Ep559: Joseph Hogue – Never Ignore the Debt to Equity Ratio

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Quick take

BIO: Joseph Hogue graduated from Iowa State University after serving in the Marine Corps. He worked in corporate finance and real estate before starting a career in investment analysis. He has appeared on Bloomberg and CNBC and led a team of equity analysts for a venture capital research firm.

STORY: Joseph bought stocks in an energy company at a time when industry prices were low with the hope that the company would outperform the market, but it didn’t. He lost $30,000 in the investment.

LEARNING: Always look at debt-to-equity ratios, especially in a down market. Set percentage caps on the stocks in your portfolio.


“Bad things happen to good companies.”

Joseph Hogue


Guest profile

Born and raised in Iowa, Joseph Hogue graduated from Iowa State University after serving in the Marine Corps. He worked in corporate finance and real estate before starting a career in investment analysis. Joseph has appeared on Bloomberg and CNBC and led a team of equity analysts for a venture capital research firm. He holds a master’s degree in business and the Chartered Financial Analyst (CFA) designation.

Joseph left the corporate world in 2014 to build his online businesses, first through creating websites and later through his YouTube channel, Let’s Talk Money. He’s since grown the community to over 500,000 and reaches more than 1.8 million people a month through his blogs, YouTube channel, and a weekly market newsletter.

Subscribe to Joseph’s free weekly market newsletter to get an update on all the news, trends, and what he’s watching in the week ahead for stocks!

Worst investment ever

In 2014/15, high debt and low energy prices knocked the entire coal industry down. Regulators were circling, trying to limit the coal generation capacity in the United States. But still, a third of the US energy grid was generated by coal, so this was still a viable resource that people were using. The stocks in the energy industry were down by almost half.

Joseph was fully aware of what was happening in the industry. He decided to do a bottom-up analysis of the stocks. He found Peabody Energy, the world’s largest private-sector coal producer at the time. The company had a solid market share and relatively good fundamentals relative to many other stocks in that sector.

He started buying Peabody Energy stocks in 2015. At the time, the stock was already 50% lower from its peak just a couple of years ago. The stock kept falling, and he kept buying. Like many investors, Joseph fell into the gamblers’ trap. Eventually, he was just praying to get even.

Peabody Energy ended up filing for bankruptcy in 2016, and in the process, Joseph lost about $30,000. This loss embarrassed him because he had already worked in the industry for about four years and had passed all three levels of the CFA in 2011. He was a charterholder and had worked with venture capital and private wealth management.

Still, Joseph just ignored the basics of investing. He thought he had a strong investment case in that coal was still something the US would need to generate electricity. The world was not about to get rid of it overnight. A lot of these stocks seemed to be trading at a discount. Joseph picked the one stock he thought had the financial size and scope to survive, supposedly, but it didn’t survive.

Lessons learned

  • When buying a specific industry is down, always consider the debt-to-equity ratios. This will help you know if the company can survive this period of market weakness.
  • Just because you think a company or even an entire industry is indispensable doesn’t mean that that specific company can’t file for bankruptcy or that it can’t wipe out its shareholders.
  • Don’t think any companies or investors are sacrosanct.
  • Set percentage caps on the stocks in your portfolio.
  • Bad things happen to good companies.

Andrew’s takeaways

  • Debt is the number one risk that companies face.
  • Understand how bankruptcy can affect your portfolio and what to do when a company you’ve invested in files for bankruptcy.

Actionable advice

Don’t put more than 10% of your money in a single stock. Do your rebalancing on the asset level, from stocks to bonds, commodities, or other assets. Suppose you’re trading in a particular industry or even a sector doing well. In that case, you can always reallocate some of that money into the competitors doing well, so you still have that industry exposure that’s doing so well but not necessarily that one individual company.

Joseph’s recommended resources

  • His Let’s Talk Money YouTube channel, where he explains investing in straightforward and easy-to-understand ways.
  • Sectorspdr.com, where you can see how the 11 stock sectors of the economy and the S&P 500 companies have done over specific periods like one day, five days, up to five years. The analysis gives you an idea of what the market is doing in those 11 sectors. You get to know which sectors are performing well and which ones are lagging.
  • FactSet Earnings Insight is excellent for people who want to do a deeper analysis of the companies in the S&P 500. The site provides data on their earnings and what the expectations are. The website updates its earnings insight report every Friday.

No.1 goal for the next 12 months

Joseph’s goal for the next 12 months is to start an investor community with a revenue share agreement. His investment goal is to keep pushing hard and making more money to invest.


