The following is a transcription of a podcast recording.
Hello, I’m Brian Skrobonja, and you’re listening to the Common Sense Financial podcast, I think that we would all agree that 2020 has been a year for the history books. covid-19 has shifted the way we think, how we spend our time, how we conduct business, our entertainment, virtual learning. Just when you stop and think about it, everything just seems to be different. Of course, like all things, we eventually adapt to a new normal, but it does take some time and it takes learning new ways of doing things. And being open to these things is fundamentally important, in my opinion, to the quality of life we live and our success that we experience. In the midst of all these quarantines, I hear people wishing for things to go back to how they were and they just really want everything to pass. They’re resisting all that has changed in their life while finding themselves depressed and oftentimes disappointed with everything. This same attitude applies to how money is managed and invested. Traditional public markets have been historically viewed as normal when it comes to investing. But over the last decade we’ve seen a shift in this attitude towards finding an alternative to the stock market.
Though we have been seeing a shift in investor behavior and attitudes about markets for quite some time, covid has brought about a sense of urgency to the conversation for finding that alternative to traditional markets. And it’s not difficult to understand why the abrupt volatility that investors have experienced lately has them going from peak to valley in a matter of days. And any rational investor at one point or another has questioned if there’s a better way. Now, to be clear, there is risk in any type of investment. There’s no unicorn that can deliver all things good. But I do believe that a new normal is taking shape that offers investors an updated paradigm of what diversification really looks like. Now, whether you realize that this was happening or not, this path is already being paved by forward thinking investors and money managers who recognize this shift several years ago and are now operating under that new normal. I believe what we are discussing here is the answer to what many investors are asking for, and it’s why I decided to spend time today sharing this information with you. Today, I have on with us portfolio manager Daniel Wildermuth to discuss the growing interest in private markets and how they differ from public markets.
Daniel is a 25 year veteran managing portfolios in both traditional and alternative markets and has been a pioneer in what we’re going to be discussing today. He’s authored of two books, is a sought after speaker at industry conferences and is often quoted as an expert in the fields of alternative investments, the stock market and just the economy in general. He’s garnered media coverage from Barron’s, Investment News, Forbes magazine, Family Office magazine, CNBC, Bravo TV, Dow Jones Newswire and other financial market news outlets. He earned an MBA in finance from Anderson School at UCLA and an undergraduate degree in engineering from Stanford University. He’s the founder and CEO of multiple financial services firms, including Wildermuth Advisory, Wildermuth Securities Wildermuth Asset Management, Kalos Capital and Kalos Management. Now, I was first introduced to Daniel and his wife, Carolyn in Atlanta when a group of advisors and I were traveling and interviewing different firms that specialize in alternative investments. The firm we were with at the time was moving in the opposite direction of where we were trying to go when we just found Kalos had exactly what we were looking for at the time. It’s been a good relationship and when I thought about where we are here in 2020, I thought Daniel would be a great person to bring on and talk about the state of affairs.
Hey, welcome, Daniel, to the Common Sense Financial podcast, glad you’re here and looking forward to our conversation today.
Daniel Wildermuth: It’s very much a pleasure to be here. Appreciate you having me on.
Brian Skrobonja: Absolutely. So so just tell us a little bit about where you started in the world of finance and kind of the path you’re headed right now, just to give our audience a little bit of a background for us.
Daniel Wildermuth: Sure. Certainly very quickly. I graduated as an engineer out of Stanford, but the summer before I graduated, I took an engineering job and realized I didn’t want to do that. So I got married, moved to New York City, started on Wall Street, did that for a few years before going back to graduate school and spent a few years overseas, first in Eastern Europe. The wall had just come down and there was lots of interesting opportunities over there and then landed in finance in Hong Kong. Spent a few years there traveling around throughout the east in one form or another doing a lot of consulting to banks and different organizations, and then came back and started different companies. I guess the first of what proved to be more than we anticipated, financial services firms that started those with my wife. And so we’ve been at this point, I guess, married couple for thirty three years and been working together for twenty two now. So its been a little bit a while over the course of the years and started various financial firms all focused around effectively managing assets in one form or another and working to help advisors better serve their clients.
