Episode 14
CONGRATS, YOU'RE A BUSINESS OWNER!
Episode Description
In episode #14 of The Big Bo $how, Big Bo (a.k.a. Jason Blumstein, CFA®) discusses ways to help create a proper ownership mindset to assist you on your long-term investing and wealth creation journey. Additional topics discussed:
How "the market" is not typically "the market" when you look over time
Surprising stats on the top 25 Wealthiest Americans on the Forbes List
How offense can win you games, but defense typically wins you championships
Big Bo's "Bo's Knows" segment predicting the winner of Super Bowl LVII and why
Hope you enjoy the $how!
Episode 14 Key Takeaways:
00:00 Why comparing current markets to past markets isn’t a fair comparison.
05:40 A deep dive into the changes of sector weighting in major stock indices — and why those changes matter.
10:02 The reason stock prices tend to increase when companies announce layoffs.
13:32 Analyzing the Top 25 Wealthiest Americans Forbes List to determine what 68% of them have in common.
19:07 Why great football teams — and great investors — subscribe to the principle “Offense wins games, defense wins championships.”
Episode Transcript
In episode 14 of The Big Bo $how, I will dive into an improper mindset that I believe people have when it comes to investing, why the market is not the market, stats on an ownership mindset in America. And please stick around to the end for our second annual Bo Know$ segment where I will give my Super Bowl prediction between the Eagles and the Chiefs. And how this mindset relates to the Super Bowl champion, sit back, relax. And let's get after episode 14 of The Big Bo $how.
All right, so let's get after episode 14 of The Big Bo $how. Congrats, you're a business owner. And when I talk about this, I bring this up because one of the biggest things that I have seen throughout my life throughout my career in this industry, and investing since the age of 10 is that people fail to relate that all they're doing when they make an investment in the quote unquote, market via equity. In a publicly traded company, there's simply buying a piece of someone's business, someone else's business, if you're the CEO of that company, or you take the company public, you're just selling shares of your business now to the public. And now other people can own this business. And I say this, because we're sitting here in the beginning of February, markets are up about 16%. From their lows, global markets are up about 19% from their lows. And every time there's a bear market, which we had throughout 2022, people always come out with these doomsday scenarios looking at the macro, or what some people call a top down about why the world is going to end and why the market is going to collapse. And comparing the best one that I think people get a little bit incorrectly stated is when they compare the S&P 500 or quote unquote, the market to the past and they set up and they take a chart and they say well look at for example, the valuations the PE ratio, which is the price to earnings or evaluation metric of the S&P 500 all the way back 10 years, 20 years, 30 years. And this is the historical valuation during times of recession or good markets or bad markets. The issue with his elementary analysis, in my opinion, and as I try to articulate to clients who Julius Wealth Advisors is that when it comes to investing, the key is a proper mindset, which is what I do with behavioral coaching, and knowledge. I try to always instill knowledge that people and I'm going to shift to me as a football player.
So let's just say I was born in 1982. And I was born a fairly big guy, and someone compared my football abilities at birth to when I was 20 years old. Would you say that's a fair comparison? Would you say? Is it fair to compare my abilities? When I'm born in 1982? When I'm 20 years old? I would say not now let's take it even further. I'll be 41 on Monday. And let's just say people compared my current abilities to play football to when I was 20 years old. Do you think that'd be a fair comparison? I'm going to answer that I'm going to tell you no, because right now, when people say you lose a step or two as you get older, I have lost at least 10 steps. So comparing me as a football player at age 41. It'd be silly to compare me as a football player. When I was in my late teens early 20s around height in high school and college it's not a fair comparison. So when people compare the S&P 500 today to the past, it's also not a fair comparison. Well, you would say, Well, why is it still the S&P 500? But let me break down some statistics for you and drop some knowledge. People fail to realize that the market is the component that makes up the S&P 500. constantly change, just like I constantly change from birth to high school and college to now or any human being changes or any group of human being changes, people evolve, time evolves. And that's the same thing that happens in the S&P 500. It's not static.
So for example, at the end of last year, 2022, roughly 26% of the S&P 500 was in technology, and 16% of it was in healthcare, and roughly 12% of it was in Financials. Great. Now, let's look at that versus 2007. Pre-financial crisis, pre financial crisis, roughly 17% was in technology of the S&P 500, 12% in healthcare, and 20% was in Financials. So if you're looking at data, where you have 9%, more on technology, 4% more on health care, and roughly 8% less on financials. These are different businesses that have different financial characteristics, and different makeups, which I'll go into in a second. But let's take this analysis a little bit further. Now at the end of 2022, 9% of the S&P 500 was in industrial businesses, and 5% was in energy. Let's compare this to 2007. And all the way back to 1980. And 1980 13%, was in industrials and 25% was in energy and in 2007. Both were roughly around 11. So from 1980 to the end of 2022. There is about a 25% differential in those companies' weightings in the s&p 525% In essence, the weightings of industrials and energy down 25% flip flopped with technology and healthcare, which are up roughly 25% In terms of the weightings. So when you see people comparing the S&P 500, all the way back to 2007. Or even as far back as 1980. You're literally comparing two totally different things. This isn't your parents or your grandparents, quote unquote, market. But people always say, Well, what the market does, what the market is, the valuations on the market are statistics on the market going back 20 years, 30 years, 40 . You're literally comparing two different things, drastic things, even though it's labeled the same thing.
