiked and what that meant for assets and for the economy. So, I don’t think we’re going to see inflation or interest rates creep up so dramatically in 2021.
Brokamp: As I mentioned, you’ve been at the Fool for almost 25 years, and you and me as well, actually are now closer to what people would consider the traditional retirement age than we were when we were these young Fools starting our careers. I’m curious, is there anything you’re doing differently with your money nowadays than you were when you were starting out?
Cross: I’m actually a much more interested and aggressive investor now. I’m not with options or with shorting or with hedging, just really putting a lot more money to work into more companies than ever before, 2020 was by far my most active investing year of the past 10 or 15 years, maybe 20 years even. I wanted to get ownership in a lot more companies, exposure to a lot more companies, to follow them along, to see who wins, to tie which ones I really enjoy following and which ones I really have confidence in investing in, and then buying more of those down the line. Also, of course getting my kids interested in investing. By owning more companies, I’ve been helping to broaden their out and starting to build out their own portfolio as well too. From that regard, it’s a little bit of the reverse, my timeline may be wrong. I think that I’m going to live for a few more years, so continuing to understand that hopefully my family and I will, for many more years, and we’ll need assets to be able to sustain the life that I hope to live someday, and that’s going to require equities to get there, because they’re just the returns and fix won’t get there.
I’ve never owned bonds, never really owned bond funds either, so it’s really more equities. I will say, I have had a very healthy cash position in our portfolios, and some I put to use in 2020, when the markets did go through the dislocation and the massive drawdowns, I mentioned not quite as fast enough as I should have, hindsight 2020 again. But having that healthy cash position as a way to put money to use down the line, but also as a little bit of a balance and volatility, I have done that. But I haven’t positioned more dividends, I haven’t really gone more into those styles of investing that maybe I should. [laughs] But I’ve been pushing more of the growth engine.
Brokamp: Got it. Let’s close with your best and worst financial decisions, could be an investment or it could just be something else. Let’s start with your worst. What was the worst thing you ever did with your money?
Cross: Ever or this year?
Brokamp: It depends on how many mistakes you have, I guess.
Cross: Wow, I have plenty. I owned Lucent and wrote it all the way up and all the way down. That’s probably my worst investment of all time.
Brokamp: Speaking about the dot-com crash, it was among the top 10 companies in the S&P 500 in ’99.
Cross: Absolutely. I remember talking to [laughs] Buck Hartzell, another long time Fool who’s been here for decades. He owned a little bit of Lucent and we were talking during the time when the stock had done really well and he was, ”That’s it. I’m getting out.” We were talking about some of the financials, some of the accounting practices. It was a very small position and I just had some from my AT&T days and I never did it. To the buying and holding, I’m a very slothful investor when it comes to selling, and I sell very, very rarely. Because I haven’t had the need for that capital by the way, so I have that flexibility and privilege. I just held it. Then it went down and I just held it, it’s a small position just to see how it goes. I certainly should have gotten out of it and I just rode it all the way. That’s by far my worst. I bought Luckin Coffee last year, which was terrible, 2020.
Southwick: Yeah. I remember you letting us know how terrible it was.
Cross: Although now it’s back up to above $10, I will say it got down to a low as down or two or so like that, but now it’s back above $10 and I still hold it. I think if you have been investing in the style that I invest in, that Tom and David have done, say at Stock Advisor for example, you’re going to have those ones that just really underperform. Hopefully, I can learn to maybe sell them before they get really too poor. I’ve certainly had mistakes and I would say Lucent in the dot-com craze was by far my worst investment. I would say just this year, besides Luckin Coffee, which is my worst buy of last year, I would say, just again not investing as much capital as I should have had, all the cash set aside and I just really started doing it very slowly. Alison, I think as we talked about, this is a little bit of a trick of people who say, “I’ll just wait until the market goes down 30% and then I’ll get all in, then I’ll put all my money into it.” The problem is, when the market is falling that dramatically, there are real problems. You can very quickly talk yourself out of buying it. “You know what? Gosh, now I’ll just wait until things get a little bit better, then I’ll go all in.” It’s constantly saying then I will, then I will, then I will. That’s why I like the principle of just getting started and that’s actually what I did across so many different companies. I just put 1% or 2% part of my portfolio into all these different companies and just started adding in to them. My worst part is not doing that fast enough.
Brokamp: The best part? What’s the best thing you’ve ever done with your money?
Cross: The best thing I’ve ever done with my money.
Brokamp: Or best financial decision you’ve made.
Cross: I don’t think I’ve ever sold a share of Home Depot stock and I’ve held it since the late ’80s, and I’ve waited all the way up. Even through the Nardelli days, dark days, I’ve held on and I’ve reinvested the dividends, and so they’ve just accrued and accrued and accrued, now it’s the largest position in my portfolio. I just sit on it, it’s the rock part of my portfolio. Eventually, I’ll start drilling that down, because it is the large part and I don’t expect it to perform as well as so many other opportunities in the market. From investing in the long-term buy and hold side, that’s been a great decision.
Brokamp: Well, Andy, it’s been great to have you on the show again, thanks for joining us. Hopefully, we’ll have you on like last February or March. Hopefully, we’ll have you more frequently in the future.
Southwick: Yeah, let’s not wait so long next time. [laughs]
Cross: Robert and Alison and Rick behind the glass, thank you all so much. It’s been a lot of fun and I really love your show. Thank you for all your doing for so many listeners out there to help them get smarter, happier, and richer.
Southwick: You too. Let me do a quick disclosure here. As always, The Fintech Zoom may have formal recommendations for or against the stocks we talked about. Don’t buy and sell stocks based solely on what you heard here.
That’s the show. It’s edited noisily by Rick Engdahl. Our email is email@example.com. I heard you clumping around before we started here, Rick, don’t deny it. Again, our email is firstname.lastname@example.org. Bro wants your financial tips. So, send them in.
Brokamp: To email@example.com? [laughs]
Southwick: To firstname.lastname@example.org. For Robert Brokamp, I’m Alison Southwick, stay Foolish everybody.