Brian Skrobonja: That’s awesome. So you sound like you had a pretty wide not just in as far as what you know, but just where you’ve been seeing the rest of the world. You know, one of the things that I definitely want to jump right into head first is just the the likelihood of the markets as they have been and our economy and how things are functioning and just how likely that is to continue to operate in the future, as it has in the past. And like I said in the opening, you know, we get settled into what we believe to be a normal and we have a difficult time visualizing something to be different until, of course, that happens. But with artificially low interest rate environment that we’re in, government debt and inflation looming, tax hikes that we we know are likely around the corner and just baby boomers retiring the political division. You know, I just personally have a belief that things aren’t necessarily going to look and feel the same into the future as they are in the past. So what are your thoughts on that? And what do you think that investors are going to be doing going forward as opposed to where they have been in the past?
Daniel Wildermuth: Certainly a lot of different topics or a lot of different potential topics in that question.
Yeah, you know, the likelihood of things being the same, I think over the next decade plus as they’ve been over the past decade, I think are pretty low just because there’s so many different just circumstances and changes in one formula that we’re facing. Of course, a decade ago, we were only a couple of years out of the financial crash and at that point, very low valuations and very low expectations in many ways for the economy and a kind of relatively low growth rate. But at the time, we were just really starting to see some growth come back. But companies were cheap. I remember standing up in front of a group of advisors, and this was the summer of 2009 and telling advisors, you know, kind of doesn’t matter what you do, just get your clients to assume risk somewhere because everything’s on sale and just everything was cheap. Didn’t matter if it was public markets, private markets, everything was cheap because there was a lot of concern, a lot of panic. And I said, you know, I don’t know where where we’re going to be at this year in two years. But in five years, if you just get your clients to take risk, you’re going to look really smart because everything’s on sale. Today, it’s kind of the opposite set of circumstances where almost everything’s really expensive. We’ve come out of a decade. You know, in the last couple of years have been incredibly calm in the market, have been very, very predictable.
And we had one one entire year where were the market and move more than a percent the entire year. That’s never happened before. There’s a whole bunch of other measures where we just didn’t see the market move forward that steadily. And that was great. There was different circumstances for it. We had solid growth, obviously record low unemployment. There was a lot of great just very, very strong tailwinds that brought us to that level. And then, of course, covid happened. So now we’ve got all these bizarre sets of uncertainties and unknown data and change and and you now have a situation where we’ve also got the tech behemoths are driving so much of what’s happening with the market. I mean, just five stocks, Apple, Google, Facebook, Amazon and Microsoft, just those five stocks alone are twenty three percent, almost a quarter of the entire S&P 500 because it’s a capitalization weighted index. And so what happens with those companies drives so much of what’s happening with the market. But the market is not the economy. Me and even during, you know, kind of what’s happening with that, Apple is a great example, over the last year and a half or so, Apple’s stock has just skyrocketed. And the arguments that these are great companies and they’re potentially benefiting from covid, well, that sounds kind of good on the surface. It’s kind of investors are now willing to pay twice as much for a given dollar of earnings or for a given dollar revenue.
Doesn’t matter which measure you take, as they were a year and a half ago. And Apple’s a great company, nothing against Apple. But is it that much better than it was a year ago? And the world hasn’t changed that much for Apple? I mean, it’s something where people are still using iPhones and iPads, et cetera, but the world is not dramatically shifted for Apple. So why is the company now worth basically more than twice what it was a year and a half ago? And that’s what’s driving a lot of valuations, and that’s something that just really can’t continue indefinitely. So with things being so expensive, the likelihood that particularly the stock market repeats over the next decade, what it did this last decade, which was really fantastic if you invested in equities, the likelihood of that repeating just seems extraordinarily low. It just and a lot of it valuations, they tend to be a very poor short term predictor. So not necessarily very good for the next 12, 18 months. But you look at five and 10 years down the road and valuations are an extremely accurate picture of how well markets are going to do. And basically when things are cheap, it’s a great time to go in. When things are expensive, it just tends to create a lot of headwinds.
Brian Skrobonja: So with everything that’s happening in the markets, to your point, like with with an apple, you know, the valuations, the stock price and everything in the way people are buying things and the way people are behaving is not necessarily representative of like, to your point, the economy and what’s actually happening behind the curtain.
