Speaker 1: Welcome to another episode of the Chicks on the Right
podcast where we talk with our friend and sponsor of
the show, Zach Abraham from Bulwart Capital Management. And as
of the recording of this program, we saw some crazy
swings in the stock market as a result of China's
AI which is apparently very competitive and cheaper than the
United States open AI, and that sent stocks like scrambling
and then everything's sort of leveled out, which is why
we wanted to talk to you today, Zach, about what, like,
what should the reaction of a regular person be when
it comes to their portfolio and they see these kinds
of swings, Should they be fearful of tech stocks or not?
Speaker 2: Yes and no. So the issue with the issue with
tech stocks we've been talking about so today today is
a very good example of the dangers of owning some
stocks that are extraordinarily expensive. Okay, so if you look
at Nvidia, like a stock like in Vidio, it's getting
hit one of the hardest today, great company, but it
has so much optimism built into the price of that
stock that even the smallest little adjustment to those forward
looking earnings projections they change massively and the stock has
to sell off, So generally speaking, I don't think there's
a big thing. Here's the problem, though, the problem is
because of the way people have been invested, they are
more exposed to these kinds of stocks than they have
ever been exposed to any kind of stock. So let's
just say they have an SMP five hundred ETF for
mutual fund. Okay, probably somewhere in theybor to forty to
fifty percent of their holdings are companies like in Vidia
and Marvel and you know, these tech based companies. And
then what's scary in general about this market? You know,
I look at a company like Apple, Apple's up over
four percent. That's just as stupid to me as what
you see going on the others. Meaning, this is what
scares me about this market. This market, regardless of what's
going on in the underlying economy, this market is just
completely divorced from anything financial. Right, So, like, if you
look at Apple today, it's up four percent, that's about
one hundred and fifty or one hundred and sixty billion
dollar increase of their market cap because AI chips that
they don't sell are going to go for less what
it and it's just one day, right, you can't take
one day too seriously exactly. But these are examples of
how ridiculous this entire market really is. And one of
the things that we've been telling people is, look, whether
you're going to get hit right now or whether it's
coming later. The one thing I can tell you is
you are the most loaded up in the most expensive
and most overrepresented sector in history. So should you have
exposure to it? Yes? Should you have as much as
you probably do? No, not even close. And and it
even gets exacerbated because not only people will own these
ETFs and mutual funds that are way over represented by
this kind of stuff. On top of it, a lot
of them have bought these stocks along the way. So
we'll take in, you know, we'll take in portfolios all
the time that are sixty seventy percent in those companies, right,
and it's just it's just way too much. Now on
the flip side, you're going to see a bunch of
things get hit today again, like some of the uranium
companies that we own have sold off hard. How does
that really correlate to AI chips? It doesn't. But again,
in a stupid market that is working so and I
you know, I don't know what else to call it.
It's just detached from reality. We said, look, a lot
of this stuff's gonna have to sell off. When it does,
a lot of the really good, cheap, really solid, fundamental
stuff will sell off too. Why because why not? Right?
So we actually see this over the short term, if
you own a lot of that stuff, I think that
you know who knows. I mean these stocks are still
so expensive that you know, you look at companyike in video,
in Vidia could drop fifty percent and still be historically expensive, right,
I mean it's down sixteen percent today, So yeah, I
think people need to be careful. But this just gets
to the risks that we're seeing out there, which we
see so many great opportunities. But the problem is is
tech is dominated for so long that it has become
the vast majority of everybody's portfolio. Should you have exposure
to it? Yes, But diversity is a good thing. Right now?
Speaker 1: What's the percentage then? Like what what what would you
recommend as a percentage of your entire portfolio?
Speaker 3: The diversification percentage?
Speaker 2: Yeah? I mean long term, you know, we don't ever
like to exceed twenty five or thirty percent in a sector,
but for us to be that involved in a sector
we have to see extraordinarily low prices. Right Again, this
is what's so pernicious about that. Not only are you
so overloaded by like forty percent in this sector, it's
also the most expensive sector in the market, and it's
the most expensive sector in the history of the market. Right.
So again, not saying the whole bottom is gonna fall
out tomorrow, but there's two things that are gonna happen.
Those stocks have made the majority of the gains that
they're gonna make over the next five decent, meaning those
stocks are not going to continue their performance over the
next five to seven that they have over the previous ten.
They're just not okay either well they either they won't
or those companies will all be larger than the size
of the entire US economy. I'm gonna bet that's not
gonna happen, okay. And so the other big issue, though,
like we've said before, it's not so much well it is.
It's not just a problem what you're exposed to, it's
what you're not, right, that's the other problem. Not only
are you forty percent exposed to this sector, but what
else are you not exposed to?
Speaker 1: Right?
