Investing for Ourselves: Steve Davenport

“Leave it alone” sounds comforting until you’ve watched a concentrated stock position implode, or you’ve lived through a year where both stocks and bonds drop together. Clem and I sit down to walk through Steve Davenport’s portfolio mindset, and the through-line is simple: risk management is not a side hobby, it’s the job. We talk about why he’ll trim positions, raise cash, and occasionally buy put options when the cost of insurance looks cheap, using volatility and the VIX as a real-time input rather than a headline.

We also get specific about decision tools investors can actually use. Steve explains how Morningstar star ratings can prompt a hard question: if you had cash today, would you buy the stock at this price? From there we dig into fundamentals like P/E, PEG, and price to book, plus signals like Bollinger Bands to spot extreme moves. We connect that to a broader view on market efficiency, and why options markets, even on large caps, can create moments of mispricing for disciplined investors.

From asset allocation to retirement income, we cover how he thinks about a 70/30 style baseline, when he shifts toward 60/40, and why dividend stocks and bonds yielding 3% to 5% can change the “cash vs equities” debate. We discuss mid-cap investing for better risk-adjusted returns, tax efficiency through lower turnover and tax-year timing, and why index investing can become “accidental active” when a handful of mega-cap names dominate. There’s even a look at private real estate and how it fits on a continuum from cash to growth.

If you want a clearer framework for defensive investing, options hedging, and building a portfolio you can stick with, listen now. Subscribe, share this with a friend who’s stuck in FOMO, and leave a review if it helps. What part of your portfolio feels like an unplanned risk right now?

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Disclaimer - These podcasts are not intended as investment advice. Individuals please consult your own investment, tax and legal advisors. They provide these insights for educational purposes only.

Transcript

Clem Miller 0:26

Hi, everybody, and welcome to Skeptic's Guide to Investing. I'm here with my partner here on the podcast, Steve Davenport. And uh today we're gonna talk about uh Steve's portfolio. Uh a couple days ago, we recorded a similar podcast talking about uh my portfolio and how I look at uh how to do things. And uh, you know, with the you know, the current uh macro situation arising from the uh uh the gulf of being something that's you know influencing my portfolio at least temporarily. Uh so we talked about that, but today we're gonna talk about Steve's portfolio. And uh and so Steve, let me uh let me start off asking the question: what would you say is the big big picture principle that's driving your portfolio? What's the big picture principle?

Steve Davenport 1:22

Um I I believe, Clem, that everybody says that you should just um leave it alone and don't touch. Just let let the market do its work. And I've had a lot of experience using options, and I've had a lot of experience seeing clients lose a lot on a concentrated position and seeing them have this represent a huge chunk of their wealth, and then see it, you know, go down and they just didn't act. And you know, and so my big thing is that you can do things to help yourself feel better and do better with the market. And I don't think it's necessarily, you know, I'm saying you this is how you're gonna maximize return. Because if I wanted to maximize return in the upmarket, I would buy a call option and I would, you know, use leverage to do that. But in reality, what I say is, let's think about is there something I can do differently here? And so when things started to look a little bit, you know, when the actions happened in Venezuela, I thought it was a time that here we had a guy deposed on Saturday and taken and taken in custody, and on Monday the market was up and the VIX, which was at 18, went to 14. And I sat there and I said, this doesn't make sense. Um I'm gonna sell some of my positions, have a little bit more cash, and buy some put options. Because I I think if the cost of my protection or insurance went from 18% to 14%, that's a 20% improvement in you know uh one day. And so why did it go down? And if I look at what's the main input to cost of an option, it's volatility. So I just feel there is a way for us to take and do more to try to make our money align with our values, and that's where I kind of believe you need to, and we've talked about active investing. And I think you're an active investor with individual names. I'm an active investor with my partner and how we develop different strategies for core growth and value. And then I'm active at the asset allocation level, saying, okay, I I think I normally want to operate at a 70-30 type, and now I'm closer to 60-40. Um, it is it the perfect percentage? Do I have some kind of magic formula? No, but I know that it feels better that when there is a pullback and the markets are not doing what I expect, or when they get extremely overpriced, I always believe, you know, as my father, who was the accountant, used to say, you don't go bankrupt taking profits. And so selling some and putting it aside, I don't know, Clem, if it's going to lead me to, you know what I mean, a lifetime level of returns that I'm gonna be able to pull out and compare to Simons and some of the other great hedge fund managers, I probably think it's less because I'm taking a lot less risk. I'm managing the risk I have and I'm mitigating that risk. So am I overanyms the risk side? Maybe, but you know, uh ever since I recovered from cancer and ever since I kind of gone through this COVID period, it feels to me like my ability to sleep at night is is worth a lot. And I don't know if it's worth too much, and I shouldn't, you know, I shouldn't be sleeping so much, but it it just feels to me like that peace of mind has a part of your decision making. And I think everybody should at least think about and consider these ideas because it's our money. We're the ones who ultimately have, you know, when I retire, or when my wife and I, you know, have grandchildren, or when we, you know, our daughters are going to college, you know, it's you know, I've I've tried to do things to prepare. And some of the preparation was good, some was bad. I was fortunate with some, you know, and and that's what I think makes life interesting is that we're always being challenged with, is this a good idea or is that a good idea? And to me, um, I think the ideas that work are the ones that are aligned with your values. Is that too much of an answer than you were looking for, Clone?

