Start your New Year with a strategic edge! Join Keith Fitz-Gerald, Principal of the Keith Fitz-Gerald Group. Keith spent 43 years in global markets and he thinks we’re heading into an “extraordinary year” this year. He’ll reveal his own investing strategies for 2024, deep dive into the future of investing, and unpack their own investing strategies to kickstart your wealth journey in 2024.
Keith Fitz-Gerald 0:00
I don’t know, I’m hearing from all those people right now say I could have would have should have bought X, Y or Z. And that’s the situation you got to face as an investor right now, because, you know, imagine you had the chance to buy in video or Palantir when it was under $6. Your shares now at 300 something percent over the last 12 months. You know, there’s a lot of people that are kicking themselves in the unit what because they didn’t, why? Because they let their emotions get the better of them. And that’s a tough place to be.
Eric Chemi 0:29
Welcome to Wealthion. I’m Eric Chemi. We are kicking off the new year 2020 For a lot of landlines this year, a lot of people were wrong a year ago, a lot of predictions from 12 months ago, they did not pan out in the last 12 months. So what will this new year bring for this enlightening conversation and bringing in Keith Fitz-Gerald, he’s the principal of the Keith Fitz-Gerald group. And he’s got the Five with Fitz, the daily newsletter that 25,000 individual investors read every single day, keep a lot of people thought you were crazy. A year ago, your trades turned out to be pretty well, I hope we’re getting the good crazy this year. Thanks for joining me today.
Keith Fitz-Gerald 1:06
Well, thanks for having me. It’s a thrill to be here. I think we’re headed into what can be an extraordinarily compelling year this year. You know, a lot of people thought I was stark raving mad last year. At this time, when I said a text the place you want to be because if you remember those things, were going into the basement, and nobody thought they were coming up for air. But in fact, you know, if you go back, you get that longer term trend, they’re still going to be the place to be I think we’re going to look at 15 Maybe even 20% higher on top of that coming into this year, just for tech or just for everything. Well, generally, you know, rising tide is gonna raise all boats now that we’ve got the Fed beginning to be on the sidelines, we got some other things happening. It sets up what could be a very compelling year, particularly if you concentrate with the best and you ignore the rest.
Eric Chemi 1:49
Concentrate with the best ignore the rest. There’s a lot of people that have said that’s a problem, right? Oh, it’s only the Magnificent Seven, everything else is down. We’re really in a bear market, if not for this little handful of companies. What do you say about that the narrowness of the bull market?
Keith Fitz-Gerald 2:05
Well, I tell him the same thing I’ve told investors for years that diversification is, you know, it hasn’t worked for a decade or more. What’s the problem with concentration? Warren Buffett’s got five, five stocks that account for 80 90% of his portfolio? You’ve got other big time billionaire managers doing the same thing. Why on earth would you spread your money around and throw pasta at the wall to see what sticks. This is the time in your investing life where the current trends are clearly lined up, the liquidity is lined up. And in fact, the money is moving to the very best companies, the rest of the stuff is gonna get left by the wayside.
Eric Chemi 2:36
What about all the bears the doom and gloom guys? The ones that say hey, look at debts deficits. You know, the Treasury might have a failed auction and we’re looking at the Fed can’t manage this whole process correctly. And the markets are way too overheated. Everything’s going to collapse. We’re gonna lose 40%. What do you say to that real bearish perspective?
Keith Fitz-Gerald 2:55
Well, I hear from those folks all the time. And you know, they’ve a lot of them have been singing the same tune since 2009. They’ve never gotten back into the markets. And in fact, they sat on the sidelines. Even a busted clock is right, twice a day. So here’s the thing, right? They’re all very clearly intelligent people, many of them anyway, they make very compelling arguments. But the danger with a perma bear psyche is that history shows very clearly profits go to the optimists. So yeah, you could be right at moments in time if you’re a pessimist. But I’d rather deal with the optimism I’d rather deal with the fact that the markets are growing, that the capital is an expansion philosophy. Because if I can find the best companies, I can find those that are making the world a better place to live, then you know what, the odds are very high that the profits are going to follow or be along for the ride the entire time.
Eric Chemi 3:42
So I want to I want to get into some of these things. Let’s dig deeper into a tech. You know, how you deal with the Fed and all these other things, but, but just walk us through a little bit of someone’s never heard of you before. This is their first time being exposed to Keith Fitzgerald. I know you’re doing a lot of the quantum mentals. You’ve got that chaos theory backer this. There’s heavy duty, quantitative mathematical approach to what you’re doing. What makes your approach different than maybe the other prognosticators out there.
Keith Fitz-Gerald 4:09
Well, number one, I’ve got the enviable or unenviable track record having gotten a lot of this stuff, right and very publicly on public television over the last 15 years. So a lot of folks claimed to have a bead on this. But in fact, you know, I’ve got 1000s of appearances where I’ve correctly call this out. Now, one of these days, Eric, I’m going to be horrifically wrong. I just hope it’s not tomorrow. So you know, I’m not the smartest guy in the room. I never will be I don’t pretend to be. But you know, what we do we look at the markets using a lens that not very many people do we use chaos theory, the science of complexity, which you want to call it, what we are able to do is we apply the unemployable to the numbers. So for example, a conventional mathematician would say, Well, you know, if you take a political poll, 97% plus or minus 3%, that’s the error factor. Somebody like me is going to look at that and say, the science of complexity, the real signals in that 3% that other people regard as statistical error. So when we’re looking at this, I’m looking at big drawn out themes, I want to focus on where the money is going, where the money is going to get spent, no matter what, or practically no matter what, anyway, no matter who’s in the White House, no matter what the economy is doing. These are things like AI, for example, three to $5 trillion is going to be in the global economy next year, year after that, because of the birth of AI, this is on par with the introduction of penicillin, the introduction of electricity, you know, these are themes that make investing a game of probabilities, not possibilities. So our analysis focuses on where the money is going, where it’s going with high certainty, where it’s going to go, and it’s not going to be interrupted. And we’re focusing on the very best companies in their space. I don’t care about anybody else’s playing cross the margins, because those are companies that may not survive. And again, going to this concentration methodology rather than diversification, we’ve had the good fortune of been falling Tech really, for 1015 years that’s led the charge and is still going to lead the charge is going to lead the charge in every other industry, from medicine to something as simple as your car mechanic, anybody you’re going to use that kind of technology and improve their businesses, investors need to understand that this is not just about the tech, it’s about the use case, Eric, five years ago, there were less than 10 use cases for AI. Now there’s over 50. So that number is going to expand again and again and again. And as an investor, it’s simply a matter of to paraphrase Steve Jobs, you connect where the dots are going, that’s your job. That’s what you got to do. That’s all I’m doing.
