Announcer:
It is time now on KROS for Financial Focus, brought to you by NelsonCorp Wealth Management. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representative securities offered through Cambridge Investment Research, Inc., a broker-dealer, member FINRA, SIPC. Investment advisor representative, Cambridge Investment Research Advisors, Inc., a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. Now, here’s today’s Financial Focus program.
Gary Determan:
Well, Dave Nelson, great to have him in studio with us today. You got together with the family up north. You guys had a great time.
David Nelson:
Had a great time, yes, thanks. Yeah, I was in kind of a weird… Everybody’s old or what have you, you got five kids and then 13 grandkids, and various sports, and what have you. Again, I got to be careful on how I word. As a coach, I kind of view things maybe a little differently than now. But anyway, it was a riot. It was really a good time. Everybody made their way up there. We’ve got a place a little north of Minneapolis, about three hours north of Minneapolis, and so it’s a long, long jaunt, eight, nine-hour drive as far as to get up there, but it’s right on the water. Really, really nice place and just relaxing, I guess to say the least. It was great having the kids, the grandkids, and spent a lot of time with them. A lot of fishing took place and a fair amount of activities, as far as on the water, took place, tubing, that type of stuff. It was a great time. Very, very fortunate.
Gary Determan:
You were, of course, in a very high-stress job. Do you really get the opportunity to decompress when you’re up there or do you still check in on how things are going?
David Nelson:
Daily. Yes, yes.
Gary Determan:
I knew you were.
David Nelson:
Yes. One of the trips I took years ago was a flying fishing trip up to Canada, and you have no contact as far as… That was really good. It was hard for me as far as the first several days, then I got to a point where I just said, “This feels good,” as far as not to have to. But yeah, we have a lot of responsibility as far as… I take it very, very seriously as far as people’s futures are, to some degree, in our hands. We got to make good decisions. Again, the last three, four, or five years, we’ve been very fortunate as far as the decisions that we made on behalf of clients that have turned out really well. Markets are always dynamic. They’re changing constantly. There’s all kinds of variables that come into play. I’ve done a few call-in segments as far as on TV here recently. What are you thinking now? We’re hitting all-time highs. We can drill down on a whole bunch of this stuff later on if you’d like. Drill down.
But yeah, it’s exciting in many ways. I mean, I run into clients. Literally, I had one the other day at Jewel, at the grocery store. “Keep up the good work,” and they’re thrilled and excited. Everybody’s cranked up and things have worked, but as things go higher and higher, I’m sitting there saying, okay, what can go wrong? That’s our job. Our job is to worry on behalf of our clients so they don’t have to, so there’s a lot of worrying that’s taking place. When things are down, I get more excited, and people think you’re nuts. We made a buy as far as three, four months ago, I guess, now. Time flies when you’re having fun. It’s worked out great. I mean, we sold at the end of last year that created a lot of tax liability for individuals, but the trade-off was we were able to enter into stuff and net people were ahead in a big, big way. It was good, it worked out great, but again, they don’t always work out that well.
Gary Determan:
It’s interesting what you were talking about there. You’d appreciate this. I was listening to the Dan Patrick Show and he had Bill Cowher on, the former Steelers football coach.
David Nelson:
Sure.
Gary Determan:
Patrick asked him about is there any game that still haunts him. He was saying it’s unusual, but coaches do dwell more on the losses than on the big wins. As you pointed out, things are going well but you’re still thinking what can happen.
David Nelson:
Yes, exactly. Again, going back to what’s at stake as far as if you mess this thing up. I have a real pet peeve, I know I’ve chatted about it here. In a lot of different places, I bring it up, the idea of that when people look at 10-year and 20-year average returns, they kind of poo-poo the… It distorts the variability that takes place within that period of time, and so within the last 10 years, within the last 20 years, how many drawdowns have we had that have been 30, and 40, and 50%? If you were in the NASDAQ and you invested in that particular index back in the year 2000, and you bought the very top of the market in the year 2000, it took you 16 years to get your money back. The market dropped 82%, that index dropped 82%, and it took you 16 years just to get back to where you were.
We don’t have clients as a whole that can withstand that type of blow. I mean, they get hammered as far as in a big, big way like that. They can’t withstand that type of assault, and so our job is to try to take that 82% and keep it to 10% or 15%. That’s basically our role that we see our role as. We try to convey that to clients, but we’ve been in an environment where things have worked and worked pretty well, and I think people kind of trivialize as far as what potential is out there. As far as for risk, we forget. You go back to the year 2000 through 2002, peak to trough during that window, the mark was down right at 50%. It was just a tad bit below, then fast-forward. That’s 2000 through 2002, fast-forward just a few years to early ’07 through early ’09, we’re down 58% on that doozy. Point being, people have kind of forgotten about that.