Read full transcript

Andrew Stotz 00:02
Hello fellow risk takers and welcome to my worst investment ever stories of loss to keep you winning. In our community. We know that to win in investing, you must take risk but to win big, you've got to reduce it. Ladies and gentlemen, I'm on a mission to help 1 million people reduce risk in their lives do reduce risk in your life, go to my worst investment ever.com today and take the risk reduction assessment I created from the lessons I've learned from more than 500 guests. Fellow risk takers this is your words podcast hosts Andrew Stotz, from a Stotz Academy and I'm here with featured guests. Joseph Hogue. Joseph, are you ready to join the mission? I'm ready, Andrew, thank you for having me. I'm excited to have you and it's fun. We just had a really nice little chat before we got started and I want to introduce you to the audience. Ladies and gentlemen. Born and raised in Iowa, Joseph Hogue, graduated from Iowa State University after serving in the Marine Corps. He worked in corporate finance and real estate before starting a career in investment analysis. He has appeared on Bloomberg and CNBC and lead a team of equity analysts for a venture capital research firm, he holds a master's degree in business and the Chartered Financial Analyst designation, Joseph left the corporate world in 2014, to build his online businesses, first through creating websites and later to his YouTube channel. Let's talk money. He's grown. He's since grown the community to over 500,000 and reaches more than 1.8 million people a month through the blogs, the YouTube and a weekly market newsletter. Joseph, take a minute and tell us about the value that you bring to this wonderful world.

Joseph Hogue 01:55
Sure, well, you know, I started with that as I started in that venture capital arena, moved on to equity, equity management, or equity analysis and private wealth management. And you know, loved it really found my niche. But really, something missing there with only working with you know, that 1%. So I really wanted to work with Main Street investors. Take what I had learned from the CFA curriculum, as well as working venture cap and equity analysis and really bring it to bring it to regular investors. So I love the face to face field and the community we get from YouTube, as well as the blogs, just being able to talk about investing and sharing what we've learned.

Andrew Stotz 02:32
Yeah, and for the listeners out there, you really should go to his YouTube channel, let's talk money with Joseph Hogue, CFA, and when you go there, you just going to see a lot of energy, you're going to see great, you know, ideas, I'm looking at some of the latest ones. For instance, six hours ago, you posted one, can I live off my investments. And a day ago, you posted five minutes stock analysis for beginners, and another one the smartest, buy the dip strategy. So it's a lot of interesting stuff that I think is you've done them in appealing, you know, ways where you're taking somewhere around, let's say, 12 to 15 minutes to explain a topic. And you do it in a fun way. So I just thought that, number one, maybe you can just explain for the listeners out there. What do they get when they go to your channel when they subscribe to your channel. And then the second thing is, maybe you could give us a couple of pointers. I mean, you're at a half a million over half a million subscribers. That's a number that a lot of people would dream of, including myself, so maybe you can give us some tips. So what did they get? And give us some tips?

Joseph Hogue 03:40
Sure, well, I think you know, it's really with YouTube. Like I said, I started the blogs in 2014 2015 and love, still love that kind of analysis that I do on there. But on YouTube, it's really that face to face, feel that sense of community you get from you know, talking back and forth, I do a live stream every Monday morning before the markets open. And it's just a great way to connect with people out there in the community answer questions. Really look at the markets and, and yeah, it's just that sense of community that it's hard to get anywhere else. So I you know, I always love people when people come and visit the channel and join the community there. We've also got a private Facebook group that we talk back and forth quite a bit with as well. And as far as starting on YouTube, you know, I think one of the best things you can do is not only you know, find something that you enjoy talking about right because it can take while the average the average time to to get that 1000 subscribers and 4000 hours watch time, which is how much you need to get monetized and start making money off YouTube ads that can take up to like 26 months on average for a lot of channels. So you know you're gonna be you're gonna be talking about things and, and doing, you know, talking about that topic for quite a while without probably getting paid much. So find something that you're passionate about that you like talking about, and you just want to share with and build a sense of community around that. That's One thing, another thing is to not get too caught up in the things you can't control. Right? Everybody wants to grow to, you know, 1000 subscribers, a million subscribers, things like that. Everybody wants to, you know, to reach that number of people and that kind of thing. But the problem is, it's really something is out of your control, right, there's a lot of best practices you can do that kind of drive that. But when in the end, it comes down to really the YouTube algorithm, whether it serves up your views and things like that. So focus on things you can control, I think it's a lot of work in a lot of ways, really about life, you know, focusing on the things you can control in life, and you know, trying to do that things you can control in YouTube, that will make you successful, you know, a number of videos each week, you know, try posting at least one video each week, preferably two or three videos each week, try doing, you know, better quality videos, you're gonna start out, and the videos are going to be horrible, but you learn by doing more and more videos, right. And that's something you can control, you can push, you know, produce more and more videos, you can learn about video production, and how to do those. And, and, you know, focusing on those things that you can control, it's gonna be just ultimately much more happy, happy, much happier process than trying to stress out about trying to hit 1000 subscribers or a million views on a video or something like that, something that you can't control. Last thing that I would say about, you know, use just starting on YouTube, one of the biggest things I see in a lot of big people wanting to start on YouTube is they want those first videos to be perfect, alright, they, they, they they they fear getting on camera, they end up you know, recording a few, a few videos, watch that watch and back on the playback, and just cringe. They're just cringe worthy, right? So they never, they never actually get started because they never get to that point where they're comfortable, you know, on camera are comfortable with those videos. Everybody's videos are horrible. I've kept my first videos up on the channel just for fun, just to let people see them. But they're horrible. You know, even videos up to a year or two ago aren't that great. So you really gotta you really just got to get out there. script out, make an outline for five videos you want to do just record those don't worry about editing to worry about mistakes, gaffes, arms or ahhs and just get those get those uploaded, right. And that's going to get you started. And that's going to you know, that's really going to get you started and get that momentum started that you need to to really, truly get going.