Eric Chemi 6:32
You make a good point on the penicillin. When when that came out that definitely, it was real, right solve disease, but no one talks about where whether it was a bull market or a bear market, right? Like, this is just, this is just something that worked, right. It worked, it worked forever, and it was done, period. Problem solved. It’s maybe AI is like that, right? Like, no one’s gonna go back retroactively and say, Oh, that would have been a good investment. But it was a bear market, right? Or the economy was a little bit overinflated. Right.
Keith Fitz-Gerald 7:03
I don’t know, I’m hearing from all those people right now, say I could have would have should have bought X, Y or Z. And that’s the situation you got to face as an investor right now. Because, you know, imagine you had the chance to buy in video or Palantir, when it was under $6, your shares now at 300 something percent over the last 12 months. You know, there’s a lot of people that are kicking themselves in the you know what, because they didn’t, why? Because they let their emotions get the better of them. And that’s a tough place to be. And I understand you’re not going to Trader, I’m an investor, I’ve been doing this 43 years, your emotions do get the better of you if you let them. So one of the things one of the real challenges for investors coming into 2024 is that you’ve got to take what the perma bears are saying about the dead about the lack of government stability, about the dollar you got, all those things are not necessarily wrong. But the question you got to source as an investor is how do I strip that stuff out? How do I keep my mind and my wits about me so I can focus on what I know to be true. History says When in doubt, use zoom out because that’s how you see the real patterns. That’s a piece of chaos theory, it’s not the stuff that matters is here is the stuff that’s big that matters. If you start talking days, weeks, months, now all of a sudden, you see that trend again. And if you can get with the best companies, the best executives the fortress, like balance sheets, that is how you’re going to chart a path to the forward.
Eric Chemi 8:19
Do you think diversification is dead? If we were having this conversation 10 years ago, would you still be saying pick the five to 10 narrowly best stocks or would you say diversification is okay back then?
Keith Fitz-Gerald 8:30
Well, again diversification is a theory is okay. But the problem is that the computerization, the rise of passive investments, the change in liquidity, have all taken that argument and gamed it. So, you know, I was talking with a very famous mathematician in Santa Fe named Dr. Murray gell Mann. And he told me 10 years ago, more than that, 12 years ago, he said, Keith, you know, when you’re starting to work with chaos theory, so you’re going to spend the next 1012 years talking about these things. I know you’re right, because it’s the same thing that led me to the discovery of quarks. Now, this is Dr. gell Mann talking. And he said, then you’re gonna have people who aren’t gonna believe you, then you’re gonna have people who say, Well, maybe that guy was right. And then you’d have a whole bunch of people suddenly arrive in the party and forget you even brought up the argument in the first place. So the fact that diversification is a theory is interesting, but it’s been busted for over 10 years isn’t new to me. It’s new to a whole bunch of other investors who are just waking up to that it’s new to a bunch of professional asset advisors, who are using desperately broken models and outmoded theories to plan for their clients. That’s just the way it is. So, again, I’m not brighter than anybody. I’m smarter than anybody but I see the world very differently in the world right now is one of concentration is one of being with the best companies. It’s looking for companies that are growing at 3040 50 60% a year or more, because they are tapped into the major trends and themes that are changing our world that are picking up the broad sweeping changes, that conventional diversification models won’t In fact, the data that I’ve got and the research that people a lot smarter than me have Is it diversification is holding people back?
Eric Chemi 10:03
Let’s talk about this more. So are you saying, you know if you’ve got that s&p 500 ETF, right, a lot of people are doing some like that. Are you saying dub that? Pick 10 good stocks and you’ll be much better off?
Keith Fitz-Gerald 10:15
Well, again, every investor is different. You know, there are a lot of people who find comfort in investing in the s&p 500. That’s worked for a long time, you’re probably going to do okay, but something as simple as you know, this past year, we saw Microsoft and Apple which are among the most conservative of The Magnificent Seven, those things shot up 5060 70% The s&p turned in what 1314 15%. So even on something as short as a 12 month window, you’re going to begin to see this outperformance if you look at a company like Tesla, which is up 1000s of percent, versus still a very respectable but great 200%, suddenly that index fund doesn’t look so compelling. So what you want to think about is, you know, how do I balance that comfort level? How do I balance that need? That that ethos has been taught to legions of investors about spreading your money around? And balancing that with concentration? How do you learn to unwind decades of what I submit is bad behavior to focus on the stuff you actually do want to own? And, you know, that’s hard to talk about. Right? So let me let me just drive this home with one further example. You know, if you’re investing using diversification, you’re investing like you’re watching cable television, you’ve got to get the channels, you don’t want to see the few that you do. So I submit go ala carte history suggests that’s a pretty prudent course of action, particularly if you can line up with the big themes of our time.
