In this podcast, we’ll cover the latest in the stock market news, and how to invest like Warren Buffett, we’ll also discuss the role taxes play in investing

If you're looking for a trusted source to help you stay on top of the ever-changing financial world of investing, retirement and estate planning, and asset protection, whether it's for you and your family or your small business, you're in the right place. This is the 1715 Treasure Coast Financial Wellness Podcast, where we'll keep you up to speed with the latest market news and conditions every week. Now here's your host, Thomas Davies. Well, hello, and welcome to another edition of the 1715 Treasure Coast Financial Wellness Podcast.

My name is Thomas Davies. I'm a financial advisor here in Stewart, Florida. Wow, a lot of news this week, and we're going to try to get through it. Welcome to the show, and let's get started.

Let's just jump right in. Investors struggled to best understand Fed Chair Powell's testimony before Congress, and look for a signal whether the Fed intends to raise rates faster and higher in the coming months. Wall Street and Main Street seem to really focus on the remarks from Powell, and I'm going to quote on this here. Although inflation has been moderating in recent months, the process of getting inflation back down to 2% has a long way to go and is likely to be bumpy.

As I mentioned, the latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes. Restoring price stability will likely require that we maintain a restrictive stance of monetary policy for some time. And as soon as Powell spoke, the Fed Fund's futures market leaped to an almost 80% probability of a 50 basis point rate hike, and equity struggled, especially the financial sector.

Then it got a lot worse. On Thursday, news started to circulate that Silicon Valley Bank Financial was seeking to raise capital, and it's generally you want to say that you've raised capital, not that you're seeking to raise capital. And the bank was shut down by the FDIC. That news pushed investors to safety at treasuries, and there was a heavy selling as traders took risk off the table.

As a lot of you know, the Fed came in and backstopped all that, and said that all deposits are insured, and this is something that's been unprecedented. For those of you that remember 2008 financial crisis, something like that took a week, and the markets were all over the place, as basically the Fed didn't have the power, FDIC didn't have the power to come in and backstop those deposits in 2008. Well, this was done over the weekend, and that's pretty incredible. The closure of SVP Bank is the second largest U.S.

bank failure in the history, as it held $209 billion in assets at the time of its collapse. Even after adjusting for inflation by assets, it only trails only Washington Mutual, which held $434 billion in assets when it failed in 2008. So, for those of you that kind of, like, what does it all mean, what is this all about? And basically, you know, the way banks make money is when you deposit cash, they lend that out.

So, if, let's say, you know, Jim Smith comes in with $100,000 in cash, well, they're going to lend that money out to, let's say, Mary Jane for her mortgage and Bill for his car loan, and they lend that money out, and they leverage those deposits. Now, I mention leverage because we mentioned Washington Mutual, and at the time, Washington Mutual in 2008 was leveraged 40 to 1. So, that means every dollar that they brought in, they leveraged 40 on that, which is just unbelievable. So, they were lending $40 to every $1 that they brought in, which is just completely insane and obviously unsustainable.

So, what happened with Silicon Valley Bank, in a nutshell, is they made bets on 30-year municipal bonds that paid 2%, and interest rates rose on them. And so, all those bonds went down. They lost a lot of money in their bets, and, you know, VCs were aware of it, and people came in, and we had what was called a classic bank run, and miraculously, over the weekend, the Fed came in, stepped in, and said, you know, we're going to backstop all those deposits. So, that was some pretty big news that's happening.

There's going to be a lot of trickling effects on this of what happened. You know, my guess is that FDIC deposit insurance goes from $250,000, who knows, $1 million, $5 million. You know, the Fed right now says it's unlimited, which is, once again, just unprecedented. Mortgage applications, that index rose 7.4%.

Interestingly enough, mortgage rates dropped by half a percent. They were up over 7% as of Wednesday of last week, and this week, they're down to about 6.5%. So, that's considerable savings. You know, but there is more inventory coming on the market as we get more and more into the interest rate rise and the effects that it's having.