Daniel Wildermuth: Yeah, well, you’re taking in a more kind of egregious example of that. Tesla’s shares are up for over 400 percent this year. The price to earnings ratio of Tesla is over 1100. So if Tesla simply dropped down to Apple’s already high inflated price to earnings ratio Tesla would drop by ninety seven percent, and it’s a test, it’s not basing it all on fundamentals, it’s basing on momentum. Individual investors are now twice as active, at least on a percentage of shares traded as they were a decade ago. And a lot of that, they tend to be heavily involved in a lot of the momentum stocks, a lot of the big tech names that people are familiar with. And what tends to happen is those. And again, no guarantee that this happens in the near term and no guarantees that it’s a bubble that pops. But historically, when that happens, it tends to mean that it is a bubble and things tend to kind of end badly, you don’t know when that will happen and how that will happen, but that just tends to have been what history has given us in the past.
Brian Skrobonja: So looking at the fact that we have this this bubble that’s been created, as you put it, and knowing kind of what we pointed out with interest rates and potential tax hikes and just all of these different things that are happening, what do you find more sophisticated or quote unquote, most successful investors are doing and how they’re investing going forward? How are they thinking differently?
Daniel Wildermuth: Yeah, I mean, possibly one of the, I guess, best examples that people can pretty easily understand is endowments. They tend to have been one of the leaders in adopting more sophisticated approaches to investment strategy historically. And they have been kind of steadily exiting public markets, maybe not completely, although some are almost completely out of public markets. But they’re moving more and more into private markets and looking at opportunities that tend to be, from their perspective, basically less expensive to get into and often more predictable as well. So they tend to be rooted more in fundamentals. The market, the market can be great if the market’s really cheap. It can be a fabulous place to put a lot of dollars. And because you’re buying things on sale and you mentioned a decade ago that was the case, you wanted to be in the market because everything was so inexpensive, because the market just tends to over panic or over get overly enthusiastic. And many would argue today that the market is potentially overly enthusiastic or just doesn’t represent as much opportunity and the more sophisticated investors as they’re recognizing that they’re really looking more towards effectively investments that are not public securities, whether that’s stocks or bonds. They tend to be, you know, at least moving away from that. In fact, if you look at a typical large endowment, meaning somebody over a billion dollars, they generally have around 60 percent of their investments that are outside of public markets. And the bigger they get, that that number actually even gets larger. So you look at somebody like Yale who was really seen as the forefather of the really the predecessor, the kind of the pioneer in this space. They only have at this point two and a quarter percent of their total portfolio in US stocks. They have a little bit more in developed markets stocks, but a very large percentage of their total portfolio is invested in the private markets. And that’s true, like I said, of a lot of the particularly the larger, more sophisticated endowments.
Brian Skrobonja: So you just see you personally are seeing a shift in mindset away from traditional markets into more private markets.
Daniel Wildermuth: Yeah, certainly. And part of it, too, is the private market opportunities have expanded dramatically.
If you were trying to invest in private markets 30 years ago, there just wasn’t the opportunities available that there are today. The other thing is, is that ironically, over the last, say, thirty five, forty five years, the number of public companies has actually dropped substantially in the United States is only about half of the number of traded companies available to invest in that. There were, you know, several decades ago, which is a bit of a surprise because the economy obviously has gotten significantly larger and yet there are fewer public companies. And again, it’s more of an extreme example. But I mentioned five companies are now representative of a quarter of the S&P 500. And we’re seeing that, though, to some degree across the whole universe of equities where you have a more and more of a concentration of what’s happening in smaller and smaller positions. And that can represent both opportunity and potential risk in today’s environment or those companies are trading at very high multiples. I think many would argue it’s more risk, but also it’s just with more concentration, you’re likely to have potentially more volatility or be susceptible to a smaller set of variables. And we’ve certainly seen that happen here over the last several months as covid has changed the world in many ways.
Brian Skrobonja: Yeah, you said an interesting thing there just about diversification, because I think a lot of times people will look at the markets, the public markets and say, hey, if I have some large cap stocks and mid-cap and small cap and a little bit of international and maybe even mix in some bonds in there that I have the standardized diversified portfolio. Right. But what we’re seeing is, is that all that stuff’s kind of floating through the market up and down in tandem. And so that diversification feel is not there. Would you agree with that?