Eric Chemi 11:34
So a couple of things, is it that once the called the ETF wave, the index fund wave the diversification wave, once it took over? Did it change the dynamics of the market, because all of a sudden, now, we had way fewer active investors, no one was trying to pick stocks, everyone was passive. And in a world where everyone is passive, it the theory doesn’t hold up what it was designed in a world where no one was passive.
Keith Fitz-Gerald 11:57
Bingo. And the problem with that, again, you know, ETFs mutual funds. I mean, this was all great thinking at the time, and it was very valid at the time, it worked for a long time. But the problem is that all of the other changes that came along as a result of that. So for example, take an ETF, when that thing is trading, it’s modeled against a benchmark. If the stocks in the benchmark start to move, there’s an awful lot of computerized trading that has to keep up to rebalance it to make sure it’s tracking. So you’ve gone from a position of 510 and 15% of the market being computerized decades ago, to now where you’ve got 70 80% of the marketplace on a daily basis, that is totally automated trading so fast, a human can’t keep up with it, if for no other reason than just to rebalance just to keep up with the passive investments just to keep track of the indices. So factor in things like zero DTE options factor in market mechanics, liquidity. Now all of a sudden, you got a witch’s brew, where you’ve got massive changes in something called gamma risk, the price sensitivity to move options, players are learning how to figure that out. So it’s become a radically different environment today. And again, that sounds terrible to an individual investor. But believe it or not, and this is something we talk with our clients about all over the world, that’s actually an advantage to the individual investor, because Wall Street has to keep its money moving, or they have to continue to do this, because that’s how they derive their profits, that they have to have certain names on their books when they have those annual meetings with their clients. But if you’re an individual investor, you can pick your battles, you can pick your tactics, you can pick the companies you want to buy, and you can do it when you want to do it at the price you want. So it’s actually funny enough counter intuitively a huge advantage for the individual investor right now. In fact, dare I say it, I don’t think there’s been a more compelling time to be an individual investor than there is right now coming into this year.
Eric Chemi 13:43
So then the the next logical question, though, is okay, that’s great. If you can pick the right stocks, right, a lot of people, they’re terrible stock pickers, or they don’t know how to when to enter, when to get out their emotions get the best of them. How do we know here at the beginning of the year, what to pick a lot of you in video is a good example from last year, very controversial, that isn’t really going to go that much hassle has been a controversial stock. So I don’t want to necessarily get into specific companies. But in terms of a framework, a thought process for when you’re looking at this year. How does somebody know if you said Hey, pick 10 stocks? What is the process to do it because a lot of times the best stocks to pick are the ones that are already at all time highs, and it’s hard to go ahead and buy things that have already had such a big move. You feel like I missed the move down on buying them so expensively?
Keith Fitz-Gerald 14:29
Well, we break it down very, very simply in terms that a fifth grader can understand. You know, number one, you buy companies. First thing you got to do is you got to separate the companies you want to buy ask yourself, are they making goods and services that the world cannot live without? We call those must have investments, because you must have them or the world doesn’t turn. Then you’ve got the nice to have stuff. The nice to have stuff here because the stuff on the margins that’s the stuff that may or may not make it I’m not interested in that. What I want is the best one, two or three in whatever sector it’s got that Making must have products and services has a fortress like balance sheet has a great track record of returning stuff to the investors. And on top of all that has a visionary CEO who’s capable of executing to his mission, a lot of these companies are great, or they were great at one point in time, but the current CEO or current management has lost its mojo. So I would submit, you know, those companies are not worth wasting your time. Again, this is this is a matter of simply focusing on what you want to do what you want to accomplish. It’s your money, it’s your responsibility. So why would you fall for something else that anybody else is talking about? But if you can go for the must have companies, you can identify the strong players, you understand the CEOs, this doesn’t have to be complicated. People make it that way. But it doesn’t have to be.
Eric Chemi 15:42
How would you rate those priorities must have products, quality management, fortress balance sheet, if you had to rank those three, what matters the most.
Keith Fitz-Gerald 15:52
Must have products, number one, quality balance sheet number two, because you got to have the size, scope and scale to survive whatever market volatility, economic conditions, good, bad or ugly, come your way. And you’ve got to have a CEO that is capable of moving to the first two. And there’s a lot of companies out there that again, are household names, but maybe aren’t what they once were because either the company’s changed, the missions change, maybe they haven’t kept up with the times, there’s a lot of companies out there that again, are not in at one, two, or three, and they don’t make those must have products anymore. So I wouldn’t touch those.
Eric Chemi 16:26
You know, you started looking around you look at the house or you think about why Warren Buffett I think Buffett was an apple investor, if I’m if I’m not mistaken. And he said, everyone’s got these phones, right? They’re they’re stuck to their bodies, the first thing they touch in the morning, it’s the last thing they touch at night, and you look around, you know, what is the software we’re using here at what operating system? Or is it you start to think about what are the two must haves? In a world where let’s say for example, cord cutting on cable, right? Does anyone need a cable provider anymore? Is that nice to have a must have balance, right? You start thinking about when you look around in the world, like the old the old Peter Lynch approach, right? Buy what you know, buy the products that you’re experiencing with? And we do you sort of see like, Okay, this is why the Magnificent Seven Have there been right? Those are the things that everybody is using, or is very close to be able to use.
Keith Fitz-Gerald 17:12
But for example, I mean, Apple is a great example this I was just talking about that on one of the networks the other day, you know, people said, Well, are we going to buy this company or that company and we’re gonna get into cryptocurrency, we can do XYZ. And so you know, I really don’t care about any of these things. I want the device I want to invest in the company that makes the device that everybody uses to check those things, which is the iPhone. And if you look at how inflation raised over the last couple years and you know people were saying all groceries, this company’s this supply chain, that cost of this politics. You know what, I didn’t care, I didn’t hear one story about a single investor giving up their iPhone because of inflation. In fact, they were buying more of them. So you know, that, to me is a classic must have versus a nice to have, I want them must have any day of the week.