Andrew Stotz 07:29
Yeah, you heard in my background, I just was, you know, looking on YouTube there and just thinking about what you're saying. And yeah, it's such a, it's a challenge. But I guess the So getting started is such a key thing. Oh, that's nice. 90% of it. Definitely. And I, you know, it's interesting, everybody's got their different ways. But one of our guests that we've had on the podcast is a guy named James Janney. And you were mentioning about, you know, everybody wants to make that, that video, you know, perfect. And he was on my worst investment ever on episode 272 79. And, you know, he's kind of remarkable, because he has, let me just see what the latest numbers are. Let's just look at he's got a million subscribers and at 18 videos,

Joseph Hogue 08:22
18 videos, that is amazing. Yeah. And it's crazy to think that I would, because I've got 800 videos, and probably about half that many subscribers. So it's amazing just

Andrew Stotz 08:31
shows that I think it supports what you're talking about. It's like, you've got to pick what you enjoy. And what he enjoys is spending a lot of time creating a mini documentary. And so he's doing, you know, 20 to 40 minute mini documentary with all the production aspects to it. And you know, that's what he's into. But you know what, I'm not in tonight, and neither are you. And so each of us kind of go at it, you know, our own way. And that's fine. And I think there's a space for all of us, as long as you're doing what you love, and you're bringing, you know, good quality content. So I think that's the key. One question I want to ask you, just before we move into the bigger part of the whole interview here is, could you give us the backstory of let's just take, you know, can I live off my investments? It's an 18 minute video, you've got more than 2000 views. You've released it six hours ago, you know, people like it looks like it's doing well. I'm just curious about the back. Maybe you could just kind of take us behind the scenes like how did you come up with the idea and how long did it take you to do kind of write out a structured you write out the exact thing did you make charts and graphs, did you and then how many times did you recorded and did you do a lot of post production? Maybe just walk us through kind of the backstory of that particular person?

Joseph Hogue 09:48
Sure. Definitely. And actually, that one's gonna be a little different from the most of the videos I do. Most of the videos I will script. All Scripts three videos are Monday through Tuesday or Wednesday. So one a day It'll usually take me about two and a half to three hours to script the video another hour to kind of do production notes for where I want graphics to go, things like that. Wednesday or Thursday night, I'll record all the videos or three videos, they usually take, actually, they usually take about two and a half to three times what you see actual finished product. So if a video is 10 minutes long finished, it took me about 30 minutes to get through, you know, because I'll have to repeat it repeat different paragraphs, I'll have mistakes that I'll have to repeat things like that. So. So it usually takes about three times when it's finished product is, then I pass that on to my editor, he takes my script and the the production notes that I put in there, along with the videos, and he puts all the graphics together and things like that, this video today was actually a really exciting one, because it's the first in a, in a portfolio review series that I'm doing, I get a lot of emails every week, people asking me to review their portfolio and things like that. And, you know, while I don't do personal consulting anymore, then I really wanted to be able to help people with you know, looking at their portfolio and, and kind of giving them you know, showing them the gaps and the risks in those. So I thought this would be a great kind of happy medium for that, to be able to do videos, where I look at people in the community there, there are their portfolios, use a portfolio tracker spreadsheet that I developed, and kind of, you know, kind of look at some of the, you know, their sector positioning their their asset allocation, things like that. So this one Yeah, I got a what someone from the community, she sent me, all her stocks, all her information, her age, that kind of thing. And I just, you know, kind of worked through it kind of a conflict conversational tone. So it actually took much less than than the time it usually it takes for a lot of other videos, because it was just very much more conversational, very much just working through what she sent me and talking about it in, in that really non judgmental kind of review of okay, what do we have here? What are your goals? And how do we get you to those goals?

