Julie gets tactical with Bob Meeder of Meeder Investment Management. There is so much to learn in this episode!
Want to Hear More From Meeder? REGISTER HERE for their October 12, 2022 Webinar
Since 1984, The Pacific Financial Group, Inc. (TPFG) has built a rich tradition of serving financial advisors and investors with best-in-class investment solutions and unrivalled customer service. The firm was founded on the single premise that everyone, regardless of their account size, should have access to high quality investment opportunities and independent expert advice. Today, we are a Founder Led dynamic Wealth-Tech firm that blends over three decades of traditional asset management experience with leading-edge financial technology know-how, to provide products and services that empower financial freedom for advisors and their clients.
Contact Julie Mochan today. Original🎵 by Ma’aM
TPFG and Meeder Asset Management, Inc. are unaffiliated.
Commentary offered for informational and educational purposes only. Opinions and forecasts regarding markets, securities, products, portfolios, or holdings are given as of the date provided and are subject to change at any time. No offer to sell, solicitation, or recommendation of any security or investment product is intended. Certain information and data has been supplied by unaffiliated third parties as indicated. Although Meeder believes the information is reliable, it cannot warrant the accuracy, timeliness or suitability of the information or materials offered by third parties.
Important Disclosure: This podcast recording has been prepared and made available by The Pacific Financial Group, Inc., also known as TPFG, a Registered Investment Adviser (RIA) offering advisory services. Information in this podcast is to be used for informational purposes only. The information contained herein, including any expressions of opinion has been obtained from, or is based on sources believed to be reliable, but its accuracy or completeness is not guaranteed and is subject to change without notice. The information should not be construed or interpreted as an offer or solicitation to purchase or sell a financial instrument or service. Any expressions or opinions reflect the views of the speakers and are not necessarily those of TPFG or its affiliates. TPFG does not provide tax or legal advice. Investors should consult their financial, tax or legal professionals before investing. Past performance is not a guarantee of future results. All investments contain risks to include the total loss of invested principal. Diversification does not protect against the risk of loss.
Open Windows Investing with TPFG: Episode 9
Host: Julie Mochan, TPFG
Guest: Bob Meeder, Meeder Investment Management
Sept. 30, 2022
<Open Windows Intro>
Julie Mochan: 0:35
Hey, everyone. Welcome back to open windows investing with TPFG. today, we're going to talk about tactical management. This is 2022. And when 2020 was happening in all of our lives. Things for weird things have kind of gotten weirder, I think in a way. Which is one of the things I talked to Bob Meeder about that's who we're going to talk to The weirdness is just that there's all of this stuff going on. Right. And maybe it's just a, we hear about it all. Whereas in the past, when there was a lot of things going down, like I talked to Bob about 2022 as compared to other times in history. And like we can, we. We can look back, but when things were happening and there weren't as many news outlets and there weren't as many computers in front of our faces and in her hands, we didn't necessarily know what was going on these days. We do obviously. And, um, we also know that the stock market and the bond market has gotten hammered this year, both of them. And it's one of those times that I think that you need to be able to reach out to your clients. And talk to them. And even if they're not calling you, if your clients are not calling you, that's not a good thing. And if you're not calling them, it's a worse thing. And so you really need to have that communication going on and. I know that, clients don't necessarily want to talk to you or open their statement or anything, they kind of are like, yeah, we know things are not going to look Because everything is down globally. So we're just going to, you know, do other things, which is fine, but make sure you're reaching out to them and letting them know. Hey. especially if you work with us and with our great partners with our Strategy PLUS program, you're able to reach out and say, Hey, this is what we're doing in your portfolio. And here's why we're doing it. And, one of the best things that can happen, obviously when you're having that conversation is your clients like number one, they feel better. they're most likely going to stay invested to reach their goals and they probably have other stuff that they need to talk to you about. So I'm going to be welcoming Bob Meeder, he's founder of Meeder Investment Management and he is a really fun guy to talk to and you're really going to like it. If you, if you're a little geeky on how tactical management is done, because he digs way down layer, like he peels away the onion of tactical management for us, which is super cool. Um, look for us at www.tpfg.com if you're interested in and having the ability to. Give in plan advice for your clients that are in 401ks, 403(b)s, or 457 plans. We can help you. We've been doing it a long time. there's a lot of crazy paperwork that goes with it and we hold your hand the entire way. Let's put so continue driving, grab a beverage, pet your dog and enjoy this conversation that I have with Bob Meeder of Meeder Investment Management and one of our great partners that we work with
Julie Mochan: 3:43
Bob Meeder, welcome to Open Windows Investing with TPFG.