Eric Chemi 17:54
Right? It’s funny people cook coupons or not go out to eat or, you know, that’s a cable or cut Hulu or Netflix, whatever it is save 10 bucks a month. But then they got this $1,000 thing in their wallet. They’re not giving that up.
Keith Fitz-Gerald 18:06
No. And it’s a matter of fact, they’re going to use that $1,000 thing in their wallet, take pictures of the coupons they’re clicking, and then they can go to the store and upload it to the checkout counter and get their discount. Right.
Eric Chemi 18:16
That’s a good point. So so get your perspective on big tech, you’re the quality companies. And you’re not just you’re just not that worried about the fact that they already had these big runs a you would still say, here we are Jan 24. Keep buying them.
Keith Fitz-Gerald 18:30
Well, yes. And here’s why. And this is a reason this is this is another one the stories I’ve been ahead of for many, many years. But it’s beginning to come to the forefront. People are just going wait a minute, something’s not right here. The problem with a lot of the way these companies are looked at people say oh, that company is expensive, and video is expensive, apples expensive. My everything is expensive. Everything. Everything’s expensive. I had $1 for being expensive. I had my yacht parked next to Bezos, his yacht has been, but I don’t. Here’s the thing, though, right is expensive, according to what the accounting rules that we use to classify these companies that produce many the metrics, the return on investment, the price earnings ratio, all of these things, the accounting rules are set up to reflect a manufacturing economy of 100 120 years ago, they don’t recognize digital investment as a capital expense the way it should be. So I would submit to what you’ve got is a counterintuitive, very false flag, you’ve got companies that look expensive, because the P doesn’t match the E, when in fact, the E hasn’t begun to produce value yet because it’s all digital. This is this is the great dilemma. So you’ve got in fact, the value trap. You’ve got companies which are falling to the 6789 P E ratios. And people like all those are cheap, I’m going to buy him, I would submit that’s the real trap. Because those things are not being capitalized correctly, or amortize or recognized from an accounting standpoint, when in fact the real potential is in the digital technologies in the customizable medicine is in the pharma world, all of which is beginning to embrace technology and move ahead. So to me Knee, it’s a tremendous juxtaposition. Anybody who wants to move ahead is going to have to be aware of these kinds of things. Because there’s something we talk about with our folks around the world constantly, the rules of money are changing. And if you understand that, rather than fight, it becomes an awful lot easier to begin to recognize the companies around you and bring them into your portfolio.
Eric Chemi 20:21
I appreciate that perspective. I hadn’t thought about that before. The accounting rules are old, they’re meant for manufacturing companies, if you sort of think of them as a 1900s era. Now we are well into the 2000s here, but what do you mean by the rules of money are changing? What what was the impetus for why the rules have changed?
Keith Fitz-Gerald 20:40
Well, again, you know, the rules are, it’s a diverse rulebook, it’s a big playbook. So you got paid for order flow, you got liquidity, you’ve got all kinds of manipulation. And that’s a dirty word, but it’s there with regard to zero duty options, pin risk, the markets are very, very sophisticated, very quick and very computerized. And so that is the kind of stuff where, you know, you can’t just walk in and buy a stock anymore. So people, for example, one of the things we talk about a lot, you know, on television as well. So when so reported earnings and the price crashes. Well, that’s not a mystery to me. Because if you understand the rules of money, it’s very logical, it becomes in fact, almost predictable. What traders have figured out is the psychology is like playing poker, you know, you want to learn to read the table, rather than figure out what the cards are. Because if you’re coming into earnings, everybody’s widely expected them to really good Wall Street traders are going to front run that trade, they’re going to begin to create the FOMO, they’re going to create the desire because they know the average retail investor won’t bother to take a moment in a deep breath and understand what’s happening. So they’re going to drive that price up, great earnings are going to come out that retail investors are high, they’re great earnings I’m going to buy and then the big traders who are operating in a much shorter timeframe with much higher degrees of leverage are going to short the snot out of it or take it the other direction for a few days, then they’re going to scare all the money, the weak money out and do it again. So if you begin to think like somebody who understands changed rules, as opposed to applying the same old rules to a different situation, you’re going to have an advantage.
Eric Chemi 22:07
Along those lines, what are the questions that you keep getting from people, whether it’s individual investors, professional managers, what are misconceptions and myths along what you were just saying that you have to you find yourself, people don’t get it, you have to keep repeating yourself and say, Look, this is what’s happening. And I need to beat this over your head with it.