Selling First Then Options Second

Clem Miller 6:13

You were just looking at it. There's a lot in that answer. Uh so so you know, let me let me drill down a little bit into some practical specifics. Uh do you feel like so? Let me ask you this. It sounds like you look at the VIX uh a lot to make determinations about puts. Is that fair? Okay.

Steve Davenport 6:39

Look at when you're writing call options too, you know.

Clem Miller 6:42

Yeah. Um and call options. Okay. So do you how much of your risk management is puts and calls? Would you say it's the vast majority of it?

Steve Davenport 6:57

No, I'd say it's probably 40 to 60 percent. Okay. I'd say that my first thing to most clients is let's just sell this position. It's at a good level, looking at the history and looking at the earnings. I mean, when something gets up, I'm I'm no, when you've got a client who's 62, they're gonna live to 90. Yeah, they get a 30-year horizon to come back from that 20 or 25 tax, right? And I've I've seen clients come back and the name goes down and their their portfolio goes up, and you know, it's a two or three year payback.

Clem Miller 7:37

Yeah.

Steve Davenport 7:38

Now diversified and taxes and then paid. So it it feels to me like there's a uh um there's a good way for you to manage risk that isn't always about options, but I just like people to think of it's another it's another tool.

Valuation Signals With Morningstar Stars

Clem Miller 7:58

Right. And um, and so when you look at stocks that have reached, you know, a sales price, sell target, uh, do you base that on what, PEG or PE? Or how do you how do you determine that?

Steve Davenport 8:13

I usually look like that. We use Morningstar. And so Morningstar has a star rating and says, hey, when it gets way below average, it's a five. When it's way above average, it's a one. And so when something gets to be a two, I start to ask the question, why is this, what's driving this? And then when it goes from being a two to a one, I kind of say to myself, okay, you know, if I had cash today, would I buy it at this price? No. Therefore, what's what what's what should I do? And usually it involves selling some. And I look at the taxes we already taken, I look at what part of the year we're at, and I say, okay, can I wait? Is it December 20th? And if I wait until you know January 1, I'm in a new tax year. Those are the kind of things that I I try to do.

Clem Miller 9:23

So do you if uh if a stock reaches a particular star, high star level, right? A good star level, do you then decide, well, it's only going to go one way down? And so you then sell? Is that the the idea?

Steve Davenport 9:39

The idea is it probably has had a good run. And therefore, if I look at a balanced portfolio, we have a 40-stock or 50-stock portfolio. I mean, if it guts to be seven, eight, nine, ten percent, you know, of the index, I just kind of sit there and go, you know, this this feels like it might be fully priced. And so yeah, I I'm likely to use um puts or likely to use thing, you know, sales when I think there is a good case to be made that the the ratio is a little bit too high. And I use the peg, I use the PE, I use the price to book. I I try to use a holistic measure, and I think Morningstar does that pretty well by their one through five stars.

