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In this Episode of Dental BoardRoom Podcast, host Wes Read sits down with Brandon and Paul to break down the biggest forces currently shaping the market, from geopolitical tensions with Iran to Federal Reserve policy and overall stock market resilience.
The discussion explores how global conflict, particularly disruptions in energy supply, can ripple through inflation, interest rates, and portfolio performance. The team shares their base-case expectations, potential risks, and how they are actively positioning client portfolios to navigate uncertainty.
Despite short-term volatility, the conversation reinforces a long-term, disciplined investment philosophy focusing on diversification, strategic rebalancing, and avoiding emotional decision-making. The episode closes with practical, “set-it-and-forget-it” strategies investors can apply right now.
What You’ll Learn
Focus on what you can control: Income growth, spending discipline, and steady investing are the true drivers of long-term wealth.
Wes Read: Welcome everybody to another episode of the Dental Boardroom podcast. As you know, every quarter I assemble a couple members of our investment committee to put our heads together and share with you how we're viewing the stock market, the US as a, as an, a place to invest your dollar. Also international, uh, places to invest your dollar stocks, bonds, federal reserves, international conflict, and how it's all.
Sort of weaving together to create what is market returns. And those market returns then extend into your own portfolio for your portfolio returns. And just zooming out, you know, here at Practice CFO, the tip of our arrow. Everything we do is channeling financial freedom for our doctors, all the accounting, all the tax, all the financial forecasts, all the strategizing, all the payroll design, 401k, debt management, personal budgets, all of that sort of weaving a business and personal financial planning with the CPA engine behind it.
Drives the x-ray and the clinical recommendations as we work with clients to fund their investment portfolios. So I like our clients to know, uh, that investment management is a significant part of what we do. In fact, before I even added the CPA work, all I did was personal financial planning and investment work.
It is a core service here. And so I want to give our, uh, clients and really anyone listening to the podcast, what our investment committee is thinking. And doing as all this news is coming out right now around Iran and the Federal Reserve and the stock market and technology and ai, and what are we doing to try to eliminate unnecessary risk, take on only appropriate risk, and help our clients grow their portfolios at a steady, predictable, consistent pace to help them achieve financial independence.
So with that backdrop, let's go ahead and dive in. The three main topics for this investment committee, um, episode is, um, what's happening with Iran and how is Iran affecting the stock market and our client's portfolios? That's number one. Number two, as always, what's happening with the Federal Reserve?
The Fed's decisions to, to keep rates the same, lower or raise them, have a significant effect on the economy, and that bleeds into our client's investment portfolio returns. And then lastly, we'll just talk about the stock market in general and how resilient is it. Are we staged four good things or possibly some struggles on the horizon?
So Brandon Paul, welcome back to the program.
Thank you, Wes. Happy to be here.
Alright, let's go ahead and dive in. Um, the Iran conflict, uh, right now we are currently 21 days into the conflict and it's now sort of shifted into, uh, an energy war. It's really all, it's really about the flow of oil and we have the Strait of MOUs, which is a, a bottleneck right now.
And Donald Trump is attempting to enlist allies to support a safe passage for these oil tankers to get through. And Israel is striking Iranian energy targets and Iran to retaliate is striking various Gulf energy infrastructures to essentially try to disrupt the world energy flow. And I think try to get therefore, the world to, to, to encourage the US and New Zealand to back off, uh, of that, that's the, the indirect strategy I think they're taking.
So here's my question and let's go ahead and start off with you Brandon. What are some of the potential outcomes here? And I'm gonna bed a sub-question inside of that. Do you think that this could be a trigger for a domino sequence that could lead to a broader market? A decline in the s and p 500 and just in the market in general, what are, what are the potential outcomes and could this be a trigger point for something bigger and worse?
Yeah, so I think the potential outcome or the most likely base case here, Wes, is that we have a short term conflict and that this thing ends in the next two to three weeks. That's generally the base case. Um, now if, if this thing escalates. And the energy strikes that you just mentioned is definitely a form of escalation because initially they were only striking military targets.
Um, and things like the regime taking out the leaders of the regime. And, and that was, that was something that was obviously planned in order to possibly create new leadership in Iran that would shift their focus away from nuclear weapons and things of that nature. But now they're striking these energy targets and.
A lot of these, um, a lot of these targets are gonna take years, one to three years to recover from these strikes. And so if that continues, we're definitely, uh, heading into more of a pro prolonged disruption. And that's kind of the worst case scenario. Um, but again, base case is still two to three weeks this thing ends.
If that happens, there should be, there should be a relatively. De, uh, or, or I should say there should be a decrease in the oil price. It should be pretty swift, and it should come back down to pre-war levels. Um, if oil stays above $100 for an extended period of time, that's where you're gonna have a, a more pervasive impact on the global economy.