You know, people are putting their homes on the market, maybe downsizing, and you know, certainly, it's still a, at least, I'm going to speak about Florida, at least in Florida, it's still a seller's market. I was in a presentation today where basically in Broward County, people were getting 100% of their asking price. It's now down to about 95%, whereas inventories a year ago were about one month with about 1,500 homes for sale. Now they're about three months worth of inventory, and that's about three months worth.

So, kind of interesting there, some of the things that happened. Today also, you know, inflation came out today, a report, and it's still high. It's come down, it's at 6%, but it's a far cry from 2%. So the question is now, does the Fed raise 25 points, do they raise 50 points?

You know, we're going to see here in a couple weeks. The consensus seems to be that they're going to raise, but with the events of SVP in New York, with the bank there that failed, you know, do they pause? This could be interesting for the markets if they announce a pause. My personal opinion is I think they raise.

I think this may not warrant that 50 basis point raise. They may look at this very cautionary with the interest rates. We'll see. My guess would probably be they continue on the path at 25 basis points, and as they go, they monitor it, and at some point we're going to get the pause.

No one just knows when that pause will be, and as soon as it does, I would imagine markets will be off to the races when they get that pause, just because it's certainty in the market of no more, you know, raises for the time being. So with that said, we'll move on to some of the other news of the week. Man, it's been incredible. Volatility, you know, in the markets.

Should I buy stocks now? Do I buy bonds? I know for my clients here, we've been buying individual bonds, paying that 5% to 6%, even some of the higher yield corporate bonds in that 7%. Looking at some of the individual stocks, the dividends just quite aren't there, to be clear.

Why would I buy the stock paying 2% or 3% when I can buy the bond that's going to pay me 6% or 7%. So those are some things in the portfolio that you may look at as, you know, if I'm holding these individual stocks for that income purpose, you may find it in the bond market, and you may, you're certainly going to find more yield. One-year CDs are paying over 5%, so, you know, there's options there for the risk averse, but with interest rates continuing to rise, which is, once again, I said kind of in my opinion, there's going to be more opportunity for some of the interest rates risk. One of the things that I wanted to be clear about in your investment portfolios is that there is a difference between stocks held in an account and cash held in your account.

And the stocks, bonds, ETFs in your broker-dealer account, they're held in separate accounts, whereas the cash is going to be held in the banking side of most of your accounts, and they are completely separate. So when you're looking, you know, at your portfolio, or you're questioning, is my money safe? First and foremost, reach out to your advisor, reach out to your bank, and just ask them the questions that are making you nervous. I mean, that's what they're there for.

That's what I'm here for, is to answer questions. I can speak from my side. Our custodian that we use is TD Ameritrade slash Schwab, and just today, the CEO was on CNBC and really gave a great explanation of the difference between holding your stocks in a separate portfolio, a separate account, versus the cash at the bank, and how they are segregated, and, you know, just the backstop that they have for additional liquidity, and just how they are fully funded and insured. And there's been a lot of discussion, too, with the difference between FDIC and SIPC insurance, and, you know, FDIC is for the cash, up to $250,000, where SIPC is really more for fraud.

So that's where, let's say you invested in something, and it turns out to be fraudulent. There's things that come to mind, you know, that's what SIPC insurance is there for. And generally, that's up to $500,000. And so, you know, really, you want to look at the different types of insurances that some of these banks have.

Do they have FDIC insurance? Most banks, most all banks do. Most all credit unions are going to have that for that matter. And also, once again, you know, just to clarify that, you know, stocks, bonds, ETFs are held in separate accounts.

They're not commingled. They're not, you know, they're not lending on your stocks or on your bonds or ETFs or mutual funds for that matter. And so, you know, the safety issue is really a non-issue when it comes to that. And that was thanks to, you know, 1933 and 1934 and, you know, those years when stuff was commingled, and they just kind of held everything in one big pot, and it really turned to, it was pretty disastrous.