Clem Miller 10:30

Do you look at momentum at all? A little bit.

Index Hedging With SPY Options

Macro Risks And Underweighting Equities

Steve Davenport 10:36

I mean, I look at uh um moment I look at Bollinger bands. Um so when you think about moving averages and then one standard deviation and two standard deviations above, I look at those signals and say, there's no bias in this. It's a mathematical formula. When it starts to move away from its moving average, that means the number of buyers is significantly more than the sellers, and they believe it, you know. And so I try to wait until I get a two-standard deviation event before I'll sell. And what that tells me is the smartest people in the world are looking at this and they're trying to determine value. And they've determined that this has moved way beyond its normal average value. And I say to myself, okay, they if they think it, I think it comes down to something I kind of mentioned one time, which is how efficient do you think markets are? You know, do you think they're strongly efficient and that every piece of information is accurately in the price? Do you think they're somewhat efficient and that's somewhat inefficient, or do you think they have no efficiency? And my view is the idea that equities, even large cap and especially options on those equities, are strongly efficient, I think is a little naive. And I think it's what we've the people in the indexes, you know. I used to work at State Street doing indexes. I have a portion of my portfolio somewhere between 10-20% that is in the index. I do that because then it's easy for me to call her. If I want to put a collar on the equities and I feel like they're too high, the SPY has the deepest options market in the world. So I can put it on pretty easily and quickly and know I'm getting efficient pricing. Um, and then I look at having active management around that. And some of the active management, um, you know, there are our own strategies. I own the faith-based strategy, I own the growth strategy, the value strategy, and our global dividends and our core. I have all of our strategies because I believe that if I'm going to talk to an individual about investing, I should be in those strategies myself. If I'm not, if I don't believe in what I'm doing and I'm telling clients to use it, um, I I don't think that's right. I think that you should eat your own cooking and try to make sure that you're always trying to be as fair on what you're doing and why you're doing it, you know, every time you make a decision. And it's it's hard. This market, you know, you could be wrong. And I I always look at it as I'm I'm making the best effort I can with the information I have and the tools I have. And um, when those things are are right on, you know, we're having a good year to date. And so why is that? I don't know. We've we continue to try to make things in our portfolio that we think of your decisions. And as you see, some of the mispricing, I believe, that's happened in the Mag 7. I think that's led to, you know, part of the sell-off in the last, you know, since it peaked in October. And I believe that the Iranian situation should make the markets worse, not better. I think there are going to be increased costs for businesses and an increased cost for consumers. It's gonna cause less consumption in the middle part of our economy, and I think it will cause difficulty for small businesses who are really hoping that we got lower rates so they could borrow some more at 2% and 3% instead of six. And so, what's gonna happen to those businesses? I think we're gonna have more failures, and I think that's a part of the process, and that's what I'm here to try to figure out and manage. And so I would say one, are we are we in the right position in terms of how much of the risky market we own, meaning equities? Is it 70? Is it 75? Is it 80? Should you be 90% invested today? I always go to the extremes and ask the question: should I be 30% invested in the stock market today or 90? You know, or 50 or 90, and say, 70 is my midpoint. What do I what do I think I should do? And my my comment would be: it feels like to me that overpricing in the II space and difficulty with our foreign um partners because of tariffs and with the energy situation because of Iran, those three things make me think that being underweight equities is a good idea. Yeah, same here. Yeah, you do it in a very different way, though. You don't have the same like I kind of believe in the old idea of you still have to have an average return. And so being in cash versus being in bonds that are paying me three to four percent of the new, it's really after tax or closer to four and a half to five. I kind of believe that's a pretty good reason to know, you know, it's gonna offset some of the some of the risk of if I wanted to be in just cash or equities. I think, I think your, you know, your views and my views, uh they're very similar, but they are unique. And that's why I think it's it's important that you work with an advisor who is gonna listen to your needs and say, hey, look, uh, I think you should own more dividend stocks because I think you'd love the yield they're giving you in retirement, and I think you'd still own some upstart. Therefore, you know, why don't we have a combination of bonds and stocks with three and a half to four and a half yields? And then you don't have to have a question about okay, where's my four percent in retirement going to come from?