Recession odds will go up. Oil is an input to virtually everything in the economy. And so if that happens. And oil prices stay elevated for say, the rest of 2026. Then we're gonna have softness and growth, not only in the US but globally, and that's gonna make for, for a little bit of a, um, a bigger issue and a pullback of equities.
Yeah. Every day when I go on the news, it seems to me like the, uh, I'll call it a, a war. Uh, it certainly feels like one that it's escalating with more attacks and more bombs. I'm. Losing confidence a little bit that this will be a short term event. And if it's a longer term event, obviously that's gonna have a lot more implications, um, here.
Uh,
well, it depends on the trigger points, right? And I think that, uh, for what it's worth, the Iranian, uh, regime has been, uh, pretty impressive with how they've really engaged those pressure points. Um, because I think it's now a battle of. How far will you go? Obviously the US has significant military assets to the degree that they could obviously dominate the war.
Right? But at what cost And, and I think the Iranians are testing that economic cost theory, right? And doing a pretty good job in the current moment.
Yeah. It's almost like they know that they don't stand a chance militarily against us. They, they know that. Right. But they also know that there's a lot of political volatility and there's a lot of political di divisiveness here on, uh, various subjects.
Iran being one of them. And I just wonder if they're not trying to. Hold out until the midterms and if sort of things change politically over here, then there may be a movement to, to get back out of Iran. And if they could hold on their leadership until then, I don't know. Maybe that's a strategy. Iran's an interesting case because you have, and I'm not the scholar on this by any means, but I see these, these, these images.
On the news of huge swaths of people in crouch, cheering for a kind of a, a liberal democratic. Opportunity here to, uh, to, to be put in place. And then I see other pictures with huge swaths of people trying to retain the theocratic leadership in Iran. And I don't know which one has the larger influence. I am not very versed in this, but one thing that I think I was wrong about in the beginning is I did think that the, the uprising that was happening before this.
Was powerful enough that with just a little bit of effort on our part to sort of dethrone their, their leader that it would do the rest. And I, I, I think that there's actually a longer journey for them with more obstacles to actually have that change of regime. Question for you guys. Is this about regime change and getting a more friendly democratic ally in the Middle East, or is this about oil or is it about both?
I think it's a little bit about both and, and I, I think you're right on that, Wes. I think, I think, um, in general, uh, that it has been a little bit more difficult to get that regime change if that was the goal. Um, and currently I. When you have a regime that's willing to murder the, the citizens, at any point they try to uprise or stand up or even protest.
Um, I think that's where the, where the citizens are probably not going to come out into the streets freely until they feel like what they're doing is actually going to result in some kind of change. And right now that's not clear that that would happen.
Well, and as our, uh, our chief Investment Officer, I would like you to use your predictive powers.
Brandon, are we, are we, are we gonna be sending troops on the ground? Because I think that's where we definitively know this is gonna be a longer process.
Yeah, I don't think the US is gonna be sending troops on the ground into Iran. I think that that would be, um, political, suicide. And I, as you mentioned, there's a midterm coming up and, uh, there's just really no appetite for the us, for the citizens of this country to put their, their, uh, brothers, sisters, sons, and daughters at war for somebody else's freedom.
That's, that's my gut instinct on that.
And, and predictions aside, I think we're all learning our administration included of how interconnected trade is. Um, you know, you saw it with the tariffs obviously, and now this, and it, it's interesting because the, with the economic sanctions and trade agreements, not a lot of that oil is coming to us, in fact, very little.
Um, but what happens is when you disrupt supply chains that are going to other markets, you have US suppliers who say, look. They're paying a hundred dollars over there. So in order for you to get these barrels, you're gonna have to pay the same. And, and that impact has such a, a vast ripple effect. And so why am I saying that?
Well, I, I think not only would it be politically unpopular, but I think it's a proof of concept that, um, these, these, um, conflicts with, uh, material participants in that, uh, global trade. It hurts all of us. It hurts all of us, um, in our, in our pocketbooks and our, in our purses. Right? So it, it'll be interesting to see how it unfolds, but it's a very interesting case study of, um, that interconnectedness and, and how far would we be willing to go to attain a political objective, right?
Yeah. One of the concerns that's been expressed, and I don't know how to measure the severity or the reality of this occurring, but um. Uh, CH China, I would say is our, is our true only military competitor. It is my belief, and if you look at the trend of their growth in, in just power and economics and military, uh, there I'm reading a book from by Ray Dalio called The, the Changing World or Order, and you can see some of these graphs.
How at, at one point in time it was, it was, um. What was it, Denmark? Uh, when they came up with the, uh, the East Indies Company and the Amsterdam Stock Exchange, they, they sort of became the world dominant power. The, and then the Dutch, and then they declined. And guess who came up next? It was Great Britain.
Uh, and then they started de decline and it was the us and now you're seeing by those same measures, if you take the same measuring data points in each of those cycles, the US is starting to come down in terms of its. Valuation as a reserve currency, national debt, you know, some other things. And, um, and you have China is, is coming up and they're almost like starting to intersect.
