TheStreet Pro’s Live Quarterly Meeting: Investing in Uncertain Times
Our panel met on May 14th to discuss markets and investing in this new economy.
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The replay of our May 14th Live Quarterly Meeting is below. Please enjoy!
Chris Versace, Carley Garner, and Bob Byrne joined Managing Editor Jason Meshnick to review what happened in the first part of 2025 so that you can successfully navigate the second half.
Transcript
Chris Versace: Hey, folks, welcome to the latest stocks and markets podcast at TheStreet. I'm Chris Versace, portfolio manager for TheStreet's Pro Portfolio. And joining me today to talk about all things stocks, markets and maybe even something in between is Street Pro contributor Louis Llanes. In addition to Louis’s work for the Street Pro, he's a wealth adviser for high-net-worth clients. He's also the author of “The Financial Freedom Blueprint” and “The Handbook of Risk.” Louis, welcome to the podcast.
Louis Llanes: Thanks. I'm glad to be here.
Versace: Well, let's kind of kick things off. Louis, because I get the sense that you're a newer contributor to TheStreet Pro Portfolio, so you may not be as well known to some of the members as some other contributors. So how about kicking it off with a thumbnail sketch of your background and how that's come to influence your investing style.
Llanes: Oh, that's a great question. Well, I got started in the business a long time ago. I've been in the business for 30 years, and I started off as an investment consultant for a company called Kemper Securities.
Versace: Oh, yeah, yeah, yeah. Llanes: And so I kind of teethed on that. I was a financial analyst intern when I was in college, and I fell in love with investments. But around 1987, just before the market crash, and ever since then, I've been in love with the business. I fell in love with economics and finance.
Versace: So, hang on, hang on. So, the crash didn't scare you.
Llanes: No, no, no. It got me excited because I actually was at that time more involved with more thinking global macro. You could be short, you could be long, you could be commodities, stocks, bonds, currencies. So I've been in a lot of different areas in the business. So I started off on the sales side, where you’re going out and finding clients. And I learned very quickly at that time that many of the incentives at the larger Wall Street firms were not necessarily aligned with making money. We had all the research. I was, like, this doesn't make sense. Like, I'm in this business to make money.
So I got a CFA and a CMT, and I thought that was going to help me. And it did in a way, just to understand language. But I think if I had to only have one designation, a CFA or a CMT, I would say I'd rather have the CMT. And a lot of people think that's heresy … only because it helps you understand that markets are not rational and the market can serve you. And so I went through a metamorphosis because early in my career I was very value-oriented, studied Warren Buffett, loved Warren Buffett, and I was really into the value type of investing. And before the dotcom bubble, things were working pretty well. But then this strange thing happened. We had all these companies that were going straight up and they had no fundamentals.
Versace: And let me guess: Pets.com, eToys, right?
Llanes: Exactly. And it was one of those things where I learned a valuable lesson there because I was studying the fundamentals. We were value oriented, and we were losing. We lost like 30% of our assets to outflows at that time, mainly because they were going to – I won't name the names of the fund managers. They were going to certain fund managers that wound up losing like 70% of their value in the following years. So I really, really learned a lot during that. It kind of changed my whole outlook about how you have to understand behavioral elements as well as the fundamentals because they can vary so much.
Versace: And when you say behavioral, right, there's a couple of ways to view that. There's the behavior of consumers. There's the behavior of corporations, corporate spending. Are you talking about that or is it something else?
Llanes: No, I'm talking about investor behavior. I'm talking about the fact that we all are irrational. It doesn't matter how smart you are. We all have these natural tendencies to be irrational. And there's group, there's crowds thinking and understanding the psychology and that you need to have the market serve you. So, sometimes things can be way out of whack and you need to understand that. And sometimes you have to understand that you may have to sell more technically oriented. And also on the flip side, sometimes the technicals will clue you in to something that's happening fundamentally that you don't understand yet. And so using the technicals for that, that's very important.
Versace: Well, I'm glad you brought that up because at the Pro Portfolio, like, last August, coming off of July early August, and then even in April we put some capital to work because we were looking at the technical setup in the market, being oversold where the oscillators were, even though there was some uncertainty still ahead. We kind of figured that the odds of it getting dramatically worse from here were extremely low. And typically when we manage the portfolio, we do a bit of a blend where we're fundamentals, thematics, and we pay very close attention to the technicals. In other words, no silver bullet.