So, you know, as things happen, as things move, more regulation, you know, with the case of SVB, I really feel there's going to be some more regulation coming out. It was interesting they said that had they taken the tests, the bank tests that, let's say Bank of America, Chase, that, you know, their solvency tests, that SVP would have passed those tests. So that's a little concerning to me, that this bank would have been able to pass those tests even though they were, in fact, insolvent and, you know, the Fed had to step in. So, well, let's talk about Warren Buffett, the Oracle of Omaha at 92 years old.

And if you are not familiar with Warren Buffett, I suggest, you know, do some research, really just one of those guys that has a friendly demeanor, but more importantly, the remarkable ability to create wealth. And how does he make so much money? How does Warren and his longtime associate, Charlie Munger, who is 99 years old, choose their investments? Well, Warren Buffett is a value investor, probably the most successful investor in history.

Once again, Buffett is known as the Oracle of Omaha. So what's his strategy? In a nutshell, Buffett is a value investor, a bargain hunter. He searches for stocks that are valuable, but not recognized as being valuable by most other buyers.

That's also particular what they call bottom-up investing. Thus, he can buy a company when its stock prices are unreasonably low. However, Buffett isn't especially interested in how the market treats his new stock. He chooses stocks based on the overall potential of the company to generate earnings.

He buys and holds stocks. Once again, he invests and not speculates. Generally, if he's going to buy something, it's going to be for a long time. And when I say a long time, that's minimum three to five years.

His primary concern is how well the company can make money for its shareholders. If the company does well, of course, its share value will also increase. Mr. Buffett also outlined his recent thoughts in his annual shareholder letter in February of 2023.

He said the world is full of foolish gamblers and they will not do as well as the patient investor. If you don't see the world in this way, it's like judging something through a distorted lens. If you don't care whether you're irrational or not, you won't work on it. Then you will stay irrational and get lousy results.

So ultimately, you want to stay rational. There's that old saying that the market can stay irrational longer than you can stay solvent. So patience can be learned, having a long attention span and the ability to concentrate on one thing for a long time is a huge advantage. Don't bail away in a sinking boat if you can swim to one that is seaworthy.

Let's expand that for a moment. I've talked about cutting bait on stocks or an investment and sometimes there's going to be another investment that's going to outperform what you're currently doing. Certainly over the last year and a half, there's a lot of opportunities in there. The way that I like to express it is if you put two of those in a horse race, which one is going to get there faster?

So when you're looking at two different equities, you say, okay, well, five years from now or three to five years from now, which one do you feel is going to outperform one another? If you keep making something more valuable, then some wise person is going to notice it and start buying. There is no such thing as a 100% sure thing when investing, thus the use of leverage is dangerous. Talked about that earlier with Washington Mutual and leverage.

A string of wonderful numbers times zero will always equal zero. Don't count on getting rich twice. Very interesting. You don't, however, need to own a lot of things in order to get rich.

You have to keep learning. If you want to become a great investor, when the world changes, you must change. So that's another great saying. What worked 10 years ago, what worked a year ago, may not work right now.

Ken Buffett's strategy of long-term value investing work for you? The best, that's a great question. Kenneth, well, he's been pretty good and his track record is one of the best. He goes along here also saying the best protection against inflation is your own personal earning power.

No one can take your talent away from you. Recently I was in Nashville and saw, you know, there's a bunch of murals all over the place in Nashville and one of the saying was that you are the youngest you will ever be right now. Think about that for a second. You are the youngest you will ever be right now.

Buffett also said if you do something valuable and good for society, it doesn't matter what the U.S. dollar does. Doing well always, you know, doing great things for other people is one of the greatest rewards most people can get. So get out there, be philanthropic and do things.

When asked to predict inflation, Buffett said that predicting future inflation is a fool's game and that no matter what someone might suggest, the truth is that no one can really know how much inflation there will be over the next 10 years or 12 months or even 4 weeks. Inflation swindles almost everybody, Buffett said, whether they are a stock investor, bond investor or a cash under the mattress person. His strategy, once again, requires patience, a long-term focus and buying low, a value investing approach. The first thing you know about long-term value investing is it's very difficult to determine whether a company is undervalued by the market with a greater intrinsic worth than most investors see.

