In this episode of Wealthion, host Andrew Brill sits down with Adam Johnson, the portfolio manager of the Bullseye American Ingenuity Fund and author of the Bullseye Brief Investment Newsletter. With the markets in turmoil, Adam shares his insights on how to navigate these turbulent times, revealing his strategies for calming investor nerves and identifying buying opportunities amidst the chaos. Adam discusses the recent market plunge, triggered by a dramatic 12% drop in the Nikkei and widespread panic selling. He emphasizes the importance of maintaining a long-term perspective, understanding market corrections, and recognizing when emotions drive irrational decisions. Discover how to spot undervalued stocks and make informed investment choices during extreme market volatility.
Adam Johnson 0:00 And I ran the numbers this morning just to make sure I could say this with confidence, and I can, in the past five years, Andrew, there have been 15 corrections. And by corrections, I sort of said 10% or more, right? There have been 15 corrections of 10% or more, and the average correction has been 15% so 15 moves of down 15% on average, and everyone ended up being a buying opportunity. Some took longer than others, you know, to come back, but they were all opportunities to buy. And stocks went on to make new highs after almost every single one of those. So for someone who says, gosh, I have to go back to work. I can't retire, no, that's not accurate. Recognize that markets go up and markets go down. It's not a straight line. Andrew Brill 0:54 Welcome to wealthion I'm your host. Andrew brill, this is a special episode due the severe market sell off on Monday, August 5th. It is the time of the Leo, and the market is definitely roaring in the wrong direction. I'd like to welcome Adam Johnson back to wealthion as the portfolio manager of the bullseye American ingenuity fund and author of the bullseye brief investment newsletter, Adam. Thanks so much for taking a few minutes today. And I know since Friday, you've been busy, extremely busy calling the nerves of investors, watching the stock market implode. So I apologize for my informal nature. I didn't expect to be here today, but the stock market took a little bit of a dump. So what the heck is going on Adam? Adam Johnson 1:44 Well, I'll tell you, by the way, it's not just my investors nerves I've been calming. It's my own nerves. I've been, I mean, it's been intense. I woke up this morning to, as we all did, see Japan down 12% imagine an entire market down 12% to see our futures down as much as they were, you know, 678, percent. And when the market actually opened at 930 I looked on the far side of my screen, I had a number of names down 15 to 20% it was sobering. And amazingly, within 10 minutes, most of them were only only down six or seven. And over the course of the day, a lot of them come back. And now at this point, you know, mid afternoon, I've got again, as I look at the screen, 10 names that are green, and that's what the market's still down 800 so I think what that does is speak to what happens when people panic and they react on the open as opposed to what happens when they say, Oh, just hang on a minute. Let's think about this. Let's talk this through. Maybe some of these stocks shouldn't go down as much as they've gone down. And maybe, maybe we should even be buying a couple of them. So it's, yeah, it's been quite a ride so far. Andrew Brill 2:53 what happened the Nikkei obviously started this off down 12% we've all read the news worst day since Black Monday of 1987 what happened there? Adam Johnson 3:04 So I think it's a combination of things. And the Nikkei was almost like, you know, the Japan index was almost like the straw that broke the camel's back. In other words, if you go back to last week, we were all talking about the rotation from Ai stocks that have run a lot to small caps that have still been stuck way under their old all time highs that actually go back to like 2022 right? So where's AI stocks have been running small caps haven't been then we find out we're gonna get rate cuts in September. Well, that's good for small caps. So that rotation was sort of the first thing, I think that happened. The second thing was that Fed chair, Jerome Powell basically said, Yeah, we are looking at September as a point to start rate cuts. And then point number three from last week was when the jobs report came out weaker than expected. And everyone thought, oh my gosh, has the Fed wait waited too long. I mean, we've been worried about inflation. Should we be worried about recession? The answer is no. GDP is still growing 2.9% and even the Fed, the Atlanta Fed, GDP now forecast, which is forward looking, still says we're growing 2.7 so how can you have a recession, which means the economy shrinking if right now you're growing 2.7% right? So I don't think that some of these connecting of the dots, actions that have happened over the past week or so are necessarily accurate, but I do think it explains why people were on edge here, why they sold on Friday. And then add to that, the fact that in Japan, which is always the place to go to sort of hide, because the Japanese Yen is so stable, since there's no inflation in Japan, for Japan to suddenly be off 12% I think people here just said, you know. But forget it. We're out. And that's an emotional decision. Emotional decisions are never correct. But I think that is why, why we're down so much on the open and by the way, starting early this morning, I was getting calls from Dubai, San Francisco, Florida, from clients saying, Adam, should I sell one client even said, you know, if it's down another 5% we're going to sell it. To sell everything. And I said, No, that's when we buy. So, you know, you have to keep those motions in check. Andrew Brill 5:28 I was going to say, Adam, that this seems, it seems to me, knowing you a little bit, that this is a buying opportunity. So what you say to your clients to calm them down and say, Look, you know what, we're this is going to be okay, and let's, let's put a little more money to work here. Adam Johnson 5:43 I mean, Celestica, Celestica is now up two bucks on the day. I mean, it was down $8 and it's only a $46 stock, right? I mean, Coinbase down 22% are you kidding me? Nvidia was down, I think 17% Nvidia. And by the way, I think Nvidia over at some point, over the next four quarters, whether it's the next four quarters or skip a quarter, and then it's the next four quarters, whatever, I think they're gonna earn $4 and today it was trading at 92 which means, on a PE basis, 92 divided by four. It means it's trading at a PE of 22 times same as where the market was, and yet it's Nvidia. So you can buy the market growing 10% or you can buy Nvidia for the same valuation, and it's doubling its earnings. I mean, come on. So there, there were a handful of and still are, as I look at the screens, only a few hours, you know, after that, that crazy open, a lot of stocks that just got way too cheap, and that's when thoughtful, long and term investors step in. You don't have to be a hero, you don't have to buy a lot, but, you know, by little, just, you know, buy one and if it works, by another. But you know, just, and you sort of get yourself into the groove. Andrew Brill 7:00 what do you say to the person who's this is their retirement savings, and all of a sudden they they wake up and they're like, oh my god, I have to go find a job. Adam Johnson 7:08 Well, no, fortunately, they don't. There have been and I ran the numbers this morning just to make sure I could say this with confidence, and I can. In the past five years, Andrew, there have been 15 career corrections. And by corrections, I sort of said 10% or more, right? There have been 15 corrections of 10% or more, and the average correction has been 15% so 15 moves of down 15% on average, and everyone ended up being a buying opportunity. Some took longer than others, you know, to come back, but they were all opportunities to buy, and stocks went on to make new highs after almost every single one of those. So for someone who says, gosh, I have to go back to work, I can't retire, no, that's not accurate. Recognize that markets go up and markets go down. It's not a straight line. Be nice if it were a straight line, but you know, it's just not. And if that volatility makes one of our viewers or listeners nervous, then I would say, then reduce your holdings of stock and keep a little more cash on hand, or put it into government securities. But you know, volatility is just part of being a stock investor. Andrew Brill 8:27 This show is sponsored by better help in these crazy times we live in. It's probably the last thing on your mind, you and your self care. We all deal with it, work, kids, obligations, bills, you name it. Everything takes priority except you. If you've ever worked out or been an athlete, you've heard the saying never skip leg day, but how about never skipping therapy day? That's right, I'm talking about taking care of you, talking to someone who will help ease some of your burden so you can get back to what it is that makes you happy. I talked to a therapist, and it really helps to take the edge off. Everyday life. Maybe you're going through something and can't really pinpoint what is, what it is that's bothering you. If you need to talk to a professional or thinking about giving therapy a try, give better help a try. It's easy, entirely online, convenient and flexible. To fit your schedule, just fill out the questionnaire and get matched to a licensed therapist anytime. Never skip therapy day with better help. Visit betterhelp.com/wealthion. Today to get 10% off your first month. That's better h, e, l, p.com/wealthion. We've seen this obviously, Friday was a terrible day for the market. This morning was also not so good. Markets still down 800 plus points. Yeah, are you seeing somewhat of a bottom? You You are a stock picker, you look at the graphs and charts. Is this somewhat of the bottom? Or you think there's more to go? Adam Johnson 9:58 Yeah, I think so. And I tell you why. There are a couple of things I look at. First of all, this morning was the worst open in four years. Okay, so you don't see that very often. I'll tell you what else you don't see very often. The volatility index, the VIX also called the Fear Index, which is a measure of the prices being paid to go out and buy at the money options on the market. The VIX is used as an input for setting those options prices. So when the VIX spikes, that tells you everyone's buying options because they're scared. Today was the third highest reading of the VIX in history. Andrew, you have to go back 40 years. There were only two other days when the VIX spiked as high as it did this morning. Number one was one of the days in March of 2020, during covid, the big panic day, if you remember that day, it was horrific. And another is a day back in 2008 during the great financial crisis, only two days in history has the VIX spiked more than it did today. So when I hear statistics like that, coupled with the worst, worst open in four years, it makes me think that, you know, emotions have just gotten the best of us. And then I I see wonderful names on the side of my computer, you know, down, 17, 1819, 20% I mean, come on. So I don't know if you can hear the sirens, but... Andrew Brill 11:20 I do someone's not happy about the market today. Adam Johnson 11:26 Yeah, they're trying to rescue all of us who are long. But, yeah, when I start seeing things like that, and then when I think about valuations of a company, you know, like Nvidia, I think, you know, hang on, this is time to buy. And by the way, one of the other things, kind of bugaboos that I think bothered people today was the headline, Warren Buffett sells half his apple position. Well, to be clear, Apple accounted for 60. Six zero, 60% of his portfolio. I mean, I can't believe Warren Buffett would be so irresponsible as to have let Apple become so big. So he sold half. It's still 30% of his portfolio, which I think is way too big. I don't even have stocks that are 15% of my portfolio, 6, 7, 8 that is max, max, max. And there are only a handful of stocks I've ever owned that have gotten that big. Nvidia is one of them. So, you know, that was a headline that freaked people out. Oh my gosh. Mr. Buffett, selling apple. I should sell everything. No, he was doing what smart people do. A stock gets to your target, you sell half. That's what I do. When a stock gets to my target, I always sell half, and then I have some money that I can go deploy into a couple of new names. Andrew Brill 12:39 I did see that headline. It was one of my questions, because he sold off half of his apple, sitting with 200 over 200 billion in cash that's ready to go to work. Some tells me that Warren Buffett's going to put that money to work relatively soon, because with a day like today, why not? You might as well make chunks of money with that money, right off the bat. Adam Johnson 12:59 I mean, it's crazy when I look at some of the names where they were this morning versus just where they are a few hours later this morning. And pardon the expression, this morning was a puke people just, you know, they get get me out. They just throw it out. Throw it out. And, and I'm sure there were a lot of market market orders on the open, which is why so many of those names open down, as far as it, you know, again, I keep saying it, Coinbase down 22% on the open. You know, that's just basically Coinbase falling to a point at which finally there's some bids. So, you know what? You throw a bid in down 22 boom. You get hit. And all of a sudden the selling wave is over because, you know, when selling is exhaustive, by definition, it exhausts itself when it's that extreme. And the other thing is, you know, people like me say, like, down 22 That's stupid. Buy it. You call your trade. You say, go buy a little. You know how many Go, go buy a little. Go buy. You know half a percent, you know, half a percent of capital from and you know, because you always have your shopping list on the side of your desk, and you know, what are the four or five names if you know right here, if they really get bad, you know, you know you're ready to go. Great, go, put a little capital to work, Andrew Brill 14:16 just to calm people's nerves even further. Adam, how much is this? Is this the algorithms where, when a stock starts going down, there's an automatic computer that says, and it's not a person, it's not someone like like you, who speaks to their clients. It's someone whose computer saying, Oh, this is down, X percent sell, and then the next computer says sell, and all of a sudden that two or 3% is 15, 22% like you said, it's they're all algorithms that are running a lot of this money, not a person. Adam Johnson 14:45 well, pretty telling that the New York Stock Exchange, which for decades, actually