And so I bring all that up to say China has gotten a lot of its oil from two places that we've now stepped in Venezuela and now Iran. And uh, I also know that part of the reason why Japan bombed Pearl Harbor was because, uh, we had cut off their oil supply. You wanna go poke the bear? Go take away their energy supply and I just wonder to what extent there's a risk here of something much broader, bigger, and uglier.
I don't mean to catastrophize, but I do, I do wonder about that a little bit. If, if how much China is hurting on their oil supply and energy reserves right now, given those two resources are not dried up, but they're less productive for them and how they might respond to that. Any comments on that? Worst case scenario.
I mean, I, I think, let's not forget, there's also a Russia and Ukrainian war going on as well. Right. And, and one of the things that we're seeing are one of the biggest beneficiaries from this Iranian conflict is Russia. Mm-hmm. And so there's been a increased demand for their oil. How does that impact that war?
It's probably gonna, um. Drive that duration a little bit longer because that's one of the primary revenue sources for Russia. Um, and so I do think you're right on that, Wes. I think what needs to happen is there needs to be a deescalation on these energy attacks. Now, Israel started this by, by attacking Iranian um, resources and then Iran.
Responded with counter attacks. Uh, we, we need, we need that to die down because those are the things that, like I mentioned earlier, it's gonna take one, three years, possibly longer to recover even the, uh, the natural gas resources that were attacked by Iran, they're saying that that could take up to three years before it's back to max capacity.
Yeah. The thing that, um, the thing I, I, I have a broader kind of macroscopic. Concern that's always hovering in my thoughts, which is our national debt. You know, this, Brandon, we talk about this quite frequently. Mm-hmm. And we've added in last year we added about 2 trillion, uh, in one year, which I think is the most ever added in a single year.
Maybe, maybe other than when COVID hit and we had all of the, the, the government money just being dropped everywhere through, you know, all the government, uh, programs there. With ERC and grants and whatnot, and, uh, we're about to potentially approve another 200 billion for the war in Iran. That's been the request.
I just don't see any end in sight here with our national debt. It no parties addressing this. It's like both parties have just surrendered even the concept. A fiscal responsibility, which is, um, a big more macro level concern for me. It's not even a political party concern. It is a structural economic macro concern that I have.
And one of the things that I believe, uh, from this book I'm reading is the four things that really tumble an economy or number one, their national debt, two civil unrest, three wars abroad, and four, the loss of currency in the do in the, in the currency of loss of faith in the currency. Of that country, and I'm seeing all four of those right now.
It doesn't mean that I think suddenly we're gonna slide into a third world country. No, it, but I, I, I'm just waiting for somebody to stand up and say, Hey everybody, we have our policies and we fill this about all of these different policies and you know, we have some differences in opinions on different things, but can we all step back and agree that we have these things that are party.
Independent that we need to address, which is civility in our politics. A, a society can't persist without civility in its politics, number one. Number two, you can't overspend and we are overspending like we've never done before. Now we have a war abroad. And, uh, last year the, the valuation of our currency relative to the six other major currencies, uh, fell by 11% last year, the most since 1973.
Guys, am I being too catastrophic in my. Some of my concerns there.
Well, no, it, because the only way to truly enact change is in awareness. So, no. Um, but, but I do think the parallels, uh, to, to Holland, um, and, um, Britain, you know, they weren't under a, uh, modern democratic, um, governance, right? And so there is the, we, the people factor that.
That, uh, should hopefully prevail in this. And, and as the pendulum swings, there's an, an increased awareness on other issues. And so when it comes to fiscal responsibility, you know, there's a changing of the guards in terms of who are the beneficiaries of capitalism. And it, it seems as though the new generation, um, is, is not okay with that, um, has been treated unfairly to, to a large degree with that.
So hopefully we do see some, um. Uh, change as a result of that because ultimately, you know, it's, it's the people's vote. It's the people's vote, not only in uh, uh, democracy, but in in the capital markets as well. Where we choose to spend our dollars, what companies we choose to invest in. Um, and so forth.
And as it stands right now, the s and p would say otherwise in terms of your, um, doom and gloom, uh, sort of outcomes. I think what we're seeing in, in, in, in specific notes now is very much a, um, a reallocation of funds from, uh, more elevated valuation companies and tech. And we're seeing a lot of rotation into energy, which is obviously going to benefit from a.
Geopolitical conflict, defense staples and things of that nature. So the fundamental, uh, backbone of the American economy, at least to this point, has shown that, hey, there is resilience and maybe it's more of a reallocation of those economic votes.
Yeah, that's where I,
at least at this point,
that's where I remain really optimistic.
The underlying source code of our country is amazing. In fact, I was abroad in Europe a few months back and I was visiting a friend and he's, he's a business coach of mine. Uh, his name is Sir Steven Wilkinson. I just love this man so much, and, uh, he's literally a, a knighted as a sir, the only sir I think I've ever met.