Clem Miller 16:44

Yeah.

Steve Davenport 16:44

Take it all from yield and you leave your principal alone, and it will go.

Clem Miller 16:49

The only problem with the three and a half, four is that you know, you got people who have you know a tendency or a desire to spend a lot. And so you need to have a lot of assets in order to generate enough off of uh you know three and a half, you know, without seeing a big drop in uh in uh you know, without seeing a lot of volatility on the uh on the rest. So I think it it it helps to have a lot of growth stocks too. Uh so that you can keep it. I'm not saying that especially with what you said earlier, Steve, about how you know if you're in your early to mid-60s, you could live to to 90s.

Steve Davenport 17:30

Right. I'm just using the exam. I'm not saying my example is I have all dividend stocks, and and I'm just saying that for some people, that's the way they, you know, they they're pretty disciplined, and they say, I'm not gonna touch principal, that's for my kids and my grandkids. Yeah, I'm gonna, you know, I'm gonna take my social security, I'm gonna add it to, you know, four percent from this portfolio.

Clem Miller 17:56

And it's a bucketing approach. Yeah, if opposed to holistic.

Steve Davenport 18:01

Right. If we look at the number of investors, there's a heck of a lot of investors at Vanguard and Fidelity and other places. That's their plan. And that's a it's a reasonable plan. Some people have said four is too low. You should maybe go to five or even six for the first three or four years. I I think that all these things can be can be managed, Glenn. But I guess what I like the idea is I like the idea that we don't say you should be 60-40, and that 60 should be 40% in U.S. index, 20% international index, you know, 20% in uh the US ag and and then 5% in cash or something. You know, like I think there's a lot of advisors, that's what they do. And I'm not sure that's necessarily for people.

Clem Miller 18:52

So, Steve, uh, so within this percentage that's that's equities, you know, whether it be your sort of standard 70 or 60 or you know, less, within that, how many stocks do you typically hold?

Retirement Income From Yield

Steve Davenport 19:07

Well, like I said, I usually have about 10 or 20 percent that's in an index. So I I own the SPY. Um, and uh I also um have a manager in mid cap. I think mid cap is a special area where I think you should be overweight because when I look at mid cap, it gives me the returns of small cap with the volatility of large cap. So from an information ratio, it's above average. And I like that. And we have an active manager that we think does a really good job in mid cap, FLQM. And FLQM is, you know, just like any other ETF, and it it does it, it has a nice disciplined process similar to ours. So I thought, you know, I'm gonna have some large cap and some mid-cap in an active manager that's very close or above the benchmark. It's not taking a lot of risk, it's very disciplined, and then an index fund. So that has 500 names. And then I look at uh adding some large cap growth and some large cap value and some global dividend, and those portfolios reach um between 40 and 50 names. So when I add it up, I probably own you know 600 names.

Clem Miller 20:21

Oh across all those different strategies, across all those different strategies, and 40 to 60 within a particular strategy, right? Okay, uh so and and as I understand it, you do it by you try to maintain sector neutrality to some degree.

Steve Davenport 20:41

Yeah, we believe that trying to bet on the growth sectors or the value sectors and and be moving in and out. Um, we'd rather focus on it being more tax efficient. And and so we look at clients and say, we want to own these names for a minimum of three to four years. And that's the you know goal. And so that there's where you derive your performance from, you know, and so then you look at it and say, okay, that means I'm gonna buy or sell about 10 to 20 percent, maybe in a given year. And we try to make that turnover less so that they're more tax efficient. I mean, if we can save on taxes at the end of the year and harvest some losses, um, you think that's just another another tool, just like options and just like you know, risk management based on Bollinger Bands.

Clem Miller 21:35

And so the selection of those stocks, uh you do it on the basis of of what? Like what are the what are oh probably the morning star uh stars?