To make good decisions, you have to be able to analyze a massive amount of financial data, the market for a company's product, its management and the future. Now there are a lot of great research tools out there that you can use and I'm sure Mr. Buffett utilizes a lot of tools to do your research. I use Morningstar, Morningstar is a great research outfit that utilizes some great analytics in their research and you can really do some due diligence or homework, as some other people like to call it, on those individual investments or a company that you're thinking about buying.

Recognizing this difficulty, Buffett advises other investors not to consider themselves know-it-alls. He has said there's nothing wrong with a know-nothing investor who realizes it, and we've heard that before, right? You don't know what you don't know, but you think you know something and I'll wrap it up with this. As Buffett said about wise planning for the future, someone's sitting in the shade today because someone planted a tree a long time ago.

What a great quote. So I'll end it with that and saying thank yourself today, thank yourself tomorrow, you know, by doing something today for your future self. I know I just killed that quote, but it's very similar to that. So like myself, you're probably in the midst of getting your taxes either prepared or getting ready to do them, or maybe you have already done your taxes and, you know, there's some things that you can do.

If you needed to amend your taxes, there's still time. One of the probably biggest things to look at is contributing into a retirement account. This can reduce your tax bill on your income. So we'll talk about the seven things to reduce your taxes.

That's one of them. Plan your capital gains and losses. Now for 2022, that window has closed, but certainly for 2023, you can certainly look at some of the winners and losers and kind of start planning now for some of that tax lost harvesting. Take advantage of your business deductions.

If you own a business, you may be able to take advantage of a variety of deductions to reduce your taxable income. If you don't own a business, think about starting a business. You know, you got to be careful between the hobby and the business, but what you're doing may actually be a business and you could do that. Keep accurate records.

That's just most important. You know, by keeping, there's so many apps out there to snap pictures of receipts, track things, keep accurate records. That's going to be the best way to help reduce your tax bill. Maximize any educational credits that you might get.

And last but not least, consult with a tax professional. Get with a CPA. You know, see if they can help you. Different CPAs do different things.

Ask a lot of questions. Ask them, are you the type of CPA that are going to help me reduce my tax bill or are you just going to file my taxes? There's a huge difference there because some CPAs just take what they get. They write down the numbers and go, here you go.

Your taxes are done. Now, other CPAs will go, did you ever consider doing this? Have you considered doing this to reduce your tax liabilities? So make sure you're asking those questions, you know, which type of CPA you're working with.

I think that is important. Well, I'd like to close out this week's podcast first by thanking you for stopping by and checking it out. Once again, there was a lot of news this week. I tried to get through most of it, give you a few ideas.

You know, we've got a long way to go and it's likely to be a bumpy road. The process of getting inflation back down to 2% has a long way to go and it's likely to be bumpy. Jay Powell came out and said that they've got a long way to go with the numbers coming out today being 6%. Getting down to 2%, I can't see how some of these analysts that I've listened to just today saying, well, there's going to be a pause.

I don't think there's going to be a pause. I think personally that they're going to probably raise by 25. We may see 50 basis points. As of last week, it really sounded like he was going to raise by 50 basis points.

Now with this bank failure, that may have subsided it down to 25. We will see. So anyway, thanks again for listening and stopping by. Once again, my name is Thomas Davies, a wealth advisor here in Stewart, Florida.

Thank you for listening. Have a great week and we will talk to you soon. Thank you for listening to the 1715 Treasure Coast Financial Wellness Podcast. If you enjoyed this episode, share it with a friend who might like it.

And please rate, comment, and subscribe. If you'd like to contact us, find more information. Or if you'd like to keep up with us on Facebook, Instagram, Twitter, or LinkedIn, check out our website at www.tdwealth.net. Have a great day and we'll talk to you next week.