Putting it this way. If you look at the financial makeup of healthcare and technology company versus financials, industrials and energy, technology and healthcare companies typically have more stable earnings have higher margins are more transparent business structures are less capital intensive, even though it'll put a lot of cash flow into starting up a software company, you build a software, you sell the software, you have a little bit of maintenance, if you're trying to build out or get energy, you've got to constantly put money into the ground to try to get out oil or natural gas. Two totally different fundamental business models. Same thing with financials, the financial financial companies, one of the reasons why we had the financial crisis is a lot of financial companies aren't very transparent. It's very tough to analyze their business models. When you look at the weightings, and then components of that quote unquote, market where the S&P 500 today was a lot heavier in what I would deem higher quality business models, as measured by earnings volatility returns on invested capital margins, lower capital intensity businesses, those valuations are the metrics you're looking at are fundamentally different than what you're comparing in 2007 90 and 80. In years past, I just wanted to make sure people understood that knowledgeable component of why when we keep on asking and telling people look at the market, look at the market, look at the market, you're looking at different things.
And the other piece of it is when you own a business, and everyone in the past year is like oh inflation is going to destroy consumers is going to destroy businesses, people are going to lose their jobs. The market is going to collapse. And this might sound harsh, but it's reality. And this is why having the proper mindset of that you actually own a business to me.
And what I try to instill in clients at Julius Wealth Advisors, is this mindset is extremely important when it comes to creating long term sustainable wealth, about inflation. So when you go to the store, like I was at the store, and I was buying potato chips, potato chips, like $5, a bag, it used to be like $1.50-$2, about a year, year and a half ago, poultry, cars, all that has been pushed on to me as the consumer for guess what inflation is to businesses, your inflation to businesses is their revenue. So as inflation goes up, they push the price onto the consumer, they push the price onto the weakest hand, this is like an economic concept, the weakest hand will always get pushed on any excess tax or any excess inflation.
So inflation to you is a business's revenue. And then people say Oh, companies are going to start firing people, that the economy is going to slow down and the world is going to end. Probably not because guess what your job is to a business. Your job is their profits. That sounds harsh. But again, I'm just trying to educate people. That's why when you see a lot of these companies announced layoffs, you see this going on a lot. Recently, unfortunately, when they announce layoffs, the stock usually goes up. Because when they announce layoff, their costs go down, which means their profits go up. And at the end of the day, when people buy a business, they're buying it to get a profit stream back to the owner. So when you think about the market, or the S&P 500, next time someone tells you that they're going to compare today versus 10 years ago, 20 years ago, 30 years and show you all these crazy metrics and why the world's gonna end tell them to step back, they're comparing apples to oranges, or they're comparing a 41 year old Big Bo playing football, to a 20 year old Big Bo playing football — totally different. Have this proper mindset. Congrats, you actually own a business. And we're going to take a quick break and when we get back I'm gonna go into some stats about business ownership in America.
So let's get after the second segment of congrats, you're a business owner, as we dive into a proper mindset, in my opinion, and it's something that I try to drill into, again, client of Julius Wealth Advisors, if you have to have an ownership mindset. And this doesn't necessarily mean you have to own your own business, though I will be going into some stats on business owners in America shortly. But don't forget, when you invest in publicly traded securities on quote, unquote, the market, New York Stock Exchange, as that changes overseas, you're literally purchasing pieces of other people's businesses, you own businesses, and I came up with these statistics, as I was talking with a client, and he owns his own business outside of finance. And he was going into how he thinks the only way you can make money in this country is being in the investment industry, the finance industry, and I challenged him on that. And I said well, let me actually share some statistics with you some factual statistics, because what he has found, why he came up with this concept and also what I have found, which is why I wanted to start my own firm and lead with integrity, knowledge and passion is that many people that are in the finance and invest When business they think this industry is kind of untouchable and unapproachable, and mainly to me, it's because we do not take the time to actually educate people. So let me educate you about how when people think that the only way to make money in this industry is being in the investment industry, or the finance industry, those numbers are actually not true. In my opinion, it's about having an Ownership mindset.