Speaker 2: And that to us is the biggest danger because we're
looking around a bunch of different sectors and a bunch
of different places, and we're seeing you know, I was
talking on our own show about a wonderful, growing, well run,
beautiful balance sheet, solidly cash flowing natural gas company that
we own that's going to be right in the middle
of shipping this whole surge of shipping liquid natural gas
to Europe. And oh, by the way, they're also paying
a twelve percent annual dividend, right, And so you're looking
at stuff like that, You're like, man, why am I
going to mess with something like Nvidia twenty five or
thirty times revenue when I'm sitting here buying these wonderful
companies that are paying me twelve percent. You know, there's
there's just so much better.
Speaker 1: Stuff to own out there, and go ahead, No, no, too, Bay,
go ahead. Oh I was gonna say. So, Like when
there's these giant you know, when you read the headlines
first thing in the morning and you see, oh my god,
like the futures are saying the world is ending and
everything is going south, it's so tempting, I know, for
people who are risk averse to be like Oh my god,
I gotta get rid of all my tech stalks. Yeah,
but you're you're not suggesting like when you see a
headline like that, dump everything and run for the hills,
you still should be exposed. Maybe, just not a crazy amount,
is what I'm understanding.
Speaker 2: Yeah, and this is what's so important. Right Today is
an annoying day for us because some of our stuff
is getting hit right along. But why are we not concerned?
We're not concerned because our stuff is at ridiculously priced, right, meaning,
you know, if I've got you know, let's say you know,
let's say I'm buying a I don't know. Let's say
I'm buying a house right now in or let's say
I bought a house five years back and it only
it had only rallied fifteen percent since the eight or
nine lows. Right, I might not be the best price
out there, but I'm sitting there going, Man, if this
thing's only fifteen percent off the O nine lows, I'm
probably safe. Right, There's probably not a lot of fluff
in it. For instance, if you're buying these kinds of stocks,
these AI and tech type stocks right now, it's like
buying a house in two thousand and seven, right, I mean,
you're just buying these things priced to perfection. It doesn't
guarantee a collapse. These things have been expensive for a
long time. But what it does say is again today
should be a good reminder to people, this is why
you need to make sure you have a portfolio. And guys,
this cycle has gone on so long that it's to
the point when we get clients that bring portfolios in,
it is a rare event that you have a portfolio
that is properly diversified. It's shocking even people that have
somebody else managing their money. Right. So, then, to get
to your point, all of this is about. This is
not about the failure of AI. This is not about
America losing pace in the AI. This is about a
Chinese firm used several lower quality or not the most
expensive chips that in Vidia makes. They used stuff that
was two or three generations old, so way cheaper, and
they got outstanding results, which calls into question all of
the tens and hundreds of billions of dollars that we
thought so many of these tech companies were going to
have to spend on these chips. Now, personally, I think
the market is overreacting. What's hard about it, though, is
the market has already way over reacted to the upside
of AI sow reality in here. I don't really know,
but for the majority of these companies, today is a
perfect example of why we've just said, we don't buy
stuff that that's insane, that's that insanely expensive, because it's
impossible to know what it's really worth.
Speaker 1: Oh my gosh. Well, and when we say today, by
the time this podcast airs, will have been talking about
Monday the twenty seventh, which is when everything was so
crazy with the market. And by the time this podcast airs,
you will have done another webinar, which I know our
listeners are huge fans of. So what can people expect
out of your webinars and where can they sign up?
Speaker 2: Well, so we're going to walk through our general you know,
our process and show you how we do things and
you know how it's all about trying to minimize risk
but maximize upside potential. And in this one we're going
to show some specific charts. They don't necessarily, you know,
tell you exactly what's going to happen, but people need
to understand where we are and how how far out
there we are in terms of historical norms, and it's
not just about fear and risk, but it's also about opportunity. Right,
if we're buying things that are overpriced, it means that
we're not buying things that aren't right. There's opportunity costs
to investments. So we just want to show them some
of that stuff, show them what we think the risks
are out there, and then also show them what we
think there's some unbelievable potential investments that people are ignoring
the best way to do that is go to Know
your Risk radio dot com, Bulworkapitalmanagement dot com. Sign up there.
Speaker 1: Awesome, Thank you so much, Zach. We appreciate it as always.
Speaker 2: All right, thank you, ladies, thanks for having me.
Speaker 3: Thanks Sach. Reservices offered through Trek Financial loc and SEC
Registered Investment advisor. The opinions expressed in this programmer for
general informational purposes only, and are not intended to provide
specific advice or recommendations for any individual or on any
specific security. Any references to performance of security so are
thought to be materially accurate, and actual performance may different
investments involved risk and are not guaranteed past performance doesn't
guarantee future results. Track twenty fourth Throe zero