Bob Meeder: 3:47
Hello Julie. Thanks for the opportunity to, uh, to join this call.
Julie Mochan: 3:52
I've seen you, and I think I said this the other day when we, we talked in the pre-pod. I've seen you a couple of times, I've seen videos of you, I've, I've seen you talk you're probably one of the most dynamic speakers out there. and obviously you started Meeder Investments, uh, back in, I think you said 1974, which,
Bob Meeder: 4:09
Well, a, actually, I appreciate the compliment. My dad started the company.
Julie Mochan: 4:14
Okay. Senior. Same name, but senior. Okay, gotcha.
Bob Meeder: 4:17
Yeah, he started in 74. April 1st. Literally April 1st, 1974. And I don't know if you know what was going on then, but that in the midst of
Julie Mochan: 4:27
Bob Meeder: 4:28
Watergate, it was high inflation. Kind of like right now. Um, high inflation, the worst bear market that, the markets that had been in since. Um, The Great Depression. And you know, I just said, he started it on April 1st. And a lot of people said, you must be a fool to think you can start an investment management company.
Julie Mochan: 4:49
Bob Meeder: 4:49
With literally $0 under management in that kind of a market environment. But he had that passion and desire and belief and.
Julie Mochan: 4:56
he's part greatest generation. Right?
Bob Meeder: 4:59
Julie Mochan: 4:59
Uh, that's impressive. So, so yeah, there was the oil embargo, right? Right. I was, I was a kid. I was around, but I interviewed Josh, Emanuel, with Wilshire and we talked about, you know, gas lines. I remember sitting in gas lines, right? And Oh yeah. And, it was just like a thing that you did and, and then I, if you look at, obviously if you look at a mountain chart, um, there was a big dip. You know, around when Nixon resigned and like, I think one of the things I really wanna get into with you is just, um, helping people understand market cycles. Because there are so many investors out there that don't even really, they didn't, they weren't invested in 2008, let alone you. 87 or, or 70..., you know what I mean? So if we could sort of talk about that a little bit, and I think it's so cool, like the moxie, your dad must have had to be able to just, You know, go forward at that time. And then you got into the business, obviously. Yeah. And grew it and recently Meeder by the way, e everything that you're doing looks fabulous and, the fact that you're tactical, everybody is wanting to know, Hey, what is this? You know, how's it gonna help me? So if we could just talk about market cycles to start, and then Sure. Go from there.
Bob Meeder: 6:14
Sure. Okay. That's, I think it's a great starting, place. Julie, there's two types of, Let's, let's break it down. In the big, big picture, there's what we call secular cycles. Secular means the real long term.
So you have what we call secular bull markets and secular bear markets, and they're multi-year in nature, so secular bulls, last on average, of the three secular bulls that started at 1900, they last on average 18 years. One was 12, one was 18, and another was 24 years. Okay. Wow. And then you have secular bears that, our multi-year. So for example, 1966 through 1982, that 16 year period, the Dow Jones Industrial average was flat. It was unchanged. You had a lot of lot of rallies and a lot of declines. But that 16 year period was what you call a secular bear. 2000 through 2009 was a secular bear. Okay? Yep. So the 1929 through 1938 or 39 was a secular. Okay, so they're multi years, but within those different secular phases. So let's talk about secular bulls. You have cyclical, This is a little confusing. Cyclical bear markets within a secular bull market. Okay? Yeah. And so like right now, the million dollar question is did we start a new secular bear market at the beginning of this year, or is this simply a cyclical bear within the ongoing secular bull?
Julie Mochan: 8:03
Secular bull? I get it. It's the, yeah, the secular and the secular Cyclical. Cyclical, aahhh..., the secular and the cyclical, Yeah. Is what'll get me, but I totally get it. So there are cyclical bear or bull markets within secular bear or bull markets. Okay, Scott Mighty. That took me a lot to get through that. Whew. That was tough. All right. Can you give us like a really good example of that since I may have just confused everyone all to, you know, we're in back. So, as I said, 1966 through 82 was a secular bear. Then we started a new secular bull in 1982, and in hindsight, that lasted from 82 through 2000.
Bob Meeder: 8:51
Okay, Now the best example of that, of a cyclical bear within that secular bull market. Was 1987.
Julie Mochan: 8:59
87's crash;. Yeah. Flash crash.
Bob Meeder: 9:02
Yeah. Many people may not even have been around for that or experienced it. Yeah. It was a 35/36% decline from high to low. And on that Monday, October 19th, 1987, it was, the single largest. single day decline in the history of the stock market. But in retrospect, when you look at it, all that was, was a cyclical bear within that long term secular bull that started in 82 through 2000.
Julie Mochan: 9:30
And then we had the.com, like April of yeah.
Bob Meeder: 9:35
Yeah. Then, the secular bear market started in our opinion in March, of 2000, which was 2000 bursting.
The bursting of the.com bubble. Okay. And you had a three-year decline from March of 2000 through March of 2003. And within that decline, you had some sharp rallies that were cyclical bulls within that three year. Then from 2003 through 2007, that has, that was viewed as in the textbook of all the secular kind of stuff. Mm-hmm. was a cyclical bull that lasted several years within that secular bear of 2000 through 2009. I can tell it confused. No, I literally have a chart that I pulled up because I, I knew I wanted to talk to you about this because you've been around a couple years, even though you look, you look gorgeous. Yeah, thank you. But, um, like, and likewise. Thank you, but I really do. I mean, because this is something that I think people, I feel personally that people are getting more adaptive to this. The investor is not as freaked out every time, maybe because of more volatility, but, Maybe also because of managers like yourself who manage tactically and can move around and do some things during these times that, that can make their portfolios a little less crazy. Yeah. And um, I'm not sure. Maybe it's a little both, but. before we get into that, do you see any similarities from whether it's 1974 and 2022 or, you know, 87 or, the, the.com or 2011, remember that was like a weird sort of, Yeah, yeah. Right. Do you see any similarities? Like, because the amount of people that say or the amount of things that I read that say, there's no, it's not like, you know, it's different this time. That's the, it's different this time. Is that a real thing or not?
Bob Meeder: 11:41
I always worry when I hear it's different this time when I start hearing that people think it's different this time. That's, I mean, it may not be in the exact same form. The market tends to repeat itself. So back to your question, and as I mentioned earlier, the million dollar question is, is this decline that we're in right now, is that a cyclical bear within the secular bull market that started in March of 2009 Or, have we started a new secular market and we, put together, and we actually have done white papers on this about the warning signs that we could be near or at the end of the secular bull market that started in 2009. And there, there were several things that we pointed out. Number one, valuations, especially relative to the inflation rate, were really, at the end of 2021, were really, showing signs of excessiveness in the market. Number two, we had, record, levels of ownership of equities by individuals. Which we look at that on a contrarian approach basis. Meaning when, when everybody's bullish, you should be bearish. It's a Warren Buffet statement. When, When everybody's greedy. When everybody's greedy, be fearful. And when they're fearful, be greedy. So we, and we have this all, if someone wants to come and get it, they can.
Julie Mochan: 13:14
I'll back link it. Yeah. I'll have the back links in the notes for people to go.
Bob Meeder: 13:18
Yeah. So we had record levels of, uh, ownership of equities by individuals. We had the beginning of a rising interest rate environment, and now it's really accelerated. So that's another sign. Another sign is the government debt as a percentage of GDP, and then the last one, which is really kind of complicated, but I'll try to simplify it, We look at The real return of the stock market on a 10 year basis, and when the stock market has provided on a 10 year basis, a real rate of return after inflation of 10%, that is excessive as compared to its long-term average. And at the end of 2021, we had our first 10-year period since 2000 that the stock market provided a return after inflation on a compounded rate of return basis of 10%, which is excessive. And we believe the market always goes from one extreme of extreme optimism to extreme greed and pessimism. And so did that pendulum go too far on the optimistic side? So those are some of the things that you know that are saying, uh, you better be careful, and you better have tactical in your portfolio.
Julie Mochan: 14:34
Yeah, because it's not really different because you've seen these things before, or you wouldn't have these models to use. Right. That's so interesting. if you have any charts Anything that you have on this, and I know you guys have a webinar coming up in, uh, October 12 that, I urge anyone who's listening to this podcast to, tune in. I'll have a back link for that as well because this is, uh, Bob stuff that you don't, he like, you don't hear this sort of nitty gritty like, Hey, I lived through this before.
People and we've seen this before, but it's, looks, maybe looks a little different on the face, but there are certain indicators that we can go by. Historically, you know, I'll have those dis disclosures at the end. Yeah. But historically, this is typically what comes, next. Yeah. so tell people what real return is, is just return, x inflation after inflation. Inflation. All right?
Bob Meeder: 15:35
So, if you made, 12%. And inflation was 2%. Your, your real return was 10% yeah. Yeah. And that just can't continue. Yeah. Well, we had, I mean, it was the most bearish it's been, when you look at the earnings yield, the earnings yield is not the dividend yield, it's the inverse of the PE ratio of the S&P 500. So, you take, instead of P over E, you take E over P to convert that into a yield. And then you compare that. So, if the PE is 20 on the S&P 500, hypothetically if it's 20, Yeah, you flip that and you take 1 over 20, which is, 5%. Okay. So that would be the earning yield of the s and p 500, and then you can compare that earning yield to interest rates or inflation. So, at the end of the year, relative to inflation, it was the worst reading of that factor that we'd seen in over 50 years.
Julie Mochan: 16:39
You're kidding me. So, the end 2021 at the, what we're talking about? Yeah,
Bob Meeder: 16:43
the PE was approximately, 23. So if you took 1 over 23, one divided by 23. Equals 4.3. And inflation was at eight. Running at eight. That was a negative almost 4%. And we have a chart on it if you if you want to see it.
Julie Mochan: 17:01
I do. I want that chart because that's mind-blowing. Yeah. one of the things that I was talking about people settling for, cash.
Like if you're sitting in cash completely, you have a negative. Yeah. Return with inflation now. Yeah. It, it, it doesn't necessarily mean that in portfolios, but for just ordinary people, like not getting any yield out of their bank accounts and having to still shop at the grocery store. So, let's pivot from there, because I literally could talk to you all day about this stuff. I, I love it. But let's talk about, what you do as a firm to hedge against this kind of stuff. Because everything that you've seen, obviously in all of the models that you have and all of the variables that you look at, blah, blah, blah, the math, what do you do then? Like, what does Meeder do to combat the craziness?
Bob Meeder: 17:59
Okay. So, Julie, we have what we call quantitative models that measure various different elements of the financial markets to guide us in our decision-making process. One of the models determines how much exposure we have to the stock market at any given time. So, within the PFG Meeder Tactical Fund, we have a model that comes out every day and it ranks over 70 factors. And this is what we call a multidiscipline multifactor. And what I mean by that multi-discipline, we look at valuations. We look at macro factors and, uh, economic and interest rate factors, and then we look at technical or trend factors. So, it's a multi-factor discipline with multiple factors in it. And that is rated every day, all those 70 different factors. And it comes up with what we call a reward score of the market. Then we compare that reward to the risk. And how we determine risk is very similar to the VIX, and we compare that to that. And so, if they're equal, if the reward is 10 and the risk is 10, that would be one. So that means we'd be a hundred percent invested in that tactical portfolio.
Julie Mochan: 19:12
Gotcha. if they're equal, like, let me just repeat this. If risk can reward after you feed it into your "play-doh" factory. Comes out same, same. You have a 100%
Bob Meeder: 19:26
yeah. Or if the reward is equal to or higher, it would be a hundred percent invested if it goes below it.
So, let's say the reward was nine and the risk was 10, then it would be 90% invested.
Julie Mochan: 19:39
I get it.
Bob Meeder: 19:40
So, at the end of 2021, in our tactical portfolios, we were already 36% in a cash position. We only had approximately 65% invested in the market. When the market was at new all-time highs. So, our model started to warn us that the risk was developing. It's not predicting that the market's going to go down, it just says we don't have a fat pitch anymore. We no longer have a fat pitch. And so it was saying, really it started in the, in July and August started to deteriorate and we started to become more defensive as the last half of the year evolved and the market was continuing to go higher as measured by the S&P 500, but valuations, interest rate factors and the breadth of the market, meaning advance/decline statistics, what small caps were doing, those type of things, they were all deteriorating. So, it, it mandated that we adopt a partially defensive position.
Julie Mochan: 20:40 So, for our listeners, there is zero emotion involved in this, all based on data that historically has shown us. Um, this is, this is how things are going to work out. That, um, something that I think like the average investor, unless you explain it like you just did. They're like, Wait, what? The market's going up? Why, why are you in, you know, why is 6% right? Because they just don't have those warning signs, uh, like you guys have developed.
Bob Meeder: 21:10
So, it's, really a risk. It's really a risk management strategy. When the model says the sky is clear, there's no one on the freeway, you. Accelerate down the road. It is not predicting that the market's going to go up, it's just saying that the risk reward relationships are very favorable. And when it, and when it starts to show rain or clouds in the sky and potential rain. And then if we get a blizzard, you know, then it just says the risk reward relationships are not very good. So, you need to not be fully invested and have some kind of a defensive component in the portfolio; so it's not predictive; it's a, it's a risk management strategy.
Julie Mochan: 21:49
I got you. I'm going to, um, mention this and I'll back link this as well, we use this as a firm also. Like the whole thing with, trying. Explain to someone the difference between strategic and tactical management. Mm-hmm. you're strategic all the time, but you're tactical when you need to be. Yeah. So, we consider you a tactical manager. Yeah. Because you are able to have that flexibility. Now here's my question. You can move between Asset classes, or you can move between sectors within Asset classes or what? Like how deep does that tactical management go?
Bob Meeder: 22:25
Another great question. So that model that I just described was just to determine how much exposure we have with the stock market. Then we have another model that determines how much international exposure we have relative to the domestic market. Then we have another model that determines how much do we want to overweight or underweight any particular sector, as well as growth versus value, as well as large, mid, and small. So, we have these different models. So, it's, it's totally tactical, not just between stocks, bonds, and cash, but it's between U.S. and international. It's between large, mid, and small growth and value. And what sectors do we want to overweight and underweight.
Julie Mochan: 23:07
Yeah, like five layers.
Bob Meeder: 23:09
Yeah. And then we have one more model. We have two more. Really, we have another model that determines once we've made those decisions, what stocks should we own? And then we have another, three models that determine. What should we be doing within the fixed income component of our model portfolios.
Julie Mochan: 23:27
Everybody listening should take a good look at the Meeder Models of Strategy PLUS and beyond and check every back link that I have. So, I have two more quick things before we wrap up because, your firm is based in Columbus, Ohio, right? Correct. Yep. This is coming out before Penn State plays Ohio State I think I saw that you are a Florida grad.
Bob Meeder: 23:54
I 'm a Florida grad, but I'm their worst alumni. They have I'm a Buckeye. True at heart.
Julie Mochan: 24:01
Any listeners out there that, uh, want to make some bets here? I, am sitting in Happy Valley, our good friend Bob Meeder is in Columbus, Ohio, which by the way, I spent some time in Columbus, Ohio back when I was in college for, uh, I think it was four days of the Grateful Dead
Bob Meeder: 24:20
Are you a DeadHead?
Julie Mochan: 24:22
Yeah, I am. And um, That's okay. My wife is a big DeadHead too.
Oh, oh, sweet. Her and I may have been at the same show.
Probably but um, do you have any predictions for the Ohio State/Penn State game as far as the score - over, under anything like that?
Bob Meeder: 24:42
Well, I'd have to put that into our multifactor multidiscipline models and put in all the statistics to determine, just joking I couldn't help myself. Um, well, if history repeats, first. Okay, so you'll get three points for being home field, having home field advantage.
Julie Mochan: 24:59
It's loud here. Yeah.
Bob Meeder: 25:01
Yeah. And it's loud. And you'll do the, what do you call it, To white out? You guys do the white out.
Julie Mochan: 25:05
Oh, yeah. And it's, I don't know if it's, I don't think it's a night game, but, oh, I bet it's a night game. They, Yeah, they'll want it. That'll be prime time. They'll be prime time. And I have a feeling that, um, Ohio State's offense is pretty tough.
And they're actually trying, I, I probably shouldn't say this because I'll jinx it. Their defense is better this year than it has been in a while. Because usually their defense has been terrible. But I think the Buckeye are, um, I think it's going to be tough to beat 'em
Julie Mochan: 25:34
I think you're right, but you never know what's going to happen. I don't have any indication of, of anything. I do know that I love to tailgate and, uh, if you ever come to Happy Valley for a game, you got a place,
Bob Meeder: 25:49
Absolutely. Thank you. Thank you. I appreciate that.
Julie Mochan: 25:52
Again, anyone and everyone listening, everything will be in the back links. I urge you desperately to check out Meeder, They're one of the best managers, uh, in the world. I'm just going to, just going to put you right there in the world, okay? Because you need some tactical management in your portfolio and most retirement accounts.
I would say, and there's hundreds, hundreds of thousands of retirement accounts that we can work in with our SDBA Strategy PLUS Meeder has three models. I think we have, uh, moderate, conservative, moderate growth, and a moderate right. Yeah. Which pretty much covers everyone. three models there. And again, uh, one of their PFG funds their tactical fund is in several other models, six more models. So, check it. And, uh, don't be afraid to, understand, how important it is that strategic management is great, and it should always happen, but sometimes like the Waze thing on your car, you got to take a detour. Yeah, right. I really,
Bob Meeder: 26:54
I really believe for those investors who and you've seen the Dalbar studies. But those investors who, tend to not stick to the plan, having a tactical allocation helps them stick to their plan
Julie Mochan: 27:10
Because stay invested.
Bob Meeder: 27:11
They psychologically, they're just at ease of saying, Okay, I got someone who's doing this for me, and oh, right now, you know, because right now we're basically 60% in cash or in a defensive position.
Julie Mochan: 27:24
Bob Meeder: 27:25
Oh. I don't need to worry about it. So, then they stay the course.
Julie Mochan: 27:29
Yeah. Which is the number one goal in the end, right? Yep.
Bob Meeder: 27:33
Julie Mochan: 27:34
All right. Awesome. Thank you so much, uh, to you and your team and, uh, we'll have you back soon. And thanks. And I hope you all know how much we appreciate our relationship with TPFG.
Bob Meeder: 27:46
It's great partnership and we're very grateful. So, thank you.
Julie Mochan: 27:49
All right. There you have it. Until the next episode. Remember, you don't need to work harder. Just work smarter by opening a window. This is Julie Mochan with the TPFG Open Windows Investing Podcast signing off. <Music>
This podcast recording has been prepared and made available by the Pacific Financial Group, Incorporated, also known as TPFG, a registered investment advisor offering advisory services. Information in this podcast is to be used for informational purposes. Only the information contained herein, including any expressions of opinion has been obtained from or is based on sources believed to be reliable, but its accuracy or completeness is not guaranteed and is subject to change without notice, this information should not be construed or interpreted as an offer or solicitation to purchase or sell a financial instrument or service. Any expressions or opinions reflect the views of the speakers and are not necessarily those of TPFG or its affiliates. TPFG does not provide tax or legal advice. Investors should consult their financial tax or legal professionals before investing. Past performance is not a guarantee of future results, and all investments contain risk to include the total loss of invested principle. Diversification does not protect against the risk of loss. Have a nice day.