Again, maybe that’s a good thing because they could block it out and they close their eyes as far as to what’s taken place, but we find that when you lose that kind of money, it takes you so long just to get back to where you were. Again, our objective is to try to… When people are really getting excited, this is the Warren Buffett-type type view, when people are really getting excited, I’m getting nervous, and vice versa. When people are really, really nervous, that’s the time to probably enter, start buying. That’s pretty much the way that we try to manage money and try to take advantage of that. There’s periods of time that are unpleasant. I mean, don’t get me wrong, we’ve had drawdowns, but if we can take a 50% drawdown and keep it to 10 to 15%, 10 to 15%, you can probably make up pretty quickly. 50% is going to be really, really tough.
Gary Determan:
Dave Nelson, we’re going to go to the bottom of the hour. Interesting listening to you, and again, you guys do such a great job down there. I know you spend a lot of money to have these different instruments that you can work with, but do you still go with kind of a gut reaction every once in a while, David?
David Nelson:
Yeah, it weighs in. You try not to have it weigh in too much, because typically, it’s the buy is what’s really, really difficult as far as to reenter. Selling is one thing, and people talk about it. We’ll have people periodically, and I guess one comes to mind. This was 20 plus years ago as an executive from John Deere. This was the first meeting. Anyway, we were talking about as far as the movement as far as in the Deere stock. He was telling me as far as that made a great, great trade as far as sold out here, blah, blah, blah, blah, blah. The stock dropped so much, et cetera, et cetera, and then I just let him go for a little while and I said, “When did you get back in?” The answer was exactly what I expected, “I haven’t.”
It’s one thing to avoid the down, but now you have to have the courage to reenter. That’s a difficult decision, because again, when you’re reentering is typically when other people are finally selling. You’re looking to try to exploit that little movement as far as that takes place there. My last coursework that I did at the John Kennedy School of Government at Harvard, basically, that session was all built around exploiting other people’s mistakes. When people understand that Wall Street is a big auction, if you want to buy XYZ company, somebody else has to be willing to sell it to you. The shares just don’t fall out of the sky. Somebody else owns it and they’re going to put it out there and allow you to be able to buy it from them, so we’ve got one entity that’s going to be right and one entity that’s going to be wrong.
We want to obviously always be on the winning side, but it’s difficult because the people that are looking at selling probably pretty sophisticated as well, maybe pretty smart, and you think you’re pretty smart. Again, in the world that we exist in on a day-to-day basis, you’re basically competing against other really smart people that also have resources, and so, yes, that gut comes into play, and, man, it is tough. This last buy that we made as far as three, four months ago, my gut is saying there is no way I want to reenter and put money at risk at this point in time. I’m glad we ignored that because most of those individuals are up eight to 10% as far as in that period of time. It’s tough to block it out. The tools basically have no emotions. We have emotions, and sometimes they’re right, sometimes they’re wrong, and again, the tools are going to be right more than David’s going to be.
Gary Determan:
Come on, you’re pretty good. We’re going to take a break for the weather. More with Dave Nelson here on Financial Focus. Our weather update brought to you by Addington Place.
Andrew Stutzke:
Our Wednesday temperature pattern, getting a little bit more toasty as we head into the afternoon, abundant sunshine and just a touch more humidity. We’ll see temperatures climb to near 90 degrees today under a mostly sunny sky. For tonight, mostly clear to partly cloudy, a little bit warmer, temperatures dropping into the upper 60s. With your Storm Track 8 weather impact forecast, I’m meteorologist Andrew Stutzke.
Gary Determan:
Right now, we’re into the upper 70s. We’ll approach 90 today. Our update, brought to you by Addington Place.
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Visiting that with Dave Nelson. Always enjoy talking with you. You touched upon a little bit about this. I want to talk about the competitive nature of your business, because like you say, one guy thinks he’s smart, the other guy thinks he’s smart.
