Hello and welcome to the life by Design podcast, brought to you by strategic. This podcast is all about helping you live your great life. Each episode will feature insights from our Chief Investment Officer, Doug Walters.

Hello and welcome back to the life by design podcast. I'm here with Doug and we're going to talk about our weekly insights from the past week. But then also we're going to get in a little bit deep on a subject that I particularly enjoyed from this past weekly insights and and and I'm really looking forward to our conversation.

Hey, Doug. Yeah, looking forward to it, Jack, let's get into it.

Into it. Yeah. So let's just start at the top. So on our weekly insight you had the headline of the week as the Fed basically.

Yeah. I mean a lot is is still hinging on the Fed and that is hinging on tariffs. So you know what again we sound a little bit like a broken record. Those are the 2 main issues that are driving the market and we really saw that. Come into play this week, there were some.

From.

Talks about whether or not the Fed chairman should be replaced and the market didn't like that, and those comments were drawn back and the market rebounded a bit. So you can see just how sensitive equity prices are to these conversations around the Fed and you know their ability to cut or not cut rates.

Mm-hmm.

Based on what they're seeing in the.

Yeah. And it's it's very interesting because I think a lot of the hot topics that you know, we feel like we're on repeat changes daily. So it's it's difficult for us to dive deeper into those because honestly, you know, by the time we record this and we we, we put it out, things could be completely different. So so we just give you like a little high headline. Of like, hey, this happened and then. We'll you know. Which leads me into the second thing you know, as we're recording this. You know the Q1 earnings season is is in full swing as you put it in the in the weekly insights. And so that's another thing that's that's you know that's where we're kind of looking and the markets going to be.

Looking as well, right. Yeah. And if you, if you think about earnings? A lot of times what you'll see is the headline, right? So you know Tesla reports earnings earnings down 70 per. And and that's not insignificant, but really what analysts tend to look at is, you know, what is the forecast, right, because that's what's, you know, when they talk about earnings, that's what happened. It's really about. What they're expecting going forward and I think what a lot of analysts are looking at right now is the conversation around tariffs. You know what companies are saying, how it's impacting their projections? You have seen some companies just pulling their projections saying, hey, normally we give quarterly guidance. We're not giving any of this. Quarter. So you're starting to see that bleed into these company announcements?

Yeah. And I and you know, and I think for our listeners at home again. There's a lot of different conversations and a lot of different pieces moving that all affect this and you know, I think some of the uncertainty too that looking forward to and kind of understanding what's going on. But you know, there's the purchasing managers index, there's retail sales, there's all these other things that all add into. The equation.

Right. Yeah. And it's, you know each one individually arguably is. A little bit of a noise right there for the most part, they're insignificant. But you know, take it in aggregate, that's where you start to paint the picture of what's going on. In the economy, when we look at the economy, we don't look at any one measure. We look at aggregate measures of of PMI and you know. Other, you know, real estate starts, we look at all of these things together to see what sort of economic activity is being projected for for the future.

Right. And then trying to discern mountains and molehills, right? Like, yeah, so. So that's kind of I know that was a little quick for everyone at home, but that's you know, as the volatility of the market continues you know.

Very good.

We just for us, we'll give you the headlines here, but I think there's a more important topic that that I really was excited to dig into and this is this concept of shiny objects that you've brought up before in other weekly insights, but I think. What touched me this week was more of as you put it, guaranteed mediocrity, which was very interesting twist on it. So. So I think where we'll start is let's just kind of talk about. If you can, both during when the markets up and when the markets down, like what are these shiny objects and and why does? I don't know if there's a reason, but. Why does it happen?

Right. And this is not a technical term shiny object. It's one we just tend to to use internally. Yeah. But it really just refers to these products and I'll call them products because that's what they are that tend to generate excitement at different points in the market. And we tend to generally think about these.

Yeah, yeah.

As especially with that term shy. Any is these opportunities for excess return right? So if it's whether it's meme stocks, you know, jumping on board that that train or NFT, R, remember that that was that was a big one a few years ago, cryptocurrency obviously.

Yeah, yeah.

The one we talked a little bit more in detail about in, in this piece were the specs. So special purpose acquisition companies which were all the rage a few years ago, if you recall or maybe you have no recollection of that.

No. Yeah. But.