So when I discussed it with him, let's take a look at the Top 25 Wealthiest Americans on the Forbes list of The Top 25 Wealthiest Americans on the Forbes list. Only four of them work in finance. Two of those happen to be Warren Buffett, who owned Berkshire Hathaway. I classified him as finance slash investments, even though an argument can easily be made that it's not, it's a conglomerate of different businesses that Berkshire Hathaway owns. And the other one, one or the other ones is Michael Bloomberg, who owned Bloomberg. And you can, to me, easily argue that Bloomberg is more of a financial technology company than a pure investment company. And then there's two others, Ken Griffin and Stephen Schwarzman, that definitely do own investment businesses. So we have four people, potentially only two, or only 16% of this list that work in the investment business. The other thing that people always talk about from my experience in this industry, is how, as we talked about in the first segment, let's figure out where the markets are going. In the short term 2022 markets, the world's gonna end sell, sell, sell, sell, sell, sell, sell, sell, sell, sell , sell, sell, we're up 18%. In global markets over the long term, the S&P 500, or this constantly changing market has been one of the best ways historically speaking, to create wealth. But people always talk about how you can do it. In the short term. Well, if you could do it in the short term, odds are people that are the 25 wealthiest Americans, they'd be young. However, if you look at the numbers, only eight of the people are less than 60 years old, only eight are less than 60. If you think about it, this is why when I talk to prospective clients, and clients of Julius Wealth Advisors, I try to drill into them that all it takes to create sustainable wealth, in my opinion. And based on the statistics now the top 25 wealthiest Americans on the Forbes list. Currently, what it really takes is time, and a whole bunch of discipline with an Ownership mindset. Because 84% or 21, out of 25 of the wealthiest Americans built businesses outside of finance, and 17 of 25 68% took a really long time to do it. While this knowledge and this information may not be sexy, it appears to be reality. So while I admit I am a JT fan, or Justin Timberlake, this knowledge ain't brand sexy back but appears to be effective. So now let's take another quick break. And when we get back we'll go into the Bo Know$ segment for my prediction of the Super Bowl champion.
All right, and welcome to the second ever Bo Know$ segment on The Big Bo $how brought to you by Julius Wealth Advisors. And I want to bring everyone back to the first Bo Know$ segment. And I'm not trying to toot my own horn here. But if you go back to the first ever Bo Know$ segment on episode eight, homeostasis, it was about my prediction for the Miami Dolphins this season. And in that prediction, please go back and listen. So you can verify the facts. I stated accurately the Miami Dolphins season. I said quote unquote going to start off hot are going to start our eight and three tours are going to prove the doubters wrong. But then once we get into December, we have a brutal schedule. We're going to lose all our games and beat the Jets. And the only piece that I got wrong was that I said we weren't going to make the playoffs with a nine and eight record and we ended up sneaking in just losing the first round with a nine and eight record.
So on episode 14 of The Big Bo $how, congrats you're an owner. In this Bo Know$ segment, I am going to predict the Super Bowl champion. We have the Super Bowl coming up on Sunday Eagles chiefs. Great matchup, great matchup of two great offensive teams, Patrick Mahomes, Jalen Hurts, Andy Reid offensive genius. But here's the thing, folks, people always think about the offense. And at the end of the day, there's a great saying in football, that offense wins games, and defense wins championships. So with that said, I am going to take the Eagles to beat the Chiefs not because of the offense because of the defense. The Eagles are the number one top rated defense in the league. They lead the league in sacks by far, their number three and turnover differential where the chiefs are at the bottom of the list. They are the number one defense against the pass, the Chiefs’ secret sauce, so offense wins games, but defense wins championships. And this is the same thing when it comes to creating sustainable wealth. In my opinion, many people want the offense, they want the go go story that's going to propel them on a short term high, if you will. But this typically is not sustainable. You need the defense, the defense in time and discipline. This is like the great defense like the Eagles, great defense that is going to propel them to win the Super Bowl time. That's like a great pass rusher or run stopper. And the Eagles have those you have Ndamukong Sue, you have who I think is an amazing pass rusher and Hasson Reddick who's second league in sacks, if Patrick Mahomes doesn't have the time to pass the ball, because the defensive rushes in there, who cares how good he is. And discipline is like having that great linebacker core and that great secondary, if nobody's open, it doesn't matter how good Patrick Mahomes Is, they have that disciplined secondary, which leads the league and lowest pass yardage.
So remember, just like how the Eagles in my opinion are gonna win the Super Bowl, I think it might not even be close, I don't even think this game is going to be very close. Because I don't, I think the Eagles defense is just going to stop and stymie the Chiefs offense. And this is similar to creating sustainable wealth. You need that time, you need that discipline, offense wins games, Defense wins championships, offense, get you a short term pop or high in creating wealth. But defense is what creates that sustainability, which is also what I demonstrated and talked about in the previous segment, about the top 25 wealthiest Americans, most of them are outside of finance, they have an ownership mindset, they own their own businesses, and they took a long time to get there. And that's the same thing. When you think about the S&P 500. We can sit here and do elementary analysis and try to shoot off why the world's going to end and look at the S&P 500 now versus then in statistics. But those numbers have changed as the discipline is to take that secondary look and understand the numbers behind the noise. So with that said, congrats. You're a business owner, have that proper mindset, time, discipline, Defense wins championships. Offense will win you a few games. So I'm gonna wrap up episode 14 of The Big Bo $how. And I'll remind people as I do on every segment, live a life of integrity. Live a life of always entertaining knowledge, as much knowledge as you can. And always live a life that you're passionate about. Until next time, all the best. Thank you for tuning into The Big Bo $how.
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