Llanes: Yeah, and I actually think the bottoms-up technicals are really even more valuable for me because they lead you to individual securities that are starting to have change before the fundamentals actually reach everybody's knowledge.
Versace: So hang on, hang on, hang on. Just for the listeners, when you say bottoms-up technicals. I think a lot of folks are familiar with the 50-, the 100-, the 200-day moving averages, the relative-strength-index levels: Are some of those what you're referring to when you say bottoms-up technicals? Or are there other things you're looking at?
Llanes: I mean, looking at individual stocks and individual bonds, individual currencies and commodities and seeing what the supply-and-demand dynamics look like. Like, for example, right now, the interest rate: People are thinking the interest rates are going to go down. But for some reason the technicals are saying that possibly rates could be going higher from here. So I like to match my fundamental thesis with the technicals. I'd rather have both going on at the same time than one or the other. And not to get off on a tangent, but maybe we should talk about this later. But the interest rates are giving very mixed signals right now.
But to get back to the background story. So I started off as a fundamental guy. I learned a lot about that, why technicals are important and understanding that. And then I went to work for a hedge fund. And I worked in the global macro space. So I traded stocks, bonds, commodities, currencies, long and short. I was programming algorithmic models before it was cool to say algorithm. We didn't even use the term algorithm. That was back when we had satellites. The internet was not a thing. We used Instinet and we called the trading floor to trade the S&P futures …
Yeah, so I learned a ton there about back-testing and I learned what's good about back-testing [and] what's bad about it. And so I do use a lot of quantitative analysis to help me understand what's happening, but … I personally don't invest in a way where it's fully systematic. So, I like to use systematic-type algorithms to help me with position-sizing and things like that, but not necessarily for security selection 100%. You could do that and do very well, but for me I'm not comfortable with it because I know so many of the flaws of it. Unless you're trading, like, a massive portfolio where you're doing a lot of different strategies, I don't really feel comfortable with 100% systematic investing.
So I kind of went down that direction. So as you can see, I've been in different camps. I've studied the bottom up, like the stuff that's really traditional: return on invested capital, high quality management, valuation. And when I was in that phase of my career, I came up with this concept of QVT: quality, valuation and technicals. And I still use that today. It's kind of my major dimensional way that I look at the market. It's like, how well do I know this investment? How sustainable are these cash flows? Real basic stuff. And what am I paying for it? And that's the backdrop. And then it's like: What are the technicals saying right now? Is it early? Is it not? Maybe I'm wrong. Sometimes you think you know the quality and the valuation and you're just flat out wrong.
Versace: So when you're kind of sizing that up, not so much the technical part but the quality part, are you also factoring in historical analysis of the company, past valuation multiples as well as what you're seeing on the peer front? 8:48 Llanes: Yeah, I look at the past numbers, just to try to understand it, but what I'm really trying to understand is: What are the drivers of revenue? What's going to drive revenue to go up? What are the drivers of expenses? Just understanding what those are and then how well can I know them. I mean, if it's a really volatile expense structure, I may not be able to … have any kind of a bead on it. So I'm trying to understand how knowable it is.
I'll just use Spotify as an example. I think … there's a lot of knowability with Spotify. There's competition, things like that. There's a lot of knowability, but it's overpriced … based on free cash flow and things like that. I still like the company. Uber is another company that I have a position [in. I] like it; I think it's a great company. But you can't say [it's] an amazing valuation based on how I'm looking at it. Other people may have a different view on it, but it doesn't mean I'm not going to own it. So that's one of the things I've learned: [If] you have something that's good, you probably want to stick with it. You [might] want to change your sizing, but don't just dump it just because it's overvalued. I learned that mistake in other bull markets.
Versace: It's funny. I do know that there are a lot of folks out there that get overly focused on price targets. So if you have a stock that's, say, hitting your price target – like $100, just to make it easy. I would sit back and say, OK, what's ahead that could lead me to revisit that price target? But some people [want] it now. Do you know what I mean? It's like it's here. What do we do? Whereas I think sometimes you have to let things play out because there's always more information coming, whether it's industry data, company data. Or even as simple as: As we're taping this this week, there's a big [tech-media-telecom] conference that, almost halfway through the quarter, is going to give a lot of insight to what's going on. Or not.