And, um, but I, he goes, the one thing he goes, I love America and the thing I love about America that you, I just don't find anywhere else, and he's lived in many different places, is the spirit of life in America. That entrepreneurism, that like optimism that go get it. Like we can conquer, we can overcome.
He goes, I just don't see that love for life and optimism anywhere else. And I just love that statement. I just. Feel very patriotic and proud of, um, of what we have here. And in spite of me sharing off some of those broader concerns, it's because I don't wanna be ignorant of them. But it doesn't mean that I don't have faith and confidence in who we are as, as a nation.
And that feeds into our economy and that feeds into our, our stock market, uh, and our client's portfolio. So let me drill down a little bit into, on a more optimistic sort of transition there into our client's portfolios on this subject of this energy war. Brendan, how are we doing in sort of hedging against, uh, inflation around energy?
And uh, one thing I I just want our clients to know is even when the market declines, and it will 'cause, it always does, and then it comes back up. That people make money in down, in up markets and in down markets things become less expensive. And then when you buy it at a lower cost, when it rebounds, that only serves you really, really well.
And so I really emphasized the need for systematic disciplined, non-emotional rebalancing and constant contributions into the accounts, even when the stock market is falling and, and there's a lot of fear,
especially. Especially when the the market is falling.
Exactly. So this is not, when I paint that picture there for a moment of potential negative outcomes, it's only because I don't want to be ignorant, not because I think that's the case, and I especially don't believe that people should be pulling their investments.
I'm not. If it falls, I know I'm 47, I've got a lot of years left. I'm not pulling it out. So frankly, in some ways I don't care. I'm actually kind of excited to look for money in my, my seat cushions to throw into the stock market when it falls actually, and I become more bullish about the long-term effects.
But, um, Brendan, what are we, what are we doing and you doing specifically mechanically in investment portfolios right now to. Kind of address these current issues around international and political events feeding into client portfolio volatility.
Yeah. So I think number one is that we are leaning into that base case.
That's a short duration war that the US involvement here winds down over the next three weeks, hopefully sooner. And if that were to happen, um, I think generally the expectation is that markets would recover, which they've, they've definitely declined the US market somewhere around three to 5% down since this conflict started in late February.
So we, we are gonna expect a rebound once this thing starts to kinda. Resolve itself, and it gets a little bit more, uh, clear as to how this oil's gonna be moving through the strait, um, and hopefully some of the supply side shocks dissipate. With that said, we, we've been positioned, and if you listen to the last three or four podcasts that we've done, we've talked a lot about our positioning towards value and fundamental stocks, those stocks.
We're already benefiting in 2026 from what we call the great rotation, uh, which I hope continues. And this war has accelerated that. And so value and fundamental stocks have outperformed growth stocks, primarily technology and, and, uh, communication services sector. Um, on, on, uh, the bond front, like you said, Wes, as.
As the market has declined, our bonds have held up well, and so we've continuously rebalanced. And what that results in is selling of bonds and then buying these equities as they have fallen over the last few weeks. And the hope is is that once everything resolves itself in the market, recovers that those equities will rebound.
And then when they do. We'll do the opposite. We'll sell those equities and then buy back into those bonds. So that continuous disciplined rebalancing is that by the dip mentality. Um, it, it works very well, especially in periods of high volatility. And periods where the duration is short, where basically things are recovering quickly and that volatility doesn't persist for like the next six months.
Yeah, 12 months.
I just gotta say, I'm so grateful to have you here, Brandon. I want all my clients to know this. Like Brandon is, he's in the office, he comes in every day, uh, and every day when I, or when I go into his office, I see the, the Wall Street Journal, literally the print edition. On his desk and he reads that every day and he just stays full-time plugged into this.
And it's something that, um, I just want our clients to know that we are highly in tune to what's happening every day with the market, the Federal Reserve. These political and international issues and that we are guarding, like with our life, we're trying to guard these assets that our clients have entrusted us to, to manage on their behalf because those assets represent so much blood, sweat, and tears of their, of their life, uh, and their wealth in that.
So thank you Brandon. You know what, speaking of the great rotation, I, I, I like to see that less of the s and p return is coming out of the mag seven. Yes. So in two, in 2020. Um, five 42% of the returns on the s and p came from those seven companies, Nvidia, Google, Microsoft, et cetera, right? Uh, in 2024 though, it was 60%, so it, it dropped there by 18% year over year from 24 to 25.
That's a good trend because. I think that our economy and our stock market needs better diversification than, you know, seven companies, just like we in our own individual portfolios, should have better diversification than seven stocks. I think, uh, the general, these index funds and these broader mutual funds that hold thousands of stocks are much better off when there's broader diversification.
And Brandon, can you just comment a little bit how we've sort of gone, uh, uh, done sort of an end run around. Those seven stocks, uh, to get broader diversification in our, uh, in, in our investment approach.
Sure. Yeah. So I mean, like you mentioned, tho those seven stocks make up 30 to 35%, maybe even more at this point of the s and p.