Daniel Wildermuth: Yeah, you tend to have if you go mid-cap versus small cap, as you mentioned, it’s kind of been the I know some are familiar with something referred to as the Morningstar style boxes.
And you have kind of value versus growth and then small versus large and you try to pick in those different squares. But the correlation historically has been really high between those boxes. So, you know, if you’ve got 90 percent of the same activity across those boxes, it doesn’t tend to buy you as much diversification. Ironically, there’s actually been less correlation over the last certainly the last decade. And even the last year than what has historically been the case, the correlation is still pretty high, but it’s gone down a little bit. And part of it, again, is because if you’ve held those big tech stocks, your performance has been better than if you didn’t. And so a lot of performance has been driven by did you have exposure to just a very small number of companies? And so that’s a little bit different than his program. There’s still a very high correlation, but it’s actually changed a little bit just because the differences between sectors has been higher than what has historically been the case. And a lot of that’s just sort of the the uncertainty and to some degree panic that’s been associated with covid, where people are guessing what might be happening 12 to 18 months down the road because nobody really knows. But there’s a lot of projections that are going out there in terms of how things are going to recover. Is tech really going to take over the world? If you’ve had a lot of money in Norwegian cruise lines or some of the other kind of entertainment stocks, they just got absolutely slaughtered over these last several months. So more divergence than we’ve typically seen, but still across public markets, a lot of correlation.
Brian Skrobonja: So when it comes to diversification in your mind, it’s less about because I think about a typical 401k portfolio. You know, you have a client that comes in. They have the typical very narrow list of opportunities they have inside of a 401k, let’s say. And it’s typically like what we just said, it’s the small, medium, large, international. Typically, there’s really not much outside of that, maybe a money market, a bond fund and all these target date funds. But you’re saying that that’s less important going forward because of just correlation issues that we really need to find those asset classes, those sectors to really get diversified. And so even that one off 401k that has real estate, maybe some of these people need to be thinking about that as a as a sleeve as opposed to just looking at US companies. Would you agree with that?
Daniel Wildermuth: Yeah, certainly. That’s what you see a lot of the institutions doing they’re trying to do and basically trying the whole idea of diversification is you want to keep your performance relatively high. And they’re often targeting what is seen more as private markets in one form or another because they believe the performance is going to be strong, but they don’t believe it’s going to be driven by the same factors that are driving public markets. And as well, they don’t believe that effectively that some of I think the hyper, possibly overly, optimistic expectations that may be driving the market multiples right now, it just doesn’t tend to be as much of a factor within those areas because of the general level of sophistication of investors. And it’s not that institutions can’t make mistakes or can’t get carried away or overly enthusiastic either, but they tend to be much less likely to do so. They tend to at least do it based on a lot of data and trends. Doesn’t mean they’re going be right. But, you know, you don’t see a lot of institutions outside of hedge funds that are kind of had trading strategies that are really banking on Tesla continue to get higher and higher and higher.
So that’s a trading play. It’s not really a fundamentally driven investment.
Brian Skrobonja: You know, one of the things that I mentioned in the opening was just what people consider normal and why I thought this podcast was so important. This topic is because I think where people are a little bit trapped mentally is just that traditional mindset of everything we just talked about. Right. Is a diversified portfolio is small, medium, large U.S. companies, little bit of international and bonds. And my fear is if that people just typical investors don’t start realizing that there’s a lot of things happening outside of that box that they’re missing out on, that they’re going to see more and more volatility going forward. You know, my my interest in private markets, a.k.a. alternatives, really surfaced after the housing bubble. You know, it just pointed me in a direction that says, hey, we got to find something that’s different because what preceded that, of course, what a lot of people don’t talk about because everything’s focused on what happened during the housing bubble. But, you know, we had the tech bubble, right. And then we had 9/11 and we just, you know, 2000. Everybody knows that that was a really devastating decade. But the volatility that we’ve seen ever since that point has just been off the charts. And so trying to find that alternative, that outside influence that we can add to the portfolio to try to narrow those peaks and valleys has been a real desire of mine. And and that’s when I started researching these alternative markets and Yale and then, you know, got turned on to what you were doing and what not and which led me here. So I guess just from a listener standpoint, because you and I understand, you know what this really means, but maybe when we talk about an endowment portfolio, can you provide a little bit more specific detail on what we’re really talking about there?