Keith Fitz-Gerald 22:25
You know, there’s a lot of things and again, you know, one of the one of the really cool things I love about this business, and I’ve been involved in global markets as an investor, or trader and analyst or consultant worldwide for over 43 years. And one of the things I really love about this business is there are no stupid questions, and there’s always an edge. And it doesn’t matter whether you’re 15 years old, which is how old I was, when I made my first trades, or whether you’re a grizzled veteran has been doing this for decades longer than I have, and you got hundreds of millions of dollars at your fingertips. finding success in the markets is about recognizing an opportunity that other people don’t see, it’s about applying the knowledge you have unique to you differently than what the establishment does. So to me, I look at this and the questions I get are, well, gosh, you know, is diversification bad? No. But you got to think about it differently. What you really want to do concentration is also a form of diversification. It’s just not spreading your money around willy nilly, it’s making a very deliberate choice to concentrate in focus. So you want to blend the two, we have tactics, people talk about us all the time, well, I’m gonna go buy all this stock at once. Well, if you do that, you might as well go to Vegas and throw your money at the table because you got a 5050 probability, you’re not going to have it in a few minutes. So if you zoom out, if you change your tactics, you do something as simple as dollar cost averaging in, you take away that risk. And you begin to harness the volatility that others fear. We get asked a lot about, you know, themes versus sectors. Now that’s a really big one, we have what we call the five DS, we have diversification, dislocation, defense, distribution, digitalization. These are all trends, Eric that are backed by a trillion dollars or more that will get spent practically no matter what happens in the market next, no matter what the Fed does next, no matter how Wall Street tries to hijack something in its own image. And that’s the kind of stuff that gets my attention. Because now we can deal with as investors probabilities as opposed to possibilities. I can give you odds and predictable behavior all day long by looking around and trying to figure out the mood of other traders. But I have no idea what they’re holding. I don’t know whether they’re gonna go long or short. But if I can focus on those must have companies find the great CEOs and I know who’s making their money. You know what, suddenly this becomes an element of predictable and there’s comfort in that.
Eric Chemi 24:37
Walk us through these five days. I’m curious to hear more. I heard defense I heard digital you went you went quickly wrote just break it down a little bit for us. Sure.
Keith Fitz-Gerald 24:45
So digitalization is the biggest by far of any of the five trends. We follow the five DS right. It’s what we call them. So digitalization and I’m not talking about like putting your X rays on a digital stick and taking it to your doctor’s office. What I’m talking about is akin to AI, I’m talking about the world of information. And what we’re doing now, I mean, 90 plus percent of all the information that’s ever been created in the history of humanity has been created within the last few years. And now we’ve got computers, we got computing strength to do something about it with companies like Palantir, and Apple and Microsoft and others in the cloud space, who are beginning to harness that and find relationships that humans could not even on their best day. So that’s a big one defense, no brainer, we’ve got looking at Ukraine, we’ve got the situation Israel, Gaza, we’ve got Taiwan, China’s moves there, North Korea is clearly not going to make any any friends, the campfire coming up. So that’s a no brainer to me, many of those companies been beaten down. So if you subscribed to Warren Buffett, or Peter Lynch, you buy because of a margin of safety you buy, you know, in my world, the way I describe it is you buy great companies when they’ve been kicked to the curb, and nobody else wants them. History is very clear, that’s a good thing to do. Then we’ve got dislocation, which is the spreading out of resources distribution, which is how you actually get water, electricity, information, payments, money, that stuff that how do you spread that stuff around? And then diffusion, which is, for example, in COVID, one of the things we figured out was it that people didn’t trust the institutions that prior to COVID had been sacrosanct. People said, Stay inside, wear a mask, don’t go out, do all these other things in society? Well, that’s not the bargain I signed up for. So people are worldwide, very distrustful of those big systems anymore. And so I think that’s going to unleash an entirely new wave of innovation. And we’re going to see that within the next few years. It’s very exciting time.
Eric Chemi 26:33
You mentioned the fed a little bit, no, thank you, for the five DS, the Fed, is it, F and ends in a D, so it’s not quite there. How much of the Fed doesn’t even know that? Because a lot of what you’re saying, you’re like, it doesn’t matter what the Feds gonna do? These are the themes. And so do you even focus on that? Do you worry about it when people are saying that they get a cut or when they’re going to cut if there’s another hike or done or done? You know, higher foot longer? Does any of that matter? In your perspective?
Keith Fitz-Gerald 26:58
It does matter. But here’s why. You know, the Fed is like a Keynesian beauty contest. Right? The Fed, nobody cares about what the Fed does or doesn’t do. What everybody cares about when you’re in the street you’re in the markets, is what does everybody think that all the other traders are going to do based on what the Fed might or might not say? That’s a Keynesian beauty contest in which the contestants are judged by looking at the other judges, not that contestants themselves. So to me, I look at the Fed. You know, I was one of the very first in the water saying transitory is the wrong call. they’ve messed this up six ways to Sunday. And I was harshly critical of the Fed. I still am I think they I think they’re is wrong about rates and labor is they worry about transitory. But what’s happening is the market is doing the Feds job. So do I look at the Fed? Yes, I do. But only to the extent that I’m interested in what other market participants think it means for the Fed. I don’t place a lot of credence in what Jerome Powell and his armies of PhDs are going to have to say, because I think they’re using desperately flawed models that are outmoded and outdated.
Eric Chemi 28:01
Let’s, let’s talk a little bit about that. So if you were that job, right, Powell quits, they say, Keith, you’re in charge. Now. What would you do tomorrow? What would you do differently?