Building Portfolios With Mid Caps

Steve Davenport 21:49

We take the morning star stocks and the screen, and we calculate uh uh a number, which is a combination of growth, quality, financial health, debt, you know, yada yada yada. It's got about 12 factors and it consolidates into one number. And so we try to buy names that are three or four, sometimes a five, but we've done some research that fives tend to be down for longer. And so we really like to buy fours. And then we look at their, you know, of the fours in that sector where we're looking for a name. You know, I've I've been disappointed in Adobe. Adobe to me, I thought was going to be a leader and take over, kind of verifying data online. It just hasn't happened, and AI has been eating their lunch, and so I'm looking. To sell Adobe. And then the next question is, well, what are we going to buy in its place? So it's it's a five now because it's been beaten up. It's down 35% in some of my portfolios. And I just look at it and say, I think I want to take that loss and try something else. And so I think as we look at it, we'll look for a name in technology that's a four that we feel are other holdings in technology, you know, with if it's let's just say this was uh growth, and growth has 40% in technology or even 50%, I'll look and say, okay, we got 20 names. I'm taking Adobe out. What do I want to put in? And do I find myself light on software? Do I think the overreaction in software is an opportunity, or do I think that software will get replaced by a I think it's it's decisions like this is you know, Clem, that you go through every day and you kind of you uh you try to try to make the right call. And if I think we're a little light on, you know, we're maybe heavy on SVEMIs and light on software. So I think it might be a time to dip a toe in a cyber or uh another software name that'll build, you know, we're getting in at a level after a pretty good size correction. Yeah. So I I think that your focus on just those names and making sure you own them and and and and build them right. I'm a little bit more at the asset allocation level saying, am I in the right ballpark? And if I'm you know looking at my strategies, should I take a little bit of the growth, you know, down and instead of a 10% allocation, I want to go to five and put that five in global dividend. Global dividend has been really excelling because 50% of the holdings are non-U.S. And I kind of believe that that might have more legs than people are willing to give it. So if I was to say to people, what should you do today? I might cut back on your growth and put some into global dividend where, you know, you're gonna have more exposure to some very good companies. But the rate you're gonna buy them at, I mean, I think the last time I talked about names was about Merck and Pfizer. And I think they had multiples of somewhere between PE's of seven and nine. I mean, with names that are paying you almost four percent, and you're buying them at a seven to nine times earnings, you you can hold those pretty long and feel like those two brands, I think, are doing a pretty good job. And it it's been the story of Lily and Novo. But yeah, each one of these companies has their own GLP or other comp, you know, and some are gonna be oral and they're not gonna be needles, and some are gonna be once a month. And and like I think that this space, the medical space, is pretty efficient.

Clem Miller 25:53

Yeah.

Tax Efficiency And Low Turnover

Steve Davenport 25:55

And maybe they the space is right, Clem, and I'm wrong. Maybe they deserve lower multiples because drug prices from the government are gonna go down in terms of what Medicare is gonna demand from them. I I kind of believe they're pretty smart about where they are and what they're doing the research on. And I think that some of those companies are still good value. I guess I would say I'm a value investor who tries to take advantage of inefficiencies he sees in the market.

Clem Miller 26:28

Maybe that's a better stylistic and kind of summary of so more value than you are GARP, that's for sure.