Daniel Wildermuth: Yeah, unlike a traditional model that a lot of people implement, there’s it’s often referred to as a 60 40 model, which means 60 percent stocks, 40 percent bonds, very basic, been around for a long time. You know, it tends to generate a decent return historically and you have the bonds in there to offset the stock. So that hopefully reduces your volatility, your ups and downs during inevitable market moves. The challenge with that and seeing how many reports come out of this in one form or another is that model looks challenged going forward because it simply depends on 40 percent in bonds and the interest rates are probably not going to get much return out of that. And then, of course, with your 60 percent in stocks, if your valuations are very high and that doesn’t do as well for the next decade, it’s challenging. So when endowments do is the typical endowment model basically says we’re going to add a lot more high performance asset classes with high performance expectations. So it tends to be private equity, real estate. They often use absolute return investments, which typically means hedge funds. And they’ve got other types of investments as well, which is often brilliantly branded as other forms of investments that have relatively high performance expectations. And the idea is, is that if they add that to the portfolio and they don’t have all the performance oriented assets that are correlated, if the market goes down, there are other investments are not going to be nearly as affected by whatever is driving the market either up or down.
And so that independent performance is going to be relatively independent. If they can do that, they can reduce both the amount allocated to individual stocks. But as importantly, they can also reduce the amount allocated to fixed income, which means that they can still have basically a much higher performing portfolio, or at least the expectation of one is obviously as the design goes. But they don’t have all the volatility associated with having just equities, because, of course, if you just want high performance over the long term, one could argue, well, just put everything in stocks. A lot of people don’t want to do that for obvious reasons. And also your timing can be can really impact what your total return performance is. Putting one percent of your assets today in stocks, I would suggest probably is not particularly wise. But with the endowment, the idea is, is that, OK, we don’t have to have so much exposure, dependence on stocks and we can really reduce our exposure to fixed income, which particularly today has very, very poor performance expectations. The result of that is a portfolio from a design standpoint with relatively high expectations for performance. But without all the volatility that’s generally associated with having a large allocation to equities.
Brian Skrobonja: So based on what you just said and everything that we’re talking about here, and I don’t remember exactly when this started, maybe you can give us a glimpse into that. But this led you to actually creating your own fund because you saw an opportunity there in the space, because not a lot of people are talking about it. But seeing the trajectory of where markets are going and seeing the trajectory of where investors are ultimately going to end up, you actually opened up an endowment centered fund called the Wildermuth Endowment Fund. Maybe just tell us a little bit about that. What led you to that, how long that’s been around and and what your focus is inside of that fund?
Daniel Wildermuth: Yeah, we have one of the challenges, for some individuals can be that there’s a lot of opportunities out there, but it can be somewhat difficult to access them. And of course, it can also be both a little bit more work or it can be complicated. So one of the things we wanted to do is create a fund that would enable people to invest in very, very similar style and in some cases even the exact same investments that endowments are investing into.
But do that as an individual investor and obviously most investors don’t have a billion dollars to invest effectively to create a team and bring people in like a typical endowment does. So we’ve created a structure in a format that allows investors to basically put their assets but their investments into the same types of investments that endowments are using. So, you know, it’s, again, a significant amount of private equity and various real estate, direct real estate holdings, hedge funds, and then having a certain amount of liquidity so that we can provide liquidity for for people as needed at least on a quarterly basis. But that really it’s not a lot more complicated than that, but is really trying to make the same style available to individuals that the endowments are following. And in some cases, it’s actually even the exact same investments you’re sitting alongside, the endowments in the same types of things. But for better or worse, one of the other things that’s different about endowments is there is no single endowment strategy.
So, you know, somebody may have 20 percent of real estate, somebody else may have 10. It’s more of a philosophy that says we’re going to diversify substantially into private markets. And part of what makes that a little more difficult is that. If you have a 60 40 stock bond portfolio, it’s really easy if your stocks go up, you can sell off some of your stocks and readjust into bonds with them. Private equity. If your private equity goes up, you may not have the opportunity to get out really quickly. And so it often takes a little bit longer to rebalance the portfolio. So inevitably, the differences tend to grow a little bit across those endowments. But, you know, similar to what they’re doing. That’s what we’re trying to do in terms of giving them that exposure and something that is professionally managed and has high quality assets in the private market sector.