Those are really interesting because literally they sort of nickname for them. Our blank check companies and it's really imagine, you know, a a few friends of yours come to you and say, Jay, hey, we've got this great idea. We'd like to, you know, collect money and then we're going to invest in a business and you're like, alright, you know what? Business. Are you investing in and they're? Like. Yeah. We can't tell you that, but just, you know, just give us some money and, you know, we promise everything will work out fine. That's literally what what a spec is. You can't know what they're investing in until you know, you've given them their money. So that's why they call it a blank check company. You're just handing over money, crossing your fingers and hoping that management knows what. What's it doing, what it's doing?

Wow, yeah.

1. And the idea was it to be a little less cynical. The idea was for the average person to be able to party. In you know the early stages of a business rights or in the the launch of a business and that sort of excited people.

So, right, so kind of touches on the like venture capitalists, Shark Tank idea. But for the regular person, right. And just going. Oh, yeah. Yeah. I want to be Mark Cuban or whoever. And I want to invest in this company. And then that gives them an opportunity just like participate in.

That right, right. And we know generally.

OK.

Most of them did not do well and I just thought, well, as an exercise for writing this article. Just literally Google searched, you know, specs to see what would come up. And one of the first articles was from U.S. news and World Report. It was from 20/21 and it was highlighting these ETF's that invested in Spacs and. The article was, you know, was a little skeptical about specs, right? It was saying sort of the right things. You know, these are very risky. You're handing over your money. You don't know where it's going. Yeah. But you know, if you invest in this ETF structure, you're buying a basket of these specs now. So you, you know, spreading your risks at risk out and hopefully one of them. Does very well, so I looked up the three they were recommending in the article, and they've all done. So, but I think that's kind of a common tale with a lot of these specs.

Yeah, I think some of the numbers were a couple were down over 40% from the date of the.

Article. Yeah. And then they just closed that they decided to close it a year. And there is one. One of them still around today, but it's significantly underperformed U.S. equity market.

And so. Now these a lot of the examples we just talked about at NFT, R Meme stock, meme coin, right, in cryptocurrency are all kind of examples and. Of of when the market is doing well and there's money to be not only made, but to be placed right as well and and to be used so. So now that this landscape is kind of changing and the stock market is a little bit weaker, we're seeing it in a in a different.

Way, right? Yeah. And it's really. In both cases, the producers of these products are are playing on emotion, right? Ohh everyone's you know when things are going up. It's FOMO, right? I don't want to miss out on this when the markets has a period of weakness.

MHM.

People are nervous, right? They're nervous about their nesting. They're nervous about their investments. And they're looking for. Some reassurance right? Some way to maybe protect that?

M.

And so these products are out there and they've been out there, but they start to get pushed more when the market's going down. And I'll pick today, I'll kind of pick on buffered ETF. 'S. Which are sound great when you hear sort of the concept, they use options to limit the downside. Of ownership of, say, an index like the S and. P500 OK, so you. And. Have owned, you know, exposure to the S&P 500, but at a certain point, that downside is limited and and they use options to make sure that happens, but that doesn't come for free. So you have to also limit the upside to pay for that limit on the downside. So and that's where sort of the term.

1. Yeah.

Sort of, you know. Guaranteeing mediocrity comes from you are not going to do super well and you're not going to do terribly. You there and for the the pleasure of having that mediocre performance, you're going to also have to pay a higher expense ratio because costs money. You know these these options are not free and the managers are looking for compensation for their work and putting together this product.

Hmm. Right. So. So yeah, right. So you are. You're basically. Yeah, you're you're in an attempt to cut out the risk of the stock market. You're actually potentially risking more money because you're spending it in order to. Avoid the risk.

Right. And I'll put it in slightly different terms. Yeah, right. The way I think about it is. If you look statistically at the equity market, statistically it goes up quite a bit more than. It goes down.

OK.

So you are statistically going to be paying. For that buffer on the upside with the capped upside right, you're going to be missing out on the upside more than you're going to be missing on. The downside? So and that's where again that sort of mediocre performance comes from. You're not going to be keeping up with the market when it's in a normal period of. Strength. So that's why these products get pushed when the market's weak. Great. Great. I'm gonna, you know, limit my downside. But what if you know the weakness is over, right? Yeah. Just reshuffled your whole portfolio, maybe sold something, taken some capital gains and now you've got a product that's going to, you know, just guarantee mediocre performance?