Andrew Stotz 11:57
Right? Well, I think I'll include that one in the show notes, just so that listeners, you know, because that's a question I think that everybody has is can I live off my investments? So it'd be exciting. I'll watch that. I haven't seen that one yet. So I watched that. And I think for the listeners out there, we can gain a lot from that. Well, I appreciate you sharing a little bit of your backstory there, it helps us to also think about how do we improve ourselves and think about getting out. I know, it helps me and I know it helps the listeners. So I appreciate it. And now it's time to share your worst investment ever. And since no one goes into their worst investment thinking it will be. Tell us about a bit about the circumstances leading up to it, and then tell us your story.

Joseph Hogue 12:38
Sure, well, okay, so I'll take you back all the way back to 2014 a time pre pandemic, when we didn't even know what COVID was right? And read about that time. 2014 2015 You know, high debt, low energy prices, were really knocking the entire coal industry down for a loop regulators were circling, trying to to limit the coal coal generation capacity in the United States. But still a third of the US energy grid was generated by coal, you know, so this was a still a viable available resource that people were using, and these stocks all the stocks in that industry were down, you know, by half almost. So I went in and looked you know, looked at did kind of a bottom up analysis of the stocks found Peabody Energy ticker, BT EU, the world's largest private sector, coal producer, very strong market share. And, and, and fairly good fundamentals, you know, relative to a lot of the other stocks in that sector. So I started buying started buying in 2015, the stock was already 50%, lower than its peak just a couple of years ago. And it had have since 2011. And I started buying, and it kept falling, and it kept falling. And I kept buying. And I kind of I think like a lot of investors, I fell into that, that gamblers trap, right, where eventually your dollar cost averaging down so much. And eventually you just you're just praying to get even, right, you buy it at 100, it goes down to 50. Well, now you have to buy just as much to average out at 75. And, and you just need it to come back up to 75. Just I just want to be even. And of course, you know, they ended up filing for bankruptcy in 2016. And I lost about $30,000. Right. And what's even more embarrassing about this is I had already worked in the industry for about four years. You know, I had I passed all three levels of the CFA charter exam in 2011. You know, so I was a charter holder. I had worked with venture capital, I had worked private wealth management by that point. But I just ignored those basics, the basics of investing. That I think, you know, all investors are susceptible to you know, I looked I thought I had a strong Investment Case in that, you know, coal was still something that we were going to need to generate electricity. We weren't getting rid of it, you know, overnight. And, and the market seemed to be pricing as if, you know, we weren't getting rid of coal overnight. So a lot of these lot of these stocks seem to be trading at a discount. I picked that one with the financial size and financial scope to survive, supposedly, but it didn't survive. And, there was definitely some lessons learned there.

Andrew Stotz 15:30
So let's, how would you summarize the lessons you learned from that experience? Sure.

Joseph Hogue 15:34
Well, I think one is, when you are buying the dip, you know, one of the most important things you need to look into, and this isn't necessarily buying the dip when the entire market is down. But when an in a specific industry is down, then you really need to look at that debt load the debt to equity ratios, and really the cash burn in these, you know, can cannabis companies, can this company or even the companies in the entire industry? Can they survive this period of market weakness? Right. And so much of that depends on the debt load. And that's what happened here. Right. You know, Peabody Energy was the market share leader, it did have the sight this the scale and the scope to do well, it just had too much debt to survive. Right. So a few years, you know, a few years of trying to struggle under that. I think management just kind of gave up, right? They said, hey, you know, we have debts of this amount assets of this amount, we want to reset. And I think that's, you know, so not only do you need to focus on those debt, those debt metrics, those debt ratios. It's also a lesson that a company can survive, you know, but the shareholders may not right. And I think the probably the best analogy here is with the airlines, I hear all the time, you know, when I'm talking about investing in the airlines, people say, oh, there will always be an American Airlines, there will always be a delta or United Airlines. And while that may be true, there may not there may or may not always be those American Airlines investors that are investing in the stock right now. The airlines are notorious for declaring bankruptcy for getting that reset, because of those debt, that the massive debt load that they often put on to, to survive. So, you know, just because you think a company or even an entire industry is indispensable is something that we will always need doesn't mean that that specific company, and in this case, in my case, Peabody Peabody Energy, you know, the largest, largest private, private coal coal miner in the in the world, you know, no doubt that it would, you know, we would still need that coal that they were producing. But that doesn't necessarily mean that they can't file bankruptcy, they can't wipe out their shareholders and, and continue, you know, emerge from bankruptcy, which, of course, they ended up emerging, I think it was 2018 2019. So, another lesson, you know, don't don't think that any companies, investors are sacrosanct and cannot be no cannot go through that reset. Did a third one, go ahead?