And so, uh, what we don't wanna do is passively invest in an s and p market cap weighted index. So we've avoided that and we've focused on investing in value and fundamental based ETFs that have a much smaller weighting. So we don't wanna completely eliminate our technology weight. Good point. That's not the goal, right?
Yeah. Because even though we feel this is overvalued, we just don't know exactly when that pullback is gonna happen. So we, instead of saying, instead of being tilted towards tech. 30, 35%. Our weighting is more like 15 to 20%. So we're still getting a little bit of that upside, but we're protecting against the downside because we do perceive real risk there.
And when the market turns like it has with this Iranian conflict, those stocks are gonna get hammered the hardest. And that's what's happened over the last few weeks.
Good comments
there. And in, in this particular conflict, I think there's a lot of obvious. Um, movements that are predictable, for example, the flight to energy, but there's been some maybe less obvious typically in a conflict scenario or, um, just as fear rises, you'll see the, the investment community run to, to, uh, fixed income or bonds, particularly longer Data bonds.
Let's lock in yields and let's move to safety. In this particular case, it's uh, we have two, uh, sort of competing forces. One is the prospect of higher inflation with higher energy prices. And so what we've actually seen is a little bit of a sell off in, in longer term bonds, which are, which are making them more attractive as a safe haven asset.
And so, you know, last year we were slowly laddering further from short duration to what we call, uh, moderate duration, five, seven years. But now the prospect of, hey, do we kick that, uh, duration, um, target out further is something we're discussing because now we have a, a really, um. I think definitely better opportunity than we did yesterday, but as the 10 year treasury yield goes up to four and quarter and beyond, it becomes a really attractive asset class to pursue.
Um, but, and the impact to, to growth stocks, the higher the valuation, the more sensitive it, its price will be to movements in the yield. It's kind of playing a double whammy. It's, it's punishing those stocks more than. Uh, a security that has a stronger fundamental current earnings picture, while also giving us an opportunity to buy a Safe haven asset, um, as well.
Yeah. So stock, uh, tech stocks are Brandon, correct. Tech stocks are a lot more, uh, volatile in their relationship to that 10 year treasury. Absolutely. So the 10 year treasury goes from four to 4.25. Those stocks that anticipate. Their growth from long-term results. The tech stocks generally are, 'cause they don't issue dividends oftentimes, and so you're, you're expecting dividends to come way down the road and sort of these longer term returns down the road.
So if inflation rises, the present value of those benefits is less. And so those tech stocks can really be, uh, hit. What are some of the defensive sectors that you think are good and in our client's portfolios right now?
Yeah, that's exactly right, Wes. So Paul mentioned long duration bonds. Those are your 15 year treasuries.
Um, if you want to try to correlate or find a, find a something in the equities market that is considered long duration, it would be your tech stocks. And, and the idea there is that there earning streams are farther out. So some of these tech stocks are not making money today. Um, and won't be in the next five years.
So they're not projected to make money until 10 to 15 years out. Those are considered long duration equities.
And to clarify, Brandon, there are companies that are making money today, but they're trading at such a high multiple. You're not gonna get returns as an investor until it's double, triple, quadruple those earnings.
Absolutely. Yeah. So there's some that are not making any money in the AI space, and then some that are like. You know, your Apple, your Googles, um, but their valuations have increased so high that any rise in that 10 year treasury is gonna have a negative impact on that discounted cash flow mechanism that Wes explained earlier.
So what, to your question, Wes, what stocks or what industries are your typical value Fundamental industries that we're investing in?
IE defensive, some of the defensive areas.
Defensive areas being energy, which, you know, we didn't, nobody knew this thing with Iran was gonna take place, um, except the one dude that bet in the poly market, I guess like a few hours before it happened, right?
But, but we were allocated, we were overweight energy before this happened. So, um, energy has, has really worked well. Financials, industrials, materials, utilities, and consumer staples almost. You could go as far as to say everything X technology. Had at this point has some value under the hood.
Great point.
You know, one thing I want to put in perspective for our listeners, just kind of distilling a concept down for them to understand these valuations. Um, when a dental practice sells, it typically sells, and I'm gonna use EBITDA here, and let's, uh, uh, more of an institutional acquisition from A DSO or private equity.
They're typically buying that practice for about five to maybe seven times. It's EBITDA or it's earnings. And so it has a, it has a multiple, a, a price to earnings ratio. This is a term we use a lot in the podcast and anyone who sort of is following stock markets and stocks, they look at what is the price?
What do you pay for that stock per share relative to the earnings of that single stock? Um, and that sort of tells you how long it's gonna take to recover your earning, to, to recover your purchase price. So if the, if the PE is six, it sort of takes you six years to get, uh, back your purchase price and then after that, you start to see that return.
So, uh, a private dental practice is selling to DSOs for somewhere around, uh, really four and a half to maybe seven. What is the, Brandon right now, ballpark, the average multiple for s and p 500 companies. And what is the average multiple for some of these tech stocks?