Yeah, and it because it also kind of falls into a. Right. You just did all the work like you said, to get it there. And do you want to do the work again to get it somewhere else to go right back to where potentially where you? Or or even like the problem of oh hey, I moved it into this, and then maybe I've moved on with my. Life and just go. OK, right. My money's safe now. And and then I just move on and then it's still in that when? Now the markets back up and you go well, why aren't I getting these returns? Like the markets up again? You're like, well, you've been in this. Safe haven for a little quote, UN quote safe haven, right?

Yeah. And I'll say two things about that. One is. There are. Easier ways to do what this is trying to do without.

M.

Having to buy a product that has, you know, an above average expense ratio. You can reduce the risk of your portfolio, right? So if you are a, say aggressive investor, maybe 85% of your assets are in equities, you can cut that down to 75 or 65. And that's another way to effectively reduce your downside, and you can stay in cheaper index funds or cheaper ETFs. And not having to pay that that extra expense ratio. So there's other ways to reduce your risk if that's your goal. This is just a in my view a very expensive way to do it.

Well, and it's and I think you know to go back to other conversations that we've had. It also to me is kind of that conversation we had about reacting in the moment, right. And saying, oh, this is happening right now. I I should do this versus like waiting and and having more nuanced conversation about what you could potentially do. Looking at it from like a three to five year standpoint.

Right. Yeah. You always have to focus on that long term and while we try not to repeat the same message every time, Jay, I have to get it in there, you know at least once. But you know this is, it's really suggesting that you can see the future, right that you are predicting the future and the market is going to go down there.

Yeah, yeah.

Or I need this product if you know the market is going to go down again, there are better ways to take advantage of that than buying a buffer to ETF, but you don't know even the the. You know the best experts out there cannot predict the future. Anything can happen on any given day. And so you really need to play that.

Long game. Yeah. And so I guess then in both. Times of ups and downs. The recommendation really is to not focus in the moment of whatever the market is doing up or down, and try to, you know, over capitalize on it, I guess or try to play the the the lottery or the slot machine but is to look at what's been working for. You over the. X years and say OK, well, this seems to be working so.

Right. Yeah. It's a long term process and there are moments in the market where. Opportunities open up, so it's not like you just do the same thing all the time, but you're looking for real opportunities and I'll give sort of a counter example to that. And you know, when I know that there's shiny objects is when my e-mail gets blown up by, yeah, I come in, I have 100 emails and half of them are.

Yeah.

Buford ETFs or. Also, another example we didn't talk about in insights is gold, right? You know gold as a as a safe haven, you know, now is the time to own gold. And yes, we own gold in our portfolios. But where were these emails two years ago?

Yeah.

Before gold really started to rally and gold is at an all time high, now is now the best time to be piling into gold again. I can't predict the future, but it's certainly not as good of a time as it was two years ago. So where were? Where were these emails two years ago?

Right, right.

Yeah.

So just be very. Yeah. Be very cautious when you your e-mail or the ads you see on on the TV. Start focusing in on something like gold or yeah, buffer ETF's or whatever it is they're trying to sell you. Chances are. You've already missed out.

Yeah, and yeah. So I think for for those of you at home, I just thought that this was a really great topic because for me, particularly the shiny object idea makes more sense. Since during the High Times, because it's like, Oh yeah, you've got money, you've got this, like, why don't you put it in this? Right. And it never occurred to me that during the lower times that though that it's that same concept, it's just packaged in a different.

Way, right. Right. And I, you know, again playing a little bit of the.

Yeah.

The cynic here and that, you know, we have great partners on the ETF side that provide fantastic products for us. We are always looking to make sure that we are.

MHM. Are.

Getting a return that justifies whatever we're paying for. That product, right, if we own an ETF and it's not just a plain index fund, you know, why is it we have the multi factor? Products in a lot of our our strategies, why do we have those? Well they tend to outperform and they tend to outperform in a way that justifies their price. So you know a lot of these offerings that you see coming out just aren't you know justifying the price. Again, I guess going back to the point I was going to make is these providers have to make money somehow. Right in index fund. They make almost nothing on those. Some of them are charging three basis points, 5 basis points. They're making almost nothing on those these days. They have to find a way to make money. They're going to put these out. Hope that people. By them and try to generate that excitement and we just want to make sure we're excited about things that you know genuinely are going to add value to. A portfolio, yeah.

Yeah, I love it. Well, and I think that's, yeah, I think we can end there. And for those of you at home, I hope that that was some good insight into. Into shiny objects and and what can happen during during these times of volatility?

Yeah. Thanks Jay. Thanks, Doug.