Andrew Stotz 18:06
I want to ask you about this, but you can answer it after but before I forget, it's just it? Did you sell out it at the end? Or did you just take it into bankruptcy and then end up getting something at the end or nothing?

Joseph Hogue 18:20
I just, I sold it, I sold it before, you know, it was pretty clear that they were, they were going to file bankruptcy. And, and actually, you know, a lot of times what you'll see, we saw this with hertz a couple years ago with I saw with Peabody Energy, you know, after they filed bankruptcy, then you'll get that that initial plunge in the shares, but then it does rebound a little bit, and you're able to get out just because investors basically hope beyond hope that there may be other options before they end up, end up filing bankruptcy and wiping everyone else out. So I did get out before, you know, really, really being able to be locked in those. But the third lesson, it really is, and is probably the one that I talked about most on the channel in respect to buying the dip, and chasing the stock. And that kind of thing, is you really do need to set percentage caps on your stocks in a portfolio. I always tell people that I would like to see stocks, individual stocks, no more than 5% of your portfolio. But really that danger zone is when you get over 10% People love to chase stocks lower they'd love to dollar cost average into stocks and they get fanatical about specific stocks. I know you know, Tesla Apple stocks that have made them a lot of money. But then they you know, if those stocks start falling, and they keep on pushing more money and more money into those, those stocks can easily become 20 or 30% of their portfolio. And and while they may be great companies, they might be great companies and even good investments eventually. Bad things happen to good companies even so, you know, if you've got a third of your portfolio in one set one stock and something happens then that's something that is very hard to come back from, it's very hard to, to save a portfolio from that. And it's just something that's totally avoidable by, by Yeah, by setting those percentage caps, you know, never never having more than more than five or 10% at the most of your money in any single single company.

Andrew Stotz 20:21
Wow, a lot of stuff I've been writing down and maybe I'll share a couple of takeaways that I got. The first one is after being an analyst for 20 years, I came to a conclusion many years ago that the number one risks that companies face is dead. Because you can survive. For instance, even with my coffee, business, coffee works that we started in Thailand, when we went through the 97 crisis, it was tough, but there was no banker at the door, saying we're going to lock this door unless you pay. So we could somehow batten down the hatches and protect the business as best that we could, there wasn't someone knocking at the door to lock the doors. But with that, you're gonna have that situation. So number one, Risk Number two, in the case of companies like in Thailand is foreign exchange risk. And that can be borrowing too much foreign exchange or thinking that your currency is fixed, which is what happened in the 97 crisis in Asia, as everybody thought their currencies were fixed until they weren't. And then boom, it was gone like that. So that's my first takeaway. The other one is to think about what happens, you know, for for, for the situation that you talked about, basically, when a company goes into bankruptcy, the equity shareholders are the last to be compensated, basically, the creditors who have the collateral are basically going to get as much as they can out of it, and generally isn't anything left for the equity holders. So you're going to be written down, if you ride it in the company, you take a company into bankruptcy and you ride along with that, chances are, you're going to either be written down to zero, or to some very, very tiny, let's just say that you own 1% of this company, you may now be down to point 001, because new capital had to come in, you may still be in a shareholder in it, but the value of your shares is going to be worth a lot less. And so that's kind of an example of the way bankruptcy happens in the way an equity holder will be punished. Now you can leave the investment before it goes into bankruptcy, because there's just a lot of trouble with bankruptcy. And if you own you know, a tiny percent of a company, it's not worth going through that trouble. But that just highlights the fact that how bankruptcy works. But I think the point that you are making this interesting is that the company may survive. The employees, the business, the customers, the all that they may survive, all they're doing is restructuring their capital, and you're being squeezed out of it, because the creditors are now taking over. And therefore the entity may still continue on in some way, shape or form. In fact, that's what's happening right in every bankruptcy is that what's happening is the market is saying, or the investors or the capital providers, particularly the debt providers are saying, you're not managing this business, well, we're taking it away from you, and we're going to try to get it in the hands of someone else that can manage it well. And then the assets of that business, then come back. And the reason why I mentioned this, because it reminded me back in 1988, I was in classes in business classes and finance classes at university Cal State Cal State Long Beach, and I remember that the Japanese were just killing the American car companies. And the natural reaction of everybody in the room was we need tariffs to protect these car companies. And I was the only one that stood up and says, Are you guys crazy? You want to protect these guys, you need to expose them to this competition, or else GM, you know, just going to be terrible forever. And in fact, whether it was Chrysler at the time or GM, I mean, the only one that's kind of survived and hasn't had to go into some sort of bankruptcy or government bailout has been Ford, and they should have let these things go and let new shareholders come in. And but, you know, unfortunately, that's not what happened. So you've got bailouts that, you know, that kind of saved the day, but it's