Brian Skrobonja: Yeah, I mean, I think what you just said there was an important point. But, you know, obviously all investments are long term. All investments have risks. But at the end of the day, we’re just trying to level out that peak and valley experience. Right. Because and we won’t get into the math, but, you know, an eight percent average versus an eight percent real return could be a very different experience along the way. Right. And it and it can result in higher numbers, higher amounts of money in your pocket, even if the same numbers exist, a real return versus an average if those peaks and valleys are compressed. And so that’s where I see private markets come into play, not to mention, you know, the diversification of style such as capital appreciation versus income. That is another opportunity of diversification that we talk a lot about just to try to diversify. But you said a key point. And I think what is good about your fund is that, you know, with a lot of alternative investments or private market investments, the threshold to get into them can be pretty steep sometimes for people. And even at that institutional level, it could be very significant where most people can’t get even be exposed to that type of stuff. So using something like your fund can be an entry point for people to be able to get in to something that they would never, ever be able to get into somewhere else.
Daniel Wildermuth: Yeah, well, you know, we say that you mentioned the hurdles for investment and we’re in you know, we obviously have a significant slug in private equity. And for some of those funds, you know, a typical investor, you don’t want to even if you’re a typical investor, you go into a single private equity fund because then you have exposure only to a single referred to as vintage years. So everything you depend on, private equity depends on that particular year. And this year is a good example. If you happen to be going in to a private equity fund that’s raising capital now, that’s probably a good thing because they’ve got a lot of dry powder right at a time when there’s a lot of disruption in the market. But if you wanted to one that was a few years ago or was in the wrong place at the wrong time, you just you don’t get the diversification of having different types of investments. And the other challenges is that for a lot of those, the minimum investment is five, 10 or 20 million dollars. And that’s obviously difficult for somebody to get wide diversification across multiple funds if each one requires a 20 million dollar minimum investment. It’s just not practical. So for us, we’re able to bypass a lot of that for people and give them access to something they just couldn’t get on their own.
Brian Skrobonja: You know, another thing to just as we look at what we’re talking about here and the kind of the writing on the wall as we go forward with everything that’s going on, it just seems, you know, and I think some people would phrase it this way, that world just seems a little bit crazy right now. You know, you have Covid fears. We have civil unrest, we have wildfires, we have hurricanes. I mean, not to mention everything else we’ve just talked about. I mean, the world seems like it’s on fire. And so when you when you think about all that stuff and get out of your day to day routines and just step back and look and see what’s happening, where do you see, you know, things going going forward? I mean, here we are, the end of September, recording a podcast. We get an election around the corner, you know, and of course, things vary depending on who gets elected. Because I know you follow economics very closely, right? Managing a fund. Where do you see things going into the future?
Daniel Wildermuth: Well, one of the great things about the United States in a capitalist economy, and we still are one, even though we’ve got some people who are somehow trying to change that, opportunities are still there. So we still remain optimistic about different possibilities, you know, for instance, within their own portfolio. We love a lot of the holdings we have and are very optimistic about opportunities that we continue to see. Technology is changing the world. It is bringing new opportunities, whether it’s genetic sequencing or various things that we potentially may be developing that impact health positively. They’re talking about trying to have a vaccine come out already this year. I mean, previously that never been done, I think in less than like a seven year time period. And we’re talking about doing it in six to eight months. And that hasn’t been done yet. So it may or may or may not be successful, but still the amount we’re collapsing health developments down and the fact that we’re having this conversation, the way we’re having it, which just a short number of years ago wouldn’t have been possible. So developments are out there. So there’s lots of positives. The flip side is that there’s also certainly some headwinds out there. The Office of Budgeting came out with their projection for GDP growth, and they’ve lowered a twenty five basis points from just a year ago based on all the debt that’s come out and some of the ongoing challenges that have come up because of covid. And by a quarter point, that’s a quarter point over a 30 year time period.