Yeah. Paul, you might have better insight as to average on the s and p.
I think it's in the, in the, uh, low twenties and then your tech stocks is, it's probably somewhere in the high thirties, uh, or sorry, low thirties,
no s and p's in the, in the low thirties
s and p's in the low thirties.
Yeah. It's still elevated. Yeah.
So to put that in perspective, if a dental practice had a earning, so let's say it's a, it's a, I'll just run some numbers here.
Let's say it's a a $2 million dental practice and it's high
twenties after the sell off.
Okay? So high twenties. So a dental, let's say a dental practice is doing 2 million per year and it has a 60% overhead before paying the doctor and a 40% profit margin. So that profit margin is 800,000. And let's say of that, the doctor gets paid 400,000.
So after paying all overhead and the doctor, there's $400,000 left. That's the earnings to, let's say a private equity or A DSO. So let's multiply that by 28 to use an equivalent s and p 500 multiple, that would put that $2 million dental practice at a value of 11.2 million. The only reason I'm doing this silly little exercise is to kind of help our clients conceptualize how, um.
Uh, public stocks are traded and expectations on returns on these public stocks. And, um, and so, and
just to come back to those market valuations, Wes Yeah. The NASDAQ's at 31 32 pe so there you
go.
Um, and yeah, and the s and p's at 26. Um, so after the sell off of, you know, we're approaching about 10%.
Yeah.
And, and some of little bit some of these, uh, emerging tech companies like my, my ex brother-in-law is the CEO of the trade desk. And, uh, there was one point where its PE ratio was in the two hundreds because the expectations of its growth were just outrageous. But, okay, so why do I, why do I say all of that?
Um, I, I say all of that, um, because. Valuations are a little bit high. I think historically valuations on the s and p have been around 23 or 24 or so, correct me if I'm wrong on that. Uh, and so they're probably 50% higher than they've been, uh, in historical averages. That doesn't mean that tomorrow the s and p is gonna, is gonna decline, but it does mean that we need to invest very carefully that I think just throwing your money in an s and p 500, uh, index fund is relatively speaking to historical standards.
Quite risky. Actually, and it doesn't mean it's not a, a good, uh, long-term play. It may be a good long-term play, but I think if you're trying to be more strategic and more nuanced, uh, having more dividend stocks, looking at these defensive sectors, constructing a good, a bond portfolio can really add. What we call alpha or add some some beneficial returns over time because of some of the nuanced places we're in right now on the stock market.
Let's move into Jerome Powell in the Federal Reserve. He kept rates steady yesterday at 3.5 to 3.75%. Brandon, what is the outlook this year for the Fed rate change, and how do you think that may feed into the stock market?
So the, the expectations for rate cuts have significantly changed since the Iranian conflict, right?
And so the, the risk here is inflation is going to kick up. Um, and in it could have an impact on inflation up to 1% globally if the oil supply crisis doesn't work itself out. So, of course the Fed is on pause. They just announced that they're not going to to cut rates this month, and the expectation is that we're probably not gonna see a cut this year until possibly December.
Um, how does that change? You know, the valuations in the equity market, like we were talking about earlier, if you kick those cuts out, you're now talking about staying higher for longer. And, and that will disproportionately impact those technology stocks, uh, who basically benefit from lowering rates and shorter, uh, especially on the short end of the curve.
Once you lower those rates, that impacts the 10 year in some way. And so as that 10 year rate goes up like it has been, um, we expect that tech stocks will continue to, to get hit disproportionately relative to value stocks.
Paul, anything you wanna throw in the ring on the, on this subject?
No. I mean, not, not that's already been said.
I, I just think the policy decisions are subject to change rapidly based on the conflict and. Um, potential deterioration in the economic backdrop. And so trying to guess where it's going. Um, right now, today with the conflict where it's at, it is probably something you, you would have to walk back, you know, it's just gonna be a challenging environment to really predict.
Do you think this little feud going on between the president and Jerome Powell, head of the, uh, the Federal Reserve, um, is. It going to play a role in the direction of interest rates over the next six to 12 months?
Not while Powell's at the head, I don't believe
Brandon, anything.
Yeah, I mean, I think generally speaking, um, rates sh even if you're really aggressive in cutting rates, I think that that.
Has changed the way that you viewed rate cuts. So even with the new Fed chair coming in, if he were to come in in the next couple of months, um, that I don't think rate cuts would've been on the board as, as much as they would've been prior to this Iran conflict. With that said, Powell has indicated that he's gonna stay on until the new Fed chair is approved, uh, is, is approved through Congress.
And so he may be in that seat. Through August, September until that plays itself out. And I do think the longer that Powell's in that seat, the less likely you're gonna see a ray cut.
Yeah. Donald Trump's uh, labeling of Jerome Powell too, too late Powell, I think is what he calls him, uh, referring to, uh.