Joseph Hogue 24:15
create creating zombie companies, you know, companies that should have should have had that reason. Yeah. And, you know, I think it gives investors a false sense of security. Right. Thinking that, okay, well, here's all these companies that you know, that are sacrosanct for GM, American Airlines, the airlines, that will always be around and they don't realize that, yeah, those companies may survive, but investors will not. So that watching that debt is so important.

Andrew Stotz 24:43
Yeah. So based upon what you learned from this story, and what you continue to learn over all these years and all your experience, what one action would you recommend our listeners take to avoid suffering the same fate?

Joseph Hogue 24:55
Certainly Watch, watch those debt characteristics and understand them If that well, okay, let me rephrase that. I mean, I think that's important. I think more important, though, because it does encompass so many more other mistakes that you could be making, I think is those, those portfolio limits on your stocks, right? No more than 10% of your money in any any individual stock, because that is gonna catch, you know, all the a lot of the other mistakes, right, you can watch the debt, you can watch the debt on a company, and, you know, it might not be getting too bad, but but if you're at 20, or 30% of your money in that in one company, again, like I said, bad things happen to good companies, you know, there might be fraud that is uncovered. There might be, you know, just a general, you know, a general malaise in that industry, or something might happen to the industry itself. And that might bring that company down. So, so yeah, you know, all these other things that you can do to analyze a stock and keep up with the stock, great, but some things you can never avoid. So, understanding, yeah, keeping those portfolio limits to no more than 10% of your money in any single stock is going to really help you from destroying your portfolio, just, you know, just out of the blue,

Andrew Stotz 26:07
I did an academic paper I published it's called 10 stocks or enough in Asia, where I looked at the risk of owning one stock versus the reality that if you own 100 stocks, you're going to be performing just like the market is a nightmare came up with that trade off at about 10, which I think for the average person, it's hard to even find 10 stocks and monitor them. But what you've talked about is even 5% would bring us to 20. So somewhere between 10 and 20. But don't definitely don't go below 10 That that danger zone,

Joseph Hogue 26:38
What I like to do is kind of just use kind of the core satellite approach or cost of course satellite strategy to to invest in right, you have 50 or 60% of your money in broader, broader based ETFs. Maybe you've got theme ETFs. There's your diversification right there, and you've only got 40% of your portfolio left for these individual stocks yet. So then, you know, even if you're only picking five or 10, then even then you've only got maybe five or 10% in each stock. So you can have a little bit more concentrated portfolio in those individual stocks, you have a lot more time because it's a very limited part of your portfolio a lot more time to analyze and keep up with those stocks. But it does help in keeping those portfolio caps.

Andrew Stotz 27:22
So I want to ask you what I feel like it's a difficult question, but maybe you can give us a good simple answer. Is that okay? Let's say you got a portfolio of 10 stocks, and one of them's doing really well. And it's going up to 15%. Which means Yeah, at some point, I'm on a, you know, okay, it gets to 20. And I think okay, Josef's telling me, I gotta cut this down. So I sell some of it to bring it back down in my portfolio. But what am I going to do with that cash? Well, typically, what we're going to do is allocate that to the ones that have been underperforming, and say, take a little bit of that profit and take advantage of the prices of these good quality companies coming down. Well, that's fine. But what that would have caused is for you to continue to allocate from the winners into the loser. In this case, btw, you. And I'm just curious, how do you think about that rebalancing aspect? Sure,