Factor Scoring And Replacing Losers

Steve Davenport 26:36

I think so, but I think that you know, I'm learning from my partner's experience with growth and you know, some of the things that you need to have some exposure to growth. You need to have some of these names. It's just a question of how much do they represent of your overall overweights or underweights, right? I have the I have a core index, I have the core, you know, active strategy that we have, and then I have a growth and a value, and when one's higher than the other, it's a preference, and value has been at five for a while, and it's now starting to look like I maybe should put more in. Growth has been overweight. Global dividend, I look at as somewhere between stocks and bonds. It's not exactly a sort of what I'd say a growing equity and compared to the SP. So we compare it now against uh big VIG and VRGI, which are two uh dividend strategies, one's international, one's domestic. So I think of your portfolio as a continuum. You got cash, you got some short-term bonds, you got some longer-term bonds, you got some dividend uh stocks, you got some uh value stocks, you've got core stocks in the index, and then you've got growth on the other end. And then I'd say we've uh started to look at some private equities or private real estate or private, you know, and I'd put them, you know, we have a nine a nine percent private uh real estate investment. Really? I I think of that how is that done? It's done excellent. And in the one year, we're just about to hit the one year market, we're up about 14%. So the property, three properties are 95% leased. So it's it's producing a lot of cash, and it has a 9% hurdle rate to get back to me. Um, and uh I I bought it at a time when it was coming out of being managed, and they offered free um fees for life. And so anytime you say to me something about being free, Clem, I kind of get these tingly feelings, and I say, Oh, you know, so that means I get all of the 9%. I don't have to pay, you know, 1.1. And so I've you know, but I would put that somewhere, probably a little riskier than the dividend stocks. Um, but having a yield, you know, as good at a bad, but you don't get extra yield unless you're taking extra risk. I'm not I'm not denying myself or massaging myself that yeah, I could possibly get nine and take less risk than you know the dividend stocks, right? So maybe I maybe it belongs um, you know, on closer to the long-term bond thing. But I guess I think of that continuum, and I think, do I have holes? I think that if rates come down, I think I have a hole in not owning real estate. I think I'd like to own, you know, there's a couple of good new ETFs that are coming out in real estate. I think that's a place that everybody should have. I know we all have homes and we all have exposure to real estate, but I mean real estate that's really paying you.

Clem Miller 30:02

So, Steve, if you uh if you don't go into the weeds, if you come out from the weeds, and we've been in the weeds so far in this conversation. Let's say let's say you're on a reasonably long elevator ride, okay? Uh, how would you what's your elevator pitch to somebody who might have an interest in your uh in your strategies? Like what would be your less than two minute elevator pitch?

Value Rotation And Global Dividends

Steve Davenport 30:32

I'd say we want to own really high-quality companies. And by owning really high quality companies, we can hold them longer and we can get higher returns from that longer time period to hold. And I think that turnover is one big thing that we will manage assets for you in an efficient way that is um going to be very reasonable. Our fees are below average, and we invest in every strategy that we offer. So my partner and I are invested in every strategy. And so, therefore, I think you know, we walk the walk and we talk the talk. We believe that active management is involved in the allocation and also involved in how you want to pick your names, but also involved in things like what I do with options and uh asset allocation. So we think that there's different ways to find alpha. And uh it isn't, you know, I don't believe with a lot of these people in indexes that what they're owning right now, with the top seven names it being 40% of the index, I don't think that's an index anymore. That's an active bet on technology. Right. My my point is the index story has gone along for a long time and it hasn't been interrupted. And I think that what we're going through now might start to make people look, I think that you know, when we saw in 22 how the market went down, bonds went down, stocks went down. That hadn't happened.

Clem Miller 32:10

Right. Ever. So Steve, I think passive. Tell me if you agree with me. Passive now is a misnomer. There's active and then there's accidental active.

unknown 32:23

Right.

Private Real Estate On The Continuum

Steve Davenport 32:23

So either I believe that I believe that people are comforted by this idea that hey, they'll make whatever the index makes. And I think that's great. When you have a 22% year and a 23% year, absolutely wonderful. But you've got to realize that, hey, the long-term average for these stocks is about 9.6. Okay, if I have two double, you know, I have to, what do I have to have happen, Clem, to that number series in order for it to work out to be similar to the long run? And everybody says, well, now it's different, though. With AI and all these things, there's no way that could possibly happen that we'd go down 20 or 30 percent. And I sit there and I go, I think these people are I'm a defensive-minded investor. And I believe that it's your money. We should take care of it with as great a care as we can, because what you don't want is, you know, as Buffett said, the first rule is don't lose money. The second rule is follow the first rule. Uh, and so I I think that I'm I'm trying, I don't think I'm a Buffett disciple in terms of how much value and reasonable. I think of myself as sophisticated enough to know that all value all the time. I mean, I've done the work of my graduate thesis on Pharma French and you know what to do with price to book and what to do with um price to value. Yeah. And I think that when I look at that, I say, some of these names are just broken. And the reason they're value, they're going to become deeper value. And so I think that we need to have uh a mindset in value, but we need to also have some growth so that we can balance out the returns and give ourselves, you know, a good chance of doubling our money with an overall allocate, you know, combined number of seven to nine percent. And if we can do that for clients over time, that will be viewed as. And the thing our clients like is we had clients calling us during COVID saying, I'm so glad we own Costco. I go to the store, I see the company in action, I just got my tires there. I feel like this is a well-run company who's given me good value as a as a retail client. And that we want to own the names that people think are good. Microsoft, a great company, and also, by the way, one of the bigger donors um to the community in terms of what they do with their um endowment and foundation and what they do with uh executives giving money and matching money executives give. And just haven't hasn't been doing very well lately, though. Correct. But if we look at it relative to, you know, I think it's a time period thing, Glenn. You know that. If we looked at it over 10 or 15 years, I think it probably is in the top 10, right? Yeah. Uh, and so our our our idea is let's try to behaviorally be better. So we talk to our clients monthly with a blog where we say, hey, here is what we're thinking about, what's happening now. And in that way, we want to encourage clients, you know, clients on their own investments will probably become two and a half to three percent behind the index. We'd like them to not have that happen. So we try to avoid biases and behavioral mistakes, we try to help them avoid behavioral mistakes, and together we're hoping between the different ways we add value and the different ways we avoid behaviors that are bad, that that leads you to a better or long-term result.