So that’s a quarter point expected GDP growth from the year twenty twenty or twenty fifty. And so, you know, against this there are definitely going to be some headwinds. And you see that now there’s some people who are relatively unaffected by covid not their lifestyle maybe, but their income is relatively unaffected. You’ve got some people who are obviously benefiting and then you have a large number of people who are really adversely impacted. You’ve obviously seen potentially some real challenges for you. You know, I look at it from an investor standpoint and you know, where things were cheap a decade ago I mentioned this already. They’re expensive now. And it’s something that I think it’s more imperative for the typical investor to go out and search for different opportunities. It was kind of easy a decade ago. You could kind of invest in anything. It was probably going to go up. Today, it’s just tougher, a lot more headwinds, a lot more places. But again, it’s not that there’s not opportunities, as I think there absolutely are. They may be in different places, though, and they may be in different packages and they may be accessed in a different way than what has been in the past. But, you know, you started out the podcast on this saying that things have changed and they have. And that’s before we get a different whether we get that before presidential elections or determine so things things are different. So I think it requires people to basically plan and act somewhat differently.
Brian Skrobonja: One of the things I get asked a lot about, you know, in an election year is, you know, what happens if this president gets elected? What happens if this president gets elected? And I don’t try to forecast any of that stuff.
But one thing that I do often say is that, you know, tax hikes and increased regulations typically don’t bode well for the markets. What would be some comments you would make on, you know, what potential changes we can see if those types of things were to happen, if taxes were to go up, if regulation were to go up and anything else you can think of that may be warranted there, how would that impact markets, at least in the short term?
Daniel Wildermuth: Yeah, you know, you kind of already said it in the sense that, you know, higher taxes and higher regulation that’s just never seen as market friendly business doesn’t do as well. You just don’t see the same profits. Things are slower, you know, to some degree. Europe has gone that route in different areas, which is part of the reason that, you know, I don’t know about a 30 or 40 year time period. Our income has doubled relative to France’s. Wonderful country, but our GDP per capita has grown much faster than theirs. And that’s been true for all of developed Europe. And a lot of that is because they simply do have significantly higher taxes and much, much greater regulation now. So those are definitely headwinds. And if you if the market perceives that those are going to introduce headwinds, the market tends to be very anticipatory in terms of how it trades. So just a couple last couple of days, I’ve been reading about the amount of trades that are being put in place that are betting on a lot of volatility associated with the elections. But it’s not just the elections. It’s the assumption that the elections are going to be contested for several weeks after the elections. And a lot of that has to do with the policies being put forth by the two different candidates are different.
One would obviously be more of the same, for better or worse, whatever that means. Another has been very most would categorize it as an antigrowth platform, but it’s also hard to know how much of that is posturing and how much of that is really policy that is really intended to be put in place. But if they do, if that is pursued and you really end up with higher taxes going into place, markets don’t like that. Part of the reason we have the big market run up was because of the decrease in corporate taxes. Right. Flipside, if you see those corporate taxes go up, putting us back and we were the we are the highest corporate taxes in the developed world prior to those. So it’s something it’s not like we were suddenly become this incredibly low tax country. We’re simply the highest in the world already. So this was bring us down in a much more competitive circumstances. And if we kind of put that back up into a higher category, it’s hard to imagine kind of any scenario that that ends up being good for financial markets.
Brian Skrobonja: There’s definitely a lot to talk about here. And, you know, I think we could probably wrap it up right there. But I guess for the fund itself, for your fund, where if somebody wanted to get any information on that, where could they go to get that information?
Daniel Wildermuth: There’s Wildermuthfund.com or let just do a search on Wildermuth Endowment Fund, and it comes up as well. So whether you remember the URL or not and we work as I believe, you know, we work through financial advisors. So it’s something that most people end up talking to a financial advisor and getting more information on that in terms of really appropriate for them, what their strategy and what their goals.
But they I there’s plenty of information if somebody just does a search on the name Wildermuth Endowment Fund or Wildermuth Fund out there on the Internet.
Brian Skrobonja: And of course, all of our listeners or clients are welcome to just give us a shout and we can provide any information on that as well. So perfect. Thanks, Daniel. I appreciate your time today joining us and just providing your insight into what I feel like is one of the most important topics of today is just how things are going to be operating into the future. So I do appreciate your time today.
Daniel Wildermuth: I’ll thank you very much. My pleasure. Enjoyed talking with you Brian.
Brian Skrobonja: Ok, everybody, that concludes today’s podcast. I’m Brian Skrobonja. Thanks for listening to the Common Sense Financial podcast.
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