Joseph Hogue 28:14
sure. Well, I usually I would start with rebalancing on the asset level. So if you do have, you know, stocks that are outperforming really go in and why are they outperforming? Is it that one specific company that's doing so well? Or is it really kind of the market, holding a lot of these, bringing a lot of these companies up? In that case, maybe it would be wise to really do your rebalancing on the asset level, from stocks into bonds or into commodities or, or some of these other assets, right. And that sense of, you know, selling, selling what's expensive, and buying what's sheet on the asset level, you know, as if it's just one particular company that is doing really well. So you really don't want to sell your winner, then you can use some, maybe some options, strategies, maybe use a covered call for a long term covered call to maybe reduce your risk just a little bit. But still keep, you know, keep that in investment. What I'm doing a lot with energy stocks right now, I mean, energy stocks have just gone through the roof with oil prices over the last four months, really the only thing that is performing very well. But I want to keep those stocks because, you know, because of those dividends and the yields. So I have been selling covered calls to reduce my risk a little bit in those but keep the shares for a for the dividends. So there's options, you know, risk, risk hedging that you can do with that. Or, you know, you could a lot of times if it's, you know, if it's that one particular industry or even a sector that's doing well, then you can always allocate, you know, reallocate some of that money into some of the competitors, maybe some of the competitors that are actually doing well. So you still have that industry exposure that's doing so well. But not necessarily that one individual company.

Andrew Stotz 29:54
Yeah, ladies and gentlemen, I mean, you hear these great ideas that Josef's talking about I mean, that's the type of thing that you that you get on the channel is this type of experience, for instance, you know, for the covered calls as an example, okay, an energy company is a big company, therefore, there's definitely going to be covered calls, there may not be for smaller companies. But let's just take that example. And let's just say over the next 10 years, how long would it be that you could do a long term covered call? Would it be a three year or five year one year? What would be considered long term?

Joseph Hogue 30:24
Well, the longer term ones are they're generally with the January expirations. So generally, I'm it depends on where you're at in the year, but usually you can get a cover, you can sell a cover call for 18 months into the future, you know, right. So not, not this next January, but the January after that. And of course, the longer out you write, you sell those covered calls, the more premium you get. So again, you know, these are, these are companies that I really do, like, I continue to like them, I want them, I want to hold them longer term like Chevron, but they've just gone up so much, so far, so fast with these energy prices. So yeah, I'm so I'm generally selling the January covered calls, because I don't want to mess with it every single week or every month, selling new call options. And I want to collect that higher premium and reduce my risk just a little bit.

Andrew Stotz 31:09
And in theory, let's just say that for that particular stock over the next five years, you're going to earn an average of 10% per year, let's just say, for that stock, and then you're going to do a covered call, and there's going to be a cost because you're trying to protect the extreme risk of a big downside. How would you think about like, roughly, is that like a 1% costs to protect that downside? Or is that point 5%? Or how would you think about that, generally?

Joseph Hogue 31:38
Well, the cost to a covered call is, is generally just the upside the lot, the capping the upside potential, right, because you're selling those call options against stock you own. So you're selling someone else the right to buy those shares from you at that price, at a certain price. So I'll generally go in and, you know, maybe sell call options that are 10% above the current price, something like that. And of course, that's, that's all part of analysis, and really figuring out where I think that stock won't get to, in fact, because I want to keep the shares. So, you know, maybe 10% above now that that cost is really, if those shares continue to rise, if oil prices go up even further, then the shares go up 10% and hit that level, then that investor can call those away from me. And basically my return is capped at keeping the premium that they paid me plus that bet that additional 10% gain. And again, a lot of a lot of analysis, a lot of thinking goes into where you sell those strike prices where you sell those calls at. But it's generally you know, something that it's hard to imagine the stock would go up, like, for example, Chevron, you know, it's already gone up 40 50%, just in the past few months on those on those oil prices. So it's hard to believe that it would go up another 10 15% By next January. So you know, only about seven months from now. It would It would take another very large increase in oil prices, I think, for that to happen.

Andrew Stotz 33:11
So I'm going to answer the next question for you. I'm measuring the half half of the answer here. And then you can fill in the rest. But I was going to ask you, what's a resource that you'd recommend for our listeners, but I'm going to tell the listeners go to the YouTube channel because Josias explains a lot of these things in very simple and easy to understand ways. And now you also see, he has communities and other things where you can get more questions answered, what is a resource beyond YouTube? Or maybe it is YouTube that you would tell other listener who wants to get more to go to?