a couple centuries, was the home of open outcry, right? Where guys are shouting across, you know, buy me this, sell me that, right? The home of open outcry. And their own study has concluded that as much as 70 to 75% of daily volume is electronic, and that's the algorithms. And you and I have talked about this before, but for the benefit of those who are, say, watching for the first time or need to hear it again, what happens, especially during earnings season, is that algorithms computers are programmed to instantly read a press release on a on a big company name, you know, take an Intel or a Microsoft or something liquid, right? And look at 678, metrics. Earnings are expected to be 34 cents. Revenues are expected to be 28 billion. Gross margins expected to be 58.6, whatever. And the computer compares what's in the press release, because it can read it instantaneously, to what the expectation is. And if any one of those metrics does it measure up, the computer instantly shorts the stock, and you no longer need a plus tick. So it's not as though the stock has to tick up before you can short it. The stock can fall, fall, fall, fall, and keep shorting, shorting, shorting, shorting, and pushing it down and and so selling begets selling, and that's why, on some of these earnings reports like Intel last week, you know, the stock was down 29% on earnings. It wasn't a great earnings report, but 29% Wow. You know, snowflake, the quarter before that, Delta Airlines UPS Ford, they've all struggled with earnings because, you know, one or two metrics didn't measure up, and that's the algorithms. So people need to recognize that and and not get caught up in it. Andrew Brill 16:34 So the last word Adam, you know, a day like today, I almost texted my son this morning said, Don't even look. Just don't even look. Forget about it. Don't worry, because everything was red, red, red, until this afternoon, when things started to turn a little bit what's your advice to the the investor who's just like seeing their their portfolio down 10% 8% over the last few days? Adam Johnson 16:58 step back and take the long view and recognize that volatility is a part of investing. And you know, back in 2022 the NASDAQ was down 35% and I know because I was down more than that, and it was awful. And then last year, I had my best year ever, and was up more than that, quite a bit more. And so just recognize that there are good years, there are bad years, but what you want to do is make money over time. And in fact, two days out of three, if you just have long enough to wait, the market is up. So the the odds are in your favor by a factor of two. If two out of every three days are up, by definition, you should be long stocks over the long haul. And by long haul, that could be a year, it could be five year, it could be 10 years. But don't grade yourself week to week or even month to month. Take the long view. Andrew Brill 17:57 wish I had those odds at the craps tables. You know, I did an interview a couple weeks ago, and I looked at the VIX and it was a 12 point something this morning. I was curious. 46 and change. So yeah, you're right. It was 4x what, what it? What it, what it had been. So the volatility is definitely there. Adam Johnson 18:17 yeah, oh yeah, the third highest spike in history, I would argue that that defines today as an historic day, and this morning's epic sell off on the open as as something that we should all look at, think about, respect and realize it's probably more of an opportunity to buy than to sell. You rarely see moments like this, and generally speaking, they tend to Mark, if not, a bottom on that day, a bottoming process, which you know could mean that we're sideways for a couple of days, and then you come up it could be later this afternoon, but whatever I think today was a was a signal that it was climactic, and there's a bottoming process that's going to be associated with it. Andrew Brill 19:04 Perfect. Well, you've helped calm my nerves a little bit. I hope you you calmed everyone's nerves. And keep up the great work. Adam, thanks so much for joining me on on such short notice. Adam Johnson 19:14 Oh, you bet Andrew, my pleasure anytime. Andrew Brill 19:15 That's a wrap on another discussion here on wealthion, thank you for joining us if you need help being financially resilient, especially after today's market downturn, please head over to wealthion.com and sign up for a free, no obligation portfolio review with one of our registered investment advisors, and remember to follow us on social media for the latest news and information to help you invest wisely. If you could like and subscribe to the channel, we greatly appreciate it. Don't forget to hit the notification bell so you can find out when we post new videos to the channel. Thanks again for watching and until next time, stay informed. Be empowered, and may your investments flourish. And if you like this content, please watch this video next you.