David Nelson:
Yep, yep, and it is. You have that on a local basis as far as people like ourself, as far as that are out here, as we call it, in the field versus the other individuals that are in, say, Boston, which is, again, a hub for a lot of really, really smart people as far as that managed mutual funds and things of that nature. Some of the biggest-name mutual funds that, again, I got to be careful on what I say there as far as rattling off names. But at the end of the day, it’s competitive and you got a lot of smart people that have degrees and what have you. It goes back to what you brought up earlier as far as does the gut come into play sometimes as far as in making some of these decisions. To say it doesn’t would be a lie. To say it has significant input would also be a lie, so it’s finding that balance between 40 years of basically trying to oversee big blocks of money as far as…
I just keep going back to, and I want to be careful on this as far as how it’s presented, our largest account is in Wyoming and it’s a billionaire, and then we have one in Iowa City that’s, give or take, 100 million. Beyond that, the average person that we work with is probably has a few million as an office. But whether the person has 100 million or whether the person has 50 grand, it’s important to them and we got to get things right, and so trying to understand what they’re trying to accomplish is oftentimes one of the most difficult things, because again, as I brought up earlier, people kind of trivialize as far as the downside. We want to focus on the upside, the client does. We want to focus on, in our office, the downside. What can go wrong?
You take an incident like New York City, when the planes went into the towers many years ago. That was an event that nobody can control. That event, in hindsight, lasted a relatively short period of time, but it could have been much worse. A lot of the people that we work with need monthly checks coming from their investments, and subsequently, again, if we trivialize it, we are asleep at the wheel, they’re asleep at the wheel. Bottom line, they could be in deep trouble as far as financially, not being able to pay bills, et cetera, et cetera, so we take it very seriously. But yeah, it’s competitive. People that know me, I think, realize that I am pretty confident as far as in what I do. I think most people, hopefully, in our industry are, but also that I’m humble from the standpoint that we’ve been wrong and we will continue to be wrong periodically going forward.
The key is, when you’re wrong, are you wrong in a significant way? Something that can impact people in a big, big way. Jay came along, that’s one of my son-in-laws. He’s been with me 15 years. He’s beyond brilliant as far as just in a lot of areas. I’d say he’s 10 times smarter than me, I believe that, but he would challenge me on a regular basis as far as are we not allowing clients to take out as much money as maybe they’re able to as far as… In other words, on a monthly basis, we talk in terms of you should take out this much percentage-wise, and if you go over that, you’re probably going to have problems as far as down the road. We bring this up to people, and again, everybody kind of buys into the idea. He’s saying, “Well, maybe we should have allowed people to take out more.”
I said, “Well, again, what keeps me asleep at night is that the statistics relating to if you make it to 92, and if it’s a married couple that are 65, one of them probably will, maybe both.” My dad’s 92, my mom’s 89, so at the end of the day, they may be the exception to the rule. But my point is here, at 92, if one of those individuals makes it, statistics say that family will be broke. They’ll be out of money. That’s what keeps me awake at night. People say, “Hell, I’ll never make it to that age. My dad died at an early… My mom died…” Whatever. Again, and I just let that go in one ear and out the other because I don’t want to hear it. My concern is that they live a long time and they run out of money, and that happens for many reasons. People say, “Well, as you get older, you don’t spend as much.” That’s hogwash as well, because again, when people get older, unfortunately, we show up at the doctor’s office a lot more than we used to, so the expenses…
You’ll hit a low at some point, but as you get to those other end… My dad is a good example. Probably never went to a doctor most of his life, but as he’s gotten older, man, he’s in there on a pretty regular basis. We’ve had a lot of incidents as far as with that. Point being, we want to make sure that if a person lives a long time, that there’s still a check showing up in the mailbox as far as for them, as far as to pay some of their needed-type type expenses. That’s a really important thing. Again, I have a few clients that like to refer to me this way, and I’m not real crazy about it but it’s probably accurate, and that is Negative Nellie. Nelson, last name, Negative Nellie. I say, “My job is to do the worrying for you so you don’t have to.” It’s an important job, and again, we take it very, very seriously.
Gary Determan:
You brought up Jake, and I want you to expand upon this a little bit. There’s got to be a check and balance kind of a system in what you guys do. I’m sure you get together weekly, maybe daily as a group, the core group, and talk.
David Nelson:
Yes. Yeah, it’s really, really important. We’ve got a lot of really smart people as far as that work at the office, and to ignore as far as their opinions and their insight would be a big, big mistake. We do an enormous amount of reading every day. Again, as we tell clients, we’re the filter so that clients don’t have to do that. We will have people periodically that’ll come in off the street and they want to chat. I heard this on CNBC, or I heard this on Bloomberg, or I read this from whatever publication. What we try to do is, as nicely as we can say, when you turn off the TV, what do you know now that you didn’t know when you turned it on? Because again, a lot of what takes place there is to just keep people tuning in, and it’s not necessarily actionable-type type items that are being discussed.