Clem Miller 36:25

I think you're right. I think that's the way to do it, and I think that's that's actually better than the you know the accidental active that goes by the name passive.

Elevator Pitch And Behavioral Coaching

Steve Davenport 36:36

Yeah, and I think you know, uh I know that why clients are frozen. Most of my clients in concentrated stocks, it's the taxes, stupid. And they don't want to pay those taxes, and that eats them up. And then I just look at things and say, look, you know, taxes are a problem, and taxes will be why people don't sell indexes, because they've got a lot of embedded gains now. And so if you were to sell, you could go from nine basis point SP to a two-basis point SP, and you'd save eight basis points, you know, right away. And if you're 60 years old and you got 20 or 30 more years before you pass it on to your kids, just that improvement in the fees would go a long way towards helping you, right? Yeah. So I I think that when we look at taxes, um, it's a big friction and we should manage it. But I also think that you can't let it drive your your whole asset allocation and your portfolio because then you you don't do anything, and then I think you start swinging bigger and bigger swings. And I think when you started you were a 60-40 investor, and now you're more like 80-20. Are you really comfortable at 80? I I kind of have a feeling the reason you picked 60 was probably a good reason. And so I believe that people are overexposed to equities because they are frozen by taxes and they are frozen by fear, FOMO, fear of missing out on the next index return. And my my comment would be are you fearing any missing out on any downside? Do you ever feel like you, you know, this might put you in a position, a 30% decline on 80% of your assets? That's real money, you know what I mean? And you're not doing you're not paying 15, 20, maybe 25% in taxes. I think that you're, you know, you're not considering both sides of the equation.

Clem Miller 38:45

Yeah. Okay. Well, Steve, I think we've covered a lot of territory here. What do you think?

Steve Davenport 38:51

Yeah, I think it was fun.

unknown 38:52

Yeah.

Taxes FOMO And Real Risk

Steve Davenport 38:53

I mean, I hope it's helpful to people. And Clem and I do things like this, and we get an idea and we implement it in five or ten minutes. And uh, I think that what we're trying to do is to give you more insights as to how we think about investing and how you should think about investing. Not going to do the same thing as Clem, not gonna do the same thing as Steve. But what you might do is you might say, I didn't think about mid cap. I I probably like mid-cap, but I've always had a problem with small cap having too many names that are not high quality. But mid caps tend to have pretty good quality. Maybe that's something I'll I'll look at. And and that's the way we build. You know, we learn and we try to improve and we try to get better. And I don't think there's one, you know, silver bullet. And so what I'd say to everyone is let's grow and understand and give us some ideas on things we want to listen to or learn about. Um, I want to say it's it's a holiday weekend. Today's Good Friday. Please have a great Easter weekend and whatever holidays if you're celebrating um any religious holidays this weekend. Please um enjoy, enjoy your families, and uh let's try to make your wellness and your overall life a little bit better.