Keith Fitz-Gerald 28:11
Oh, boy. Well, first thing I do is I acknowledge there’s a fiscal problem, not a race problem, because the Fed can’t do its job as long as the government and you know, take the politics out of it. I do money, Eric, I don’t have the luxury of taking sides. People say, Oh, you’re going to politicize this. No, I’m not. This is an American problem. This is not a Democratic problem is not a Republican problem. This is an American problem when you have a financial institution that can’t do his job because our government is so dysfunctional. I think it’s a mandatory requirement personally, that anybody who sits at the Fed or anybody who sits inside Congress, or even in the White House has to take economics 101, what I would do with it, if I were in the Fed, is I’d say, Okay, you you knucklehead, you’ve got to stop spending, we got to figure out how to cut some things. Finally, because this can’t be a one way train forever. And this is where the perma bears are correct. You know, ultimately, that’s going to come home to roost, we don’t know when, but I would immediately engage some of the American ingenuity, I would concentrate on fixing the supply chains, I would provide incentives to companies that can hire and keep people that would be able to bring prices down, I would reward them for doing so because those are the things are going to impact millions of consumers that are otherwise getting the short end of the stick. If I were sitting in the Feds job, first thing I would be doing is I would say okay, what’s the number here? And one of the questions that got me into a lot of hot water said, Okay, Jay Powell, you know, I get it, what’s your number? What’s the fat? How much money do you have to destroy by raising rates to step back and say, you know, what, my analysis isn’t working, I need new methods. I need to look at this. A rational business leader in the civilian world in the private sector would have had a number and said, Okay, if it hits X percent, and I’m still wrong, wait, timeout, we’re gonna figure this out. They haven’t done back to the drawing board. To me, that’s a tremendous problem. So I don’t believe the Fed is a relevant institution, certainly not the way it used to be. And I think that in fact, history shows very clearly that we’ve done better as a country with out the Fed? Do we get rid of it in today’s day and age? You know, I’m not smart enough to figure that out, Eric, I don’t know. But if I were in charge, I would certainly be bringing it back to real money, I’d be bringing it back to a combination of hard assets that are accountable. And I would control the credit system, I wouldn’t let people deal with this idea of, of creating phantom currency via credit card offers, I wouldn’t turn that information into a digital piece, I’d re re examine the the clearing window, the Treasury window, because this idea that, you know, you can have financial zombies borrowing money. I mean, nobody ever went broke on accrual accounting. So to me, it’s all about getting real about implementing basic basic accounting principles, basic common sense. Do we have enough money to keep the country running tomorrow? And if not, what do we do about it?
Eric Chemi 30:43
What do you mean, and then the current internal use of the market is doing the Feds job? What did you mean by that? What’s an example of that?
Keith Fitz-Gerald 30:49
Well, sure, every time the Fed comes out with something, it’s all we got this data, then traders run around screaming like chickens with their head cut off, all of that means the Fed is going to raise rates? No, it doesn’t. What it means is you think the Fed is going to raise rates, therefore you have gotten off the juice, meaning you’ve ditched your debt, and you’re starting to sell the big tech companies and other things. Because you don’t want a margin call in the middle of night has nothing to do with the Fed. What the Fed might or might not say is, is an ancillary argument. So if I were looking at that, and I would say, How is the Fed gonna work? To me? Again, it’s a very simple proposition, I think you’ve got to be very clear about what you want to accomplish. Jerome Powell isn’t stupid. I mean, he’s clearly very smart. But he’s also been very clear that the American people are an expendable asset, he wants you to lose your job, because that’s how he thinks he’s going to bring inflation down. And the markets have said, No, that didn’t happen. And they continue because of liquidity. And all the other things that I’ve mentioned, continue to bid these prices up great companies are producing great results. That’s where the money is going, regardless of what fed what Fed says, the markets are sorting this out. So people want to buy less expensive groceries, they want to go down market, from big high restaurants to fast food chains like McDonald’s. And there’s a reason why McDonald’s and Burger King are doing very, very well, because consumers are going out of their high brow restaurants, and they’re down marketing, there’s good. There’s a reason why Costco and Walmart and Amazon are flourishing in the stock market reflects that, because it’s based on profits, where the Fed is based on covering costs. So that’s a different animal.
Eric Chemi 32:18
You make a good point, right? They want to raise rates, they want to slow down inflation, they’ve got to create a recession, people have to lose their jobs. But then it goes back to the other problem. Once that happens, oh, the government started spending more money because we got to help people out because they lost their jobs. And now we have more spending, and then we have more inflation. And we we keep getting these these cycles, and we don’t really get ahead.
Keith Fitz-Gerald 32:39
No, we don’t. And you know, again, this is this is a really tough stuff, right? It’s very easy to get into the weeds on that issue. But as a professional investor, I don’t have the luxury of doing that. I gotta find companies that are going to navigate that morass no matter what, practically no matter what happens next. And so I’ve got to make a series of calculated bets and in doing my research, find those companies that can move ahead any way and the average individual investor doesn’t go that far. They don’t think that far. They they get together on social media, they get together at their barbecue. Oh, this is terrible. Oh, my gosh. And you know, there’s a lot of belly aching and lollygagging going around. But when you actually talk to a professional investor, professional investor doesn’t care about being right or wrong. professional investors care about being profitable, because you can be profitable even if you’re dead wrong. That’s a different equation. And I think more and more investors, frankly, are beginning to wake up to that certainly our folks certainly our research clients are and professional asset advisors that we deal with on a consulting basis, they are beginning to understand this. And their clients are reaping those benefits.
Eric Chemi 33:42
What do you mean, you can be profitable even if you’re dead wrong? What does that mean?
Keith Fitz-Gerald 33:46
Well, for example, you can say, Well, I think the dollar is going to crash X, Y, and Z and Apple is not going to sell as many units in China. I looked at that and said, well, Horsefeathers. They’re moving production to India. They’ve got a great ecosystem, they’re going to move forward. I think Apple is going to do very well anyway, turns out I was right. And all the naysayers about China’s doom and gloom and Apple is not going to sell anything. They’re wrong. If you look at Tesla, for example, people yell and scream about Elon Musk personally love them or hate them. I don’t care. What I care about is you’ve got a visionary executive who plays by his own rulebook. That’s really when you get to the crux of the issue. What Wall Street doesn’t like is he plays by his own rules. And his rules are effective enough. And he’s got enough capital, that he can make dang near whatever he feels like happen. That’s what Wall Street really doesn’t like. So as an investor, I don’t care who likes what, with a company like Tesla, I’m going to look at Elon Musk as like, what’s he going to do next? Where’s he likely to go? Where’s he going to take things? If you look at Tesla, it’s AI, it’s charging. It’s all these other things that are beginning to be valued, but are not yet reflected in the company’s stock price. And if we if we look back in parallels I’m a I’m a big proponent Eric of history rhymes. It doesn’t repeat exactly, but it rhymes. Apple had a very similar set of services that it monetized before it went parabolic and achieved its trillion dollar valuation. I think Tesla is on the cusp of doing exactly the same thing.