Llanes: Yeah, and then you can flat out get it wrong. So let me tell you one of the things I learned when I told you I did a lot of back-testing and simulations. [What] you find out is you make your returns on very few securities. And when you get something right, the biggest thing, that old adage, let your profits run and cut your losses short, is probably the most important rule in investing. … As soon as you know you're wrong, get out. And if you're not sure, if things are working out in your favor, be a little bit apprehensive or a lot apprehensive to just unload that security. And how much you let that security drift in size is a function of risk, really, and then other opportunities. So if other opportunities [are] coming up – let's use Apple as an example. Warren Buffett did a brilliant move by tearing it up [and] pulling it back. That's the way you do it. You pull it back. You don't get rid of Apple, just pull it back and then you put it in something better if you can. And if you can't, then it should go in cash.
Versace: So you just said a minute ago that if something's not working, get rid of it. … But what happens at times like we've seen – let's use March and April – where you could be 100% right on the data, but the stock and the market are moving against you. Do you stick with it, do you grit your teeth, or do you let it go?
Llanes: So [in] my career I've gone through different phases. And what I found works better for me is to stick with it. … unless there's something new coming in. So [you] can back-test stops. No matter how you analyze using a stop, it's going to always lower your performance. It's just weird how that happens because you're truncating things. You'll have a stock that will come down, and then it'll invariably turn higher. And especially that's why quality is so important. The better that quality is, then you don't want to have a stop. You might want to buy more, but position-sizing is a whole other thing and we can get into that. But you don't want to let those losers get away from you. And especially if you have a large size in it – I don't like to let a single position have so much input [that] the contribution to the portfolio's returns [gets] so out of whack that it's driving the entire portfolio. So I limit that, too. So that's more quantitative.
Versace: So let's put some figures around that. So it sounds like what you're saying is mid-single-digit depending on the number of positions in terms of position size. You're not going to let something grow to 10% 12% of the portfolio.
Llanes: When you're getting to 10, you're starting to get a little bit too big. Now I'm looking at return per unit of risk … If you're looking at return per unit of risk, based on what I have not only backtested but in real time, 10% is about where you want it to cap out. But if you're basing it on ‘I want to really hit the ball and make a ton of money,’ you've got to let that thing ride. You got to let it go to 30%, 40% of the portfolio. And most people cannot handle that kind of risk. And I manage money for high-net- worth people and they don't want that kind of risk. So, generally most stocks, [if] they hit around 8%, [no] matter how good it is, I might be paring it back.
Versace: [You're] managing money for high-net-worth individuals. [How] is managing money for high-net-worth individuals different than, say, communicating your ideas or your thoughts to regular, everyday individual investors? Are there certain things that you have to account for that maybe individual investors don't?
Llanes: [Are you talking about] high-net-worth individuals versus non-high-net- worth individuals? 14:26 Versace: Just the average, ‘hey, I got X amount of dollars in my Schwab account and I'm interested in building it. I subscribe to TheStreet Pro because I want some insight, that sort of thing.’
Llanes: Well I think the conversation is surprisingly similar. High-net-worth individuals have the same wishes, desires, fears. They want to send their kids to college. They don't want to lose their wealth. And we all have the same emotional backdrop. I think what is different is that taxes are a big deal for them. And so we're having to deal with, OK, I've got this very large position in whatever the company may be and we've got to figure out: Do we start paring it back? How do we pare it back? How do we keep our tax level down? There's more finessing going on there. And there's more stuff involved with estate planning and things like that you have to concern yourself with, and trust.
Whereas when you're building and you're not at that level, the best thing there is just keep your income up and then to save like crazy and to just keep investing, just keep investing. Don't let the market news mess with yourself. Stay disciplined with an approach that is based on economics, not on emotion. Stay level-headed when things are really, really – everybody's happy. Bring yourself down to be a little bit more mid-level when everybody's really upset. Bring yourself up. I learned that from Tom Basso, one of the market wizards who I've spent some time with talking about lots of different market things. And that is probably one of the biggest pieces of advice that I've learned that's been helpful for me: Always bring yourself to the center no matter what's happening.
Versace: And for the very new who are just getting into investing, there's a lot of commentary out there about, oh, you should have two months, three months worth of expenses banked, then start taking your discretionary income and funneling that and start investing kind of slowly. Any words of wisdom to the newer investors that we have?