Powell being too late to lower rates. The thing is, is every President, Donald Trump's not alone in this. Every president essentially wants the Federal Reserve to cut rates. Why? Because they wanna look good during their, their short term, where the Federal Reserve has a much more important and broader outlook, which is longer term.
And that's their job. That Fed independence, I personally believe is quite important. Jerome Powell is trying to navigate that well right now. Um, so. That'll, that'll be interesting to see how that little feud plays out. We never really seen anything like this, as far as I'm concerned, but it sounds to me like Jerome Powell ain't backing down and he's gonna stay on as, as long as he, you really can hear, uh, the new nominee hasn't been confirmed yet and we don't know when that's going to happen and even when they come on board, my understanding is that Jerome Powell remains on the board, even though not the sort of the head of the board for a period of time and will likely still have quite a sway on some of the Federal Reserve.
Members who make the vote for the rate changes every quarter. I
think, I think we talked about this last time, you know, the Federal Reserve is a committee. Um, it, it, there's an appointed face and, uh, of course, um, you know, probably some final, uh, filibuster breaking, um, duties within that role. So it's, it's critically important.
Plus they set the tone. But ultimately, I mean, the, these individuals I'd like to think have a high level of conviction and, um. Belief in, in, in their standing as a representative of the American people. So ultimately, you know, it, it may not change quite as much as people are calling for, or it could, we, we don't really know how that will influence it, but yeah, I think it's an important call out that he is staying on.
And it, the, the committee of the Federal Reserve chairs is ultimately the ones who decide, yeah.
I feel like in terms of the rate itself, there's actually not much drama going on. It's just sort of staying steady for the foreseeable future right now.
And that could, and that could change, right? And that could change is I guess my earlier point depending on how this conflict sort of reverberates.
Um, but we'll just have to wait and see.
Alright, so let's end off by just talking a little bit more about the stock market in general. And right now stocks have held up better. Then expect, they've been holding up pretty well this year. I think the s and p is slightly down. Is that right, Brandon? Through March 20th?
Yeah. I don't know. I think it is down on the year. Yeah, Wes and, and it's pulled back three to 5% since this conflict started. So we started out strong and then that's erased over the last three weeks.
Okay. But all things considered, given that we're in this international. Thing going on and valuations have been high.
We still, I think, are seeing the stock market play itself out steadily and uh, and that resilience has been something we've relied on a lot. And my, I guess question for you both is, do you see that resilience extending into. Another few years of market gains until maybe we hit the other side as cycles invariably occur.
What are you foreseeing here?
Well, you have to disclose. You have to have the obligatory, short term is harder predict than the longer term, but I definitely think this is going to be a stock pickers market. I don't think that. We will see a, uh, just an upward melting of the market cap weighted indices, uh, be it the s and p and and and ex, and particularly the nasdaq.
Um, but brand Brandon said earlier, you look under the hood and there are a lot of really solid industries and, and companies within those industries. And so I just think it's a little more nuanced. Um, of course, I, I believe in. Uh, the longer term and, and the, even the s and p can rotate itself into future performance, um, um, through that market weight me mechanism.
But no, I don't think, I don't see an outcome where we bleed up into the right 15, 20% this year. Um, when it's all said and done, we're down about 4.5% today. Today's pretty bad. So, uh, down about four, 4.5% year to date on the s and p. Um, I, you know, our portfolios are up, um, a small little plug there, but our portfolios are up that's driven by en energy, that's driven by staples, uh, utilities.
Those have all been really strong. And interestingly, um, um, uh, defensive companies like Lockheed Martin's and, uh, uh, um, the, um, industrial, um, or sorry, um, military, uh, contractors. Those have been down since the conflict because they had driven, been driven up so much as attention was building. So you have to remember that the market is, is this incredibly while inefficient, but it is this incredibly efficient prediction model that, that sort of knew something was brewing, uh, through one way or another.
And so you see like Lockheed Martin was up close to 20% before the conflict, a year to date. Um, same with energy. Energy sort of had a jump on this thing. Um, and, and that's benefited us very well because we have an outsize weight to those, uh, particular sectors.
It's almost like the stock market is, was the, the poly market before the poly market in some ways, and that it was used to by people voting essentially through purchasing stock, uh, where they think, uh, things are gonna go with a lot of these types of conflicts.
Brandon, would you say that the, uh, the val, the, the price per barrel of oil is kind of one of the leading indicators right now of where the overall market. Might go if I had to simplify it down. Obviously you can't do that perfectly, but what would you say are just one or two of the biggest variables to look out for this year that will probably have an outsized effect on the market returns.
Yeah, I would definitely say with the conflict right now that oil is, is one of the biggest drivers there. And, and again, it's because if that stays elevated for a prolonged period of time, that's where we're gonna have recession odds going up. And it's because oil is an input virtually everything in the economy.