Eric Chemi 35:05
What do you mean by similar services?
Keith Fitz-Gerald 35:07
Services, infrastructure, payments, new technology, these are all things that Elon Musk is bringing to the forefront. So that to me makes Tesla even though it’s had an incredible run one of the most compelling companies for the next 10 years.
Eric Chemi 35:21
And that gets better. So we look at this year, we know the stocks that did well last year, right. But the stocks that do a loss here aren’t necessarily the stocks that did well in 2002, where there’s usually a different rotation of the leader. So how do you figure out what’s going to be good to this year? I know it was good last year, but I don’t know if they’re going to be the same. Is it just, hey, just take the 10 best stocks and buy those again? Or is it look for some mean reversion? How does someone if they want to do what you’re saying, Okay, fine. I don’t want to do do all 500 stocks, I want to pick 10? Good ones. But I can’t imagine it’s just going to repeat from the 10 from last year. What is their strategy there?
Keith Fitz-Gerald 35:57
Well, that’s, that’s that’s the point. That’s the very focus of the issue. The crux of the issue is history rhymes. It doesn’t repeat. So, you know, if you’re looking at year to year, day to day, week to week, you’ve got a much shorter bump your timeframe, right. But what I’m suggesting what my chaos theory studies, science of complexity, is, when in doubt, zoom out, who are the companies are going to carry you five years? 10 years out? That’s the time horizon that I’m interested, because the computers and everything else, you can’t predict this stuff day to day, but you can there’s an element of predictability to it as the money grows. So first things first, you know, are you going to buy the ones that perform last year? No, not necessarily. You might, but not necessarily am I going to buy or take a very hard look at the ones that have had a good five year run or a 10 year run your dang Skippy, I’m going to because those companies are probably going to be there, particularly if they’ve got large dividends, if they’ve got consistent dividends, great balance sheets must have products and services. I’m less concerned about the squiggles than I am about the long term momentum.
Eric Chemi 36:56
And when do you know to get out of something or at least lighten up? What are you looking for level? Are you looking for GE or at least in Pease are a little bit outdated approach when you decide, okay, I believe in the company, I just don’t believe anymore in the growth of the stock?
Keith Fitz-Gerald 37:12
Well, again, that you know, I approach this very differently than a lot of people do. But you got to understand my framework, right? So the markets are going to make that decision for you. And there’s two ways I’m going to look at it. If I’m a trader, and I’m looking for an exit, I’m going to be looking for very specific price points, I’m going to be looking for market behavior that’s going to take me up to a profit objective, classic stuff, easy, easy, easy peasy, draw a line on a chart, boom, there it is, I hit it, I’m done. Or lighten up or I capture some profits or whatever. If I want to get more sophisticated, I can sell cover calls to lock in profits use that way and get paid for doing it. But you know, really, if I’m an investor, and I’m thinking okay, do I have to make a decision here, that short term or long term? You know, what it’s going to come down to for me is, does the company still have the argument that made me buy it in the first place? In other words, can I make the statement that I still am interested in this company regardless of price? Because all these variables that were still there when I bought it are still there today? And if the answer is no, if suddenly, you know, for example, if Apple suddenly went into swimming pools, and that was all they’re gonna make, instead of iPhones, I’d be gone like the wind so fast, the door wouldn’t even have a time to hit me in the rear end. But the odds of that happening are probably not gonna happen very soon. But there’s plenty of other companies that have made those kinds of choices. You know, Intel, for example, famously missed the move to mobile, they famously missed a lot of other the big changes. And now that company is playing catch up. Now, Pat Gelsinger CEO, he’s probably the man to do this. He’s gonna get it where it needs to be. But the problem is in the interim, you know, I took a look at Intel said No, I’m done with that one. Because the fundamental reasons for which I bought the company weren’t there. Ford was another one. Ford made this huge splash about EVs last year in March saying, Oh, it’s gonna be great. That’s the company’s future, we’re going to divert all these resources, then the UAW hit, then they figured out all well EVs are kind of expensive, and they’re tough to produce and all my we’re gonna have all these legacy costs associated with them. So suddenly, Ford reverse course, that tells me management was never committed to in the first place. So, you know, I sold my Ford stock, boom, I’m done. I’m gone. I’m not coming back to that until Ford can make up its mind about what it wants to be when it grows up. Because otherwise the risks aren’t worth it.
Eric Chemi 39:22
Okay, what what, you know, as we as we leave here, what else do you find? You’re getting a lot of questions for 24. What’s the number one question that I’m gonna say your clients give you whether it’s an institutional client, or it’s an investor, what do you what is the biggest fear for this year?