Llanes: So there's two types of newer investors. One is one that wants to do it themselves, is interested in it, that's highly capable of doing it themselves. Like maybe they're an engineer or something like that. Their psychology is different than, say, somebody who's got a job. They're like a manager or something like that, and they don't have time for that. You have a different kind of a view on how to do things. But my advice is generally to continue to invest based on the long term. It depends on how old you are, obviously, obviously, but to have more of a longer term view and to have one, again, based on an investment strategy that's based on economics, not on emotion. The biggest problem you get is like, for example, let's say you're a doctor, you're going to hear all sorts of things in the operating table or when you're doing whatever. And those clients that I have that are in those fields, they tend to have all sorts of things like, hey, what do you think of this. They're hearing all these things and people will talk about, all the things that they made money on. Nobody talks about the things that they lose money on. So just keep that in mind. The people, the people that are talking a lot about their book, about how much they just made money on this, that or the other. I have found that they never talk about their losers and you just got they're probably not doing as well as you think they are.
Versace: I think that's true. But I also think that to me, talking about what went wrong is probably far more interesting than what went right because you could be right for all sorts of reasons. And it's only in breaking down. I think I call it when you're talking about doctors. So a little pun stock topsy, right. Let's break down. Let's do the autopsy on the stock. Where did we go wrong? What could we have learned or seen better? What other data should we have paid attention to?
Llanes: [It’s] all about learning from your mistakes, for sure.
Versace: Yeah I mean, it's not fun, don't get me wrong. But it's far more insightful. But with that, Louis, let's move along and talk about some things that are happening now and just get your take on them. As we're taping this, we're just coming off a rather large move in the market. A lot of it has been spurred very recently by this rollback in tariffs, this deescalation, if you will. What do you make of it?
Llanes: Well, I kind of expected there to be a rollback from the very beginning because it was a shock that came to the system on the approach. There's a difference between how the initial communication went to the public on how we were going to deal with tariffs. It wasn't feasible. Like right on its face, we knew it wasn't feasible. So we knew there'd there would be some pulling back. And I think that it will continue to be more kind of a normal negotiation. I think what was good about that approach was that it got a lot of people talking very quickly, and that the ball is moving a lot faster than, say, it would have been we traditionally gone country by country. And it also exposes the landscape. And I think that kind of changed that approach did expose the landscape very quickly in terms of where various countries land. So in terms of as an investor, I think that the biggest thing is that you just have to understand that there's going to be winners and losers in this. And my biggest take on this is that most of what I'm seeing in the trends are really pointing towards interest rates staying higher, not going lower. And I can give you examples.
Versace: Well can but I'm more interested in why you think that's going to happen.
Llanes: Because if you look at the trend, that one is the trend of more capital investment, more capital needed here in the United States. So basic economics 101, if the demand for capital goes up, that real interest rates generally go higher. Secondly, we have the immigration issue. So if you have wage pressures going up that's inflationary. So a lot of people think that interest rates are only a function of inflation. They're a function of different things. They're efficient of they're related to the demand for capital. They're also related to inflation as well. And capital flows in general. So, so if you look at it from really multidimensional standpoints, it looks like that longer term they need to stay higher. If those trends stay in place – now we could have a short term cyclical thing. That changes that where it kind of comes down. But I think longer term the base interest rate is probably going to be higher than it was before. We were doing some crazy things with interest rates. And that's got to be over. And so we need to adjust our discount rates and how we value companies. And the stock market in general is not really reflecting that I don't believe.
Versace: OK OK. So you're saying that in terms of either growth expectations because of potentially higher interest rates or even most people quickly look at the PE valuation, but let's just say valuation metrics.
Llanes: Yeah, I think so. I think that there are some companies that still need to come down in price, and I think there are other companies that will benefit greatly, like the gains that we're going to get from AI and productivity gains. I think that's very, very real, and it's going to be substantial. But I also think there might be a lag there between when we realize that fully and other dynamics, which will it's not going to happen in time for it to keep those rates down is what I'm saying. Because typically a gain in productivity, that allows you to have a faster growth rate and not have inflation, right.
Versace: Well, are you saying the market might be once again getting ahead of itself?
Llanes: [General] market timing is really difficult. Yeah, I believe that the overall market, if you had to make an educated guess, is still ahead of itself. Even though we've had a drop down, everybody's excited. And technically we broke a very important level yesterday. Up 2%, almost 3% on the S&P yesterday. And there was an overhead supply level where there was a lot of selling interest, a lot of sellers were there. And, a lot of stops got blown out yesterday. And so now the question is, are we going to clear that technically. So I'm looking at it from both angles fundamentally and technically. So you're so right now the technicals are refuting my fundamental viewpoint.
Versace: So you're watching the 200 day the 100 day looking to see if we get some support or that becomes resistance.
Llanes: I'm not looking at the moving average. I'm looking at the levels itself. So we had basically we went into new highs in we had a bunch of support levels where the market bounced off those levels. Then we cracked. When you crack through those support levels, there was a lot of buying interest at those levels. When you crack below it, that becomes what's called overhead supply or role reversal resistance, where there's sellers that likely want to sell there. Well, we did get a selloff. We got a rejection to those levels where the market sold off. And then we gapped up and we broke through those levels yesterday. That was a very important technical. From a technician standpoint that was very important. But keep in mind the market it may not hold I don't know that it's necessarily going to hold. I don't really make long term investment decisions based on that. I'm just looking for clues. But certain companies like Docusign however, got a very big bullish signal throughout this they had a nice base and it broke out very nicely. And that company still has reasonable it's not inexpensive, but that company has reasonable reasonably good business model.
Versace: So, Louis, when we talk to other technicians, right. The concept of follow through testing, that sort of thing is something that they tend to talk quite a bit about. So when given the scenario that you just described, what would you be looking for some positive follow through that tells you that, yes, the market will go higher from here.
Llanes: Well, I think looking at individual stocks is the best thing to do in this kind of a situation, really always because the leaders, the companies that have the good business models, if they start moving higher, then that's telling you where we're really in a bull market and we very, very well may be heading into another leg up. This is what I told you, I like it, I like it better when my fundamentals match with the technicals. Now that's not happening. And because my fundamental thesis is still at least sideways if not negative, whereas the technicals are telling me the exact opposite, they're saying you need to be long right now.
Versace: And a second ago you mentioned, paying attention to individual stocks, a certain key group. What are some of the ones that you pay attention to, the ones that tell you, hey, we're going higher, hey look out?
Llanes: There's two groups that I like to look at. And I don't want to mention too many names because I'm trading the names right now. I just give one or two. So one I would look at from a defensive standpoint, I would look at a Constellation STZ because that company has a good business model that's undervalued and it's more defensive in nature. If that one is doing a lot better than say, some of the growthy names, like a DoorDash, for example, or like Adobe, I think Adobe is in range right now, like in buy range, in my opinion. If the Adobes of the world are doing better than the Constellations, then that's telling you bull market. They both have good fundamentals, but one's more growthy and the other one's not, if that makes sense. So Fortinet is another one FTNT. And then more of your stalwart companies, like a McDonald's or American Express. Like, how are they responding to the market? And I want to really emphasize that I don't trade like heavy into the market, out of the market. I'm more core long term. And then I trade around it. So the bulk of the money is long term. That's how I look at the market. I also like to look at the companies that are really fast growers that are just breaking into profit territory. Those types of companies – are they taking off in a big way? Because if they are, that means bull market. Yeah, they always lead.
Versace: Yeah I think it's a greater appetite for risk is kind of what you're saying without saying it right.
Llanes: Yeah, if Bitcoin takes off that's telling you something. And right now I think we've got the first kind of green light for many technicians. And like I said, a lot of times the technicals will lead what the fundamentals will tell you. And we'll talk about it three months from now.
Versace: Kind of like fundamentals: I'm getting over a cold. And I've got a little bit of even though I don't smoke I have a little bit of smoker's cough, so I apologize. Let me shift gears just a little bit. And then I want to get into member questions. So sure we're coming off this trade deal. We'll have to see what happens with inflation and the Fed. There's the wild card of what happens with tax reform. Does it happen? Does it not happen? Earnings expectations for the second half of the year. There's a lot of moving parts that I think are going to come together. June, July, and August as we get ready for the seasonally strong part of the year. September on, the real year end push. Yeah but from your perspective I rattled off a bunch of things. Is there any one or two things that as we go through the summer months that you'll be particularly focused on.
Llanes: I'm really looking at the tax part of things because that's really going to have a big impact. And it's also related to what happens with the tariffs because there's revenue potential revenue generation from tariffs or constraints there thereof. And nobody really knows how the tariffs are going to work out. I mean, we're still working through it. But my guess is that it's not. The tariffs won't be as inflationary as the alarmists are saying. But I think the other part of the equation, where we're investing more in the United States, which I do think it will continue to increase, that will hold up interest rates. And I think that's going to the real fast growing companies that are way overvalued. They're going to struggle, I believe. And before the year started, I wrote an article about how I think that's going to happen and that we would have big downs and there would be a lot of chaos because whenever you're dealing with policies like tariffs, that's a very chaotic type of a scenario because it's game theory. You don't know how the other side's going to work. So I'm really looking at taxes. And this whole new thing with the health care, equalization of pricing and pharma, that is a big deal. That is an enormous deal. I mean think about it, because we have I was looking up just doing some research. A lot of countries have very long term contracts with their pricing. And they're Japan, Europe, Canada, they're really price controlling. And the United States is subsidizing. And we've been doing that for years. In fact, I talked about that when I did my MBA. It's been happening forever. So that if we're immediately going to be doing that, there's going to be a ripple effect. And some companies are going to do well and some are going to get hurt pretty badly, I think, because if prices if we move our prices down, who's going to pay it? Are they going to raise prices in Europe. I don't know that it's all going to happen all at once. I think they'll be like dislocations, and we'll be talking about certain companies that are really going to get hurt by this.
Versace: Yeah, it sounds to me like you're saying stock picker’s market and know what you own.
Llanes: Yeah you got to go stock by stock especially now. I mean we always say that right. And it's kind of cliche and it's kind of doesn't mean anything to anybody sometimes. But it really does make a difference. Whenever you have these kind of pothole scenarios, you could have any one of your companies. You just want to look at it and say, how exposed are they? How exposed are they to various international exposures, tariff exposures? That's been making up a lot of my time lately, actually.
Versace: So you're very familiar with the SEC website and poring through 10Qs and 10Ks. Good to know, Louis.
Llanes: Well, let's just say I don't. I used to spend a lot more time doing that than I do now. I have a network of people that I talk to that are doing that. That's the best use of my time because I am advising clients. And I have people that trade for me and all that stuff, and I'm really trying to just set the direction for clients. And so I'm not rolling up my sleeves as much, reading all the 10Qs and 10Ks like I used to but I have been there.
Versace: Sorry to say, I am still there, but there’s a tremendous amount of insight and information in those documents and you've really got to read them before you do anything, in my opinion. But with that, Louis, let's move on to those member questions. First one comes from a StreetPro member, Louis, how do you hedge a portfolio for high net worth clients?
Llanes: Well, you can hedge. It's very difficult to hedge using options and things like that or futures. Many high net worth clients don't want to have exposures to futures. The best way to do it is I'm talking about stock hedging is to do it with general market, to do it with the futures market. It's the best way to do it. But that's not really generally what I do. How I actually do it is more by diversification of strategies and diversification of asset classes, diversification of approaches. And that's really how, for example, coming into this year, we put more money outside of we didn't have all that tech exposure that a lot of people did have. Started pulling back on that. We started buying more mid cap and lower, smaller cap names. And I wrote about that on the street. I also have a very large position in non-equity exposure, shorter-term fixed income securities. We've made a lot of money in gold. Been on that from when it was way down and it was basing and moving higher. And it just makes all things point to gold going higher even from today. AndI did pare back from gold, by the way. But so really own non-correlated assets is the other way to do it. Some private about 8% to 12% of the portfolio is in private investments. This is something that's changed a lot since I've been in this business. We used to be able to get a lot more young companies coming in. And we could get those 30% 40% returners and we could buy them and really profit. Now a lot of that gain is being eaten up initially in the private markets. And then when they do go public they're not as exciting anymore. So, I've kind of been forced to go into private markets.
Versace: So you're referring to companies like a Klarna, for example, maybe?
Llanes: Exactly. So regulations have really hurt the average investor in my opinion. Now it is getting more democratized and more people are able to get in. But now valuations are not as attractive. I think going forward, we're going to see some people lose money in private markets and get disillusioned with it. I've seen that happen a couple of times in my career already where high net worth investors in particular. So we're very careful about private investments and very by the way, I'm very, very leery with private credit. Private credit has gotten way ahead of itself, in my opinion. And the risk spread, the spreads between the risk free rate and what you're getting on these highly risky debt instruments are just too small, and people are not being compensated for that right now.
Versace: All right. Well, we'll come back to that. Let's come back to that, Louis, because I'm happy to say that this is not a one and done conversation between you and I. You will be with us every month going forward, and we'll even get to tap your smarts as we speak with some other folks. So just let's table that for now because I got two or three other questions I want to get to. One of them is How do you know when to cut a position that isn't working. What do you look for?
Llanes: So my first. If something happens with the fundamentals, that's against what I thought was supposed to happen. That's the first thing. The second would be the price itself starts breaking down. A lot of times the price will start breaking down and you don't even know why. That's an alert. It's like I need to look at this more closely because somebody knows something that I don't. It could be just panicking or somebody knows and you don't. And you just need to dig. Dig deeper, and sometimes you'll find out. It's just something that's temporary and it's emotional. So you never. Quote unquote know OK. You never know. You just have higher probabilities. It's all a scale between certainty and uncertainty. It's a percentage. And then my position size based on that for some stocks, things will look OK fundamentally, but the stocks breaking down, you're automatically your position size is going down. When that happens. But if something becomes bullish about that company and that's happening and you realize that was wrong, then I will add more to it up to a certain amount. So you don't ever really know. But I would say the two big things is price is starting to break down. That's a Warning sign to look at it more closely. Second is you just learned something about the company that you didn't or maybe you didn't get all the research, and you need to just course correct. And course correcting is the most important thing when you're wrong, when you know you're wrong.
Versace: Agreed agreed. OK, so I guess Louis wrote a piece a little while back on the Street Pro about ADMA. And the question is, how does XERS measure up. They're both biotechs. Any thoughts.
Llanes: I couldn't give you a good answer on that one because I don't have enough research on that company. I can’t tell you.
Versace: I'll tell you what, Louis. There I love that answer because too many people like to shoot from the hip just to give an answer. And I personally, just like you did, say, I don't really know enough. And that's a great answer because the last thing you want to do is give someone bad information.
Llanes: Oh, yeah, I learned that early in my career. Yeah, because people rely on me every day. Yeah and when they hear me say something, I'm only going to try to say stuff that I think I have a reasonable basis to say it. And I can back it up. I'm never just going to just I really, really I'm very careful about that. Excellent because your reputation is gold. Is everything in this business.
Versace: 100% I could not agree with you more. Last member question. Louis and I don't think we talked about this, but how do you start identifying a new position for the portfolio.
Llanes: It can come from many different ways. It can come from just it could come from reading the Wall Street Journal, even. You'll we all are endowed with some connecting. Connecting the dots. Power love it, love it, love it. And you start seeing something, and then you start getting a mosaic. And it's like, this makes a lot of sense. Sometimes it'll come from just scrolling through the charts, and I'm seeing a company basing and starting to move higher, and I'm like, why is that company moving higher or the opposite. So a company has gone way down and it I'm like, why is that company way down. And sometimes they'll baffle you. Like right now I own a position in Hershey. It's come down a lot. And I started nibbling on it. And a lot of people say, wait a minute, wait a minute. … Yes I started nibbling on the chocolate. Yeah, exactly. It got way ahead of itself. But now can justify its price. Of course, it's down 2.5% today. Yeah well anyhow. But yeah so it's really connecting dots for me. And then also talking to a lot of smart people, there's a lot of smart people that can give you ideas. And you always got to do your own research and never just take a tip on your own. But agreed. But listening to other smart people is important.
Versace: Yeah I mean have to do the homework yourself, even after you get the idea to understand, what you're owning, why you're owning it. More importantly the handful of times that I've just taken a flyer based on. Hey should do this. I have to say, it has never worked out. … It is a painful lesson. All right, folks, well, remember, if you want your question asked and answered on the streets and markets podcast have to be a StreetPro member. So sign up. Louis, before we get out of here. And believe me when I say this you have been very generous with your time today. Is there any parting thoughts to the audience. Anything We didn't talk about that we should. 39:55 Llanes: I think the biggest thing on my mind right now is to stay optimistic right now, because we keep hearing all these negative things, with the politics and all that. Stay optimistic and just keep a good level headed, rational approach, and you'll do fine over the long term and not get too upset about the headlines.
Versace: I think that's some pretty wise, wise thoughts there, Lewis. If you I think if you become overly negative. Look to reinforce the negative and then you're going to miss the opportunity. Exactly keep your eyes open. Excellent, excellent. Lewis, thank you so much for joining us. I look forward to speaking with you in the months ahead. Folks, that is today's podcast. Thanks for watching.