And, and so in the, in the short run, you may have a KickUp in inflation that would make the the fed pause rate cuts like they have. Um. But over time, if that persists, you're going to have a weakening in growth. And so you're gonna still have inflation, but you're gonna have a weakening in growth. And you may have a situation where the Fed is now cutting, um, because of that, that dip in the.
Growth trajectory. Um, and over time, eventually if growth falls, then you would expect your inflation to come down. But that's not a very desirable spot for the Fed to be in. Um, and, and then the, the second thing, Wes, that I would keep an eye on, and we talked about it briefly, is the 10 year treasury that has increased significantly.
It was below four before this conflict, just three weeks ago. And today, I believe it's sitting at a. About 4, 3, 5. Um, and, and that's a massive increase in the tenure. So the question is, if this conflict resolves, uh, over the next two to three weeks, is that going to come back down? Because that, that's not so obvious.
Uh, the, the tenure could continue to rise, and if that happens, uh, it's gonna have a negative impact on equities.
Yeah. And, and uh, a lot of times if people hear the, the, the, the dollar amount that if the 10 year. Or the percent amount. If that declines from, or that went up from let's say 3.9 to 4.3, it may not sound like a lot to put put in perspective.
You know, it's 10 to 12% of a change in a very short period of time. That is dramatic that that's a fairly dramatic swing for something that generally doesn't move all that fast in the 10 year treasury. Um, alright, well this has been productive. Alright, last question. Last question, team. Our listeners love simple low maintenance strategies on when it comes to investing.
Give us one, set it and forget it, move that they could make in the short term given current market conditions.
I got a, uh, the easiest one would be to tilt towards value, which we've been doing here internally at practice CFO for a very long time. But it's very easy to follow the momentum when these growth stocks and the AI stuff is in the headlines every single day.
Um, one simple thing that you can do to position yourself going forward is to just tilt more towards those value sectors. Again, financials, energy, industrials, materials, utilities, and consumer staples.
Paul. Yeah, make sure you got enough dry powder for what could happen. And once you have that figure, I know we as financial advisors like to speak about portfolio allocation in terms of percentages, but sometimes I like to get back to the dollar value.
I have 300,000 of fixed income and that's a hedge against, uh, any volatility in my stocks. Is that enough to last me? Um, you know, 1, 2, 3 years, whatever my sort of worst case profile is. And just once you have that, set it, forget it. Don't care. Don't care if the stocks come down. If anything, buy more.
That's the one of the beauties about investing in the stock market.
Most things in life, you gotta go and work to produce value. The stock market is an interesting phenomenon. Literally the research shows that the less you work IE, the less you try to time and trade and play the market. The more you actually make over time. And that phenomenon is just such a key concept about investing.
And so I'm gonna put on my CFP, my certified financial planner hat for one second to, to stick the landing here on this episode. You've heard me say it before and I'll say it again. Time your life. Don't time the stock market. Where are you in life? If you're mid-career, you're young. You've got another 10, 15, 20, 30 years before you're gonna be living off the assets in your investment portfolio.
It doesn't matter. It doesn't really matter what's happening right now. Your primary job is to a control what you can control, which is be a great dentist and, and I emphasize and be a great small business owner, and I just did a couple podcasts on what it means to be a really good business owner. You focus on those two skill sets, you're gonna produce a lot more cash flow.
Be disciplined in your personal financial life on how you spend money, and then take the spread and you invest that steadily in the stock market incrementally every month. It's called dollar cost averaging. It's a beautiful phenomenon of investing in market returns. As you do that, and over time you will be absolutely stunned at how much money you accumulate, and you'll be so grateful.
I can't tell you how many clients, new clients come on board and they say, Wes, if I had you 20 years ago, I'd be in such a different place. Uh, and the last sort of example I'll say about that is like, my son's at college right now. He's up at UCSB, that's in Santa Barbara. And when he was about five or six years old, I just started dropping in a hundred bucks a month into a 5 29 education savings account.
And at the time I'm like, is this gonna make that much of a difference? You know, you don't really fill it that much when it's a hundred bucks, 150 bucks. Eventually I bumped that to 250 bucks, but now that he's in college, he's got, you know, got up to about 55,000 bucks. And it's paying for a lot of his college.
Maybe not all of it, but I'm so grateful that I started that early. Because time is like fertilizer when it comes to investing. It makes things grow. Get started early time your life. Focus on what you can control, which is producing impact and value to your patients. Income, money, wealth. It's a downstream indicator of impact.
Go make an impact. Invest the difference. Close your eyes. Be disciplined, and you're gonna thank yourself. Down the road, guys, thanks for joining the show.
Thanks, Wes,
until next quarter. Thank you.
Wes knows what's best for dental practices. He's been doing this for a long time and he sees lots of practices. He can tell me how our practice is doing, and what we can do to increase our productivity. With past CPA's, there were no ideas. It was all coming from me, saying "I think I can do better, but I don't know how." I come in to meet with Wes and he says "You CAN do better, and I know how."
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