Keith Fitz-Gerald 39:40
The biggest question and this sounds kind of funny, but the biggest question is usually something along these lines. Okay, Keith, I hear what you’re saying. Okay. The research makes sense. But is this really happening? Is this for real? Can the big companies get bigger, more powerful and stronger, can the end vestment markets bear that performance out. And my answer to both those questions is yes, history is very clear about that. If we look at the 1920s, we look at the 1950s, we look into the 80s, even the 90s, you know, I believe we’re standing on the cusp of another golden era of investing, and it’s going to be very different than prior eras. But the number one question is, Is this for real? Because what people are struggling with is not the companies. It’s not even the markets or they’re struggling with the fact that their own personally preconceived notions about the marketplace, no longer apply or may no longer fit like they once did. That’s causing a confidence in crisis, a crisis confidence for lack of a better term,
Eric Chemi 40:40
Okay, Okay, well, this is helpful. The where, by the way, if people want to dig deeper with you, where can they find all your stuff? I know there’s five with fitz.com Fitz Fitzgerald, if it’s very kind, all the places that that we can put because I know you’re in a lot of places. Well, thank
Keith Fitz-Gerald 40:55
you. You’re You’re very kind. I mean, the easiest thing to do is just go to my name, Keith Fitz, hyphen, gerald.com. And my ancestors have been screwing this up for hundreds of years with the hyphens. So you know, unlike modern people, we’re not adding life in because it’s Gaucher, it’s de rigueur, right, my family’s had that hyphen for several 100 years of Keith fit hyphen, gmail.com. They can find the research they can if they’re professional clients, they can get in touch with us for a low asset consulting, if they’re professionals, there’s the five with fitz.com. I personally, you know, again, I you know, I this is not a low, high pressure environment, you know, I’m believe that any investor can be incredibly successful in the marketplace, if they’re armed with the right education, the right knowledge and the right understanding. So I have written the five with fits for my own use for years. And I never ever figured anybody else would find them interesting. But I began publishing and when people urged me to do it, and COVID So we say, Oh, you you ought to publish these in now. Today, we got 25 30,000 people around the world reading those every single day, pros, individual investors alike, because, you know, evidently, you know, I’m an equal opportunity offender. I’ve been fortunate to get a lot of stuff, right. And hopefully it’s helpful. So that’s the spirit within which I write it.
Eric Chemi 42:06
What is with the hyphens, so it’s why is that there? I have never seen a spelling like that, but it’s since you mentioned it.
Keith Fitz-Gerald 42:15
Well, like all good legends, some fundamental element of it is truth. You know, like, like, we were wearing underwear. It happened on a Tuesday and other than that, it’s complete. Horsefeathers. Right. So as the story goes, Fitz is is the old Irish son. So Fitzgerald Fitzpatrick, fitzjohn your son of Gerald’s 100 year old son. Well, anyway, according to my family’s history, my ancestors had had some wives that were falling out of the castle windows because they couldn’t produce a legitimate male child. They produce an illegitimate male child in the old European heraldic tradition, they added the hyphen, which was also called the Barson Astaire. So we’ve been the bastard sons of Gerald for 400 years.
Eric Chemi 42:54
Oh, that’s interesting. that’s, I don’t know what else I, I feel like I shouldn’t try any deeper on that, you know, awkward family, family drama that we all have hiding.
Keith Fitz-Gerald 43:06
So what’s so interesting about that, right is, is it it really does produce some interesting conversational moments. When I fly into Heathrow, for example. It is such a distinct spelling people like oh, you know, he’s back. He’s one of them. And it’s like, yes. But you know, names are very interesting, too. Because even from an investing standpoint, if you look at the way names are constructed, and you look at the human migration patterns, we’re seeing now things in the genetic analysis, we’re seeing things the way our world is constructed, that because of AI because of medical advances we couldn’t otherwise see. So I think within the next 10 years here, I mean, this is this is really cool. And I think we’re gonna solve cancer, I think we’re gonna solve hunger, I think we’re gonna solve water, I think we’re gonna solve a lot of the problems that are presently unsolvable. And the companies that are going to be able to operate at scale, are going to create an entirely new generation of millionaires, they’re going to bring people together rather than pull them apart. So, you know, again, really, at my core, I am an optimism an optimist, this is why I invest. This is the story that I want to see play out. And I think we’re gonna get there.
Eric Chemi 44:08
Can AI solve the government deficit, government debt could solve it?
Keith Fitz-Gerald 44:14
Well, I tell you what, I’m not sitting inside the beltway. And I’m not smart enough to answer that question. But I would like to believe that all joshing aside AI is going to allow our government officials to understand just how off base they have been, and this is not driven at either party, just how off base the systems are. Because it’s very hard to look at our health insurance system, our VA benefits our congressional spending our pork belly, any the whole system’s broken. So if we can take AI and we can have companies that can clarify that can begin to draw relationships between data that otherwise is not apparent than in true Chaos Theory fashion, we’re going to begin to derive some value from that. So my personal take is I think government is we know it is going to change within the next 10 to 15 years. I think the whole idea of a currency is going to change within the next 10 to 15 years, it’s entirely conceivable, I think digital currency, for example, is inevitable. I think that is going to be for my children and my grandchildren, that is certainly going to be their way of life. The question is, how do we keep that aside on a national level? Or do we does it truly become a global community? These are things I don’t know the answer to. But these are things that I think about as an investment strategist every day because there’s very few companies operating at the scale needed to pull something like that off.
Eric Chemi 45:33
That’ll be a whole other conversation that we’ll have to talk more about the digital currency, and what does that mean and AI impact on healthcare? There’s a lot there’s a lot to get into and what that will look like over the next few years and and how that’ll affect investing in what you’re investing in, and how you’re investing certainly, as well. So
Keith Fitz-Gerald 45:50
But again, it’s just it. The thing is, I mean, at the end of the day, this is the coolest thing. You know, the world belongs to the Optimus. Optimus start, particularly in the investor, they start from, Hey, how can I make this happen? What do I want to accomplish rather than stopping because of all the things that keep you from getting into the marketplace? So if you know I have a theme that’s going into 2024, it’s really you can’t do this, you got this in the markets are going to bear that out.
Eric Chemi 46:19
Keith this is great, really eye opening. I appreciate your perspective on a lot of these topics that we touched on today. Thanks so much for spending some time with me and kicking off the year here.
Keith Fitz-Gerald 46:27
It’s an honor. Thanks for having me. I hope I’m fortunate enough to earn an invitation back.
Eric Chemi 46:31
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