Our job, again, is to sort through what are you trying to accomplish, when do you want to retire, how much are you going to need as far as per year, what’s the absolute minimum that you have to have coming in, what’s the desired amount, and you go through this stuff with people. Just like yesterday, I was down in the Quad City office and I had a woman that… She has four properties that are close to Augie College, and she just works her tail off maintaining those. In addition, she cuts hair, she has a beauty shop, and she’s just working her tail off and really not getting ahead per se. As we wrapped things up yesterday, she said, “What’s the next move?” I said, “The next move is for you to go home and think about everything that we went through here. We’re talking about making major decisions and this isn’t something we’re going to make today as far as you need to think about some of this stuff.”
When we chat with people, oftentimes that’s the case. We’re going to brainstorm, we’re going to throw out different ideas and concepts, and again, we want you to go home, we want you to think about it, and at the end of the day, we’ll make better decisions as far as that, because these aren’t our decisions. These are decisions we’re helping the client make for themself. It’s really important that we get it right.
Gary Determan:
Always great to have you, and we’ve got about five minutes left in the program. It is summertime, but yet it seems like things are still pretty active.
David Nelson:
It is. With all of, again, the concerns as far as about tariffs, as far as what’s happening in Washington, are we going to get an agreement as far as from the House and the Senate as far as that we can put on the President’s desk to sign? What’s going to take place there? If that does take place, what does it mean? One of the scarier parts, I think, is centers around health insurance as far as what’s happening there. There is a massive amount of change that’s taken place. You’ve got insurance companies that are pulling out of various markets. You’ve got the Obamacare, I guess is I’d refer to it as. That’s probably not going to look even close to what it looks like today. Who does that affect? How does that affect them? I mean, it is a lot of stuff that’s taking place today. Yes, this is generally the lull. This is when the type of people in our industry can usually sneak out and get a week here and a week there as far as little vacation time and not have a lot going on, but that’s not the case right now.
There’s a whole bunch of stuff, decisions that need to be made, and again, decisions being made on facts, not on, “Yeah, somebody said this,” or, “Somebody said that,” type thing. We need to have data and, again, understand what’s taking place to be able to help advise people in some of these areas. There’s too much uncertainty right now. People say, “Well, what do you think’s going to take place?” Again, really doesn’t matter what we think, let’s wait until we know what’s coming out and then we can make decisions accordingly.
Gary Determan:
How important is this decision going to be?
David Nelson:
I think as far as the Washington decision, I’ll move the tariffs aside, the tariffs could impact a person’s net worth statement in a pretty big way, positively or negatively, and I think the way the market is being priced right now, I think it’s more negative possibility than positive possibility. That’s that one, so be careful there if you’re listening in and not sure what to do. Just be careful because there could be some… I mean, the market’s just been almost too good and it is concerning, so be careful. Now, as far as the other stuff is concerned, taxes, we don’t know what that’s going to look like. That’s a big, big item. I mean, again, I don’t think most people understand as far as taxes, and I think most people don’t even want to try to understand taxes. But one of the things that people, I think, are missing are some of the opportunities that are in the code right now that probably are going to stay.
That is you can make a fair amount of money and you could have an asset that you own that qualifies for capital gains treatment, and you could ring the register, as we say. In other words, cash that thing in, have a decent gain as far as in it, and potentially be at a 0% tax bracket. “Yeah, but I really like this investment.” Well, you turn around and you buy the sucker back the next day, you put it on your tax return, so now you’ve cleaned the slate on that gain at a 0% bracket. Now, the next day, again, you turn around and you buy that same security back. It’s a proactive move that’s out there that people could take advantage of. Now, keep in mind, and I’ll qualify this right now to make it clear, this doesn’t apply to like an IRA or a 401(k). This does apply to after-tax money.
There’s things that could be done. I think that stuff is probably pretty safe. But again, this Obamacare-type type discussion, that applies to a lot of people that want to retire at, say, 62. They got to make their way to 65 as far as to qualify for Medicare. They’ve got that window and this has been a nice, nice little opportunity for them as far as that two or three-year period as far as Obamacare, and again, that may or may not be the case as far as going forward.
Gary Determan:
Well, try and get a good night’s sleep.
David Nelson:
Yeah, I will. You too, buddy.
Gary Determan:
I will.
David Nelson:
Always good chatting with you.
Gary Determan:
All right. Thank you so much.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. The opinions voiced in the show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representative securities offered through Cambridge Investment Research, Inc., a broker-dealer, member FINRA, SIPC. Investment advisor representative, Cambridge Investment Research Advisors, Inc., a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information, visit our website at www.nelsoncorp.com.