Joseph Hogue 33:42
Sure? Well, again, yeah, I love seeing people there, join the community on Let's talk money, one resource that I love, or actually, I'm gonna say two resources, two resources that I use a lot. One is the Select sector spider, the spider tracker.com. That's the SP der tracker.com, I believe. And on there they have, you can see how the sectors of the economy, the 11 stock sectors and the s&p 500 how they've done over certain periods, you know, one day, five days all the way up to a year and five years. And it really gives you that big picture idea of what the market is doing in those 11 sectors, you know, which sectors are performing well, which ones are lagging? And, you know, I'm a top down economists kind of stock stock investor right. So I like to start with those sectors, that sector level idea, see what sectors are doing well, which sectors are maybe maybe protecting people right now as we head into this stock market crash, and you know, which stocks within those are doing well, so a great resource there, give you that? How do you spell it big picture? You know, I want to check here real quick and just make sure I'm giving you the right address, sector tracker. So it's sector spyder.com s e c t o Our SP dr.com. And on that, you know, you're gonna see tools in the top menu, you go into Tools, and then you go into sector tracker, then then it's going to bring up that sector tracker, that gives you all the sectors gives you a sector, heat map sector charting, just a really great free resource to be able to get that big picture I did in those sectors.

Andrew Stotz 35:22
Got it on there. So that's, it's amazing. And I'm going to put a link to that in the show notes. I think that's a great tip, anything else?

Joseph Hogue 35:29
Great resource. The other resource I think I would use, and this is a little bit deeper, you know, for those that really want to do some deeper analysis is a FactSet earnings insight. Okay, it's FactSet is a research company, they, they do a lot of surveys and studies, you know, on the companies in the s&p 500, their earnings, what the expectations are. So each week on Friday, they update their earnings insight report. And if you just go to Google, go to Google and search for effects FactSet earnings insight, it's usually going to be the very first one that PDF. And it's just an amazing resource for you know, what each sector is doing as far as their earnings earnings expectations for the next year, even where the valuations are for each sector. So some great research and really helpful in your analysis on sector investing.

Andrew Stotz 36:19
Great, I'll have a link to that in the show notes. So appreciate it. So last question. Sure. What is your number one goal for the next 12 months?

Joseph Hogue 36:29
Okay, number one goal is so business goal or investing goal? Up to you. Okay? Well, business goal Asha, I'm really excited about starting kind of an investor community with a revenue share agreement, I think really the next stage the next evolution in social media influencers, think things like that is really sharing, sharing revenues and bringing on investor communities. So I'm actually talking to some investment banks, some online crowdfunding platforms, things like that, to really be able to enable that and bring investors into to share the revenue from the channel, we did. So far, since 2017, have done 424,000 In just YouTube ads alone, doing about 30,000 a month on the you know, the business as a whole. And I'd really like to share that with your community that's really making it possible. So excited about kind of moving into that next stage of the business. But investing, you know, just pushing hard and making more money to invest at these prices. I think it always amazes me that investors get so psyched up about buying, you know, buying stocks as the market is going up, and as prices are going up. But then they panic, and they stop investing as prices are coming down. But those are some of the best times to invest, right? Because, you know, I mean, as prices are going up, you never know if that's gonna be the top, you never know if that's going to be the peak, as prices are coming down, you know, you're getting deals, you know, that the prices are coming down. And I always like to share the example of Amazon, right Amazon IPO in 1997 reached something like $200 a share or something during the.com. Bubble. And then you know, when the bubble burst fell to $5.60 a share, I think it was 2001 it bottomed out at just under $6 a share. And of course, you know how many people were investing at that point and investing, you know, after the tech bubble had just destroyed 90% of the value in the NASDAQ destroyed 95% of the stock value of Amazon, down under $6. A share how many people were buying at that point. But if you had, you know, if you had looked longer term, looked at a great growth company, then imagine that getting Amazon for $6 a share. It is now upwards of $2,500 I think it's $3,500 Last year, for something like a 50,000% return, which is just maddening to think about. But yeah, you know, I think there's some great deals right now, a lot of these growth companies that have fallen at 90% that are still strong growth companies, so she'll change in our lives. You know, you look at these, you look at him again. And I think there's an Amazon out there, out of sight out of some of these companies. So don't get panicked out of the market. You know, keep investing and and, and keep at it.

Andrew Stotz 39:12
Fantastic. Fantastic. That's really inspiring for all of us. Because yeah, you can get caught up in the news cycle and all that well listeners, there you have it another story of loss to keep you winning. If you haven't yet taken the risk reduction assessment, I've challenged you to go to my worst investment ever.com right now and start building wealth the easy way by reducing risk. As we conclude, Joseph, I want to thank you again for joining our mission and on behalf of a Stotz Academy, I hereby award you alumni status for turning your worst investment ever into your best teaching moment. Do you have any parting words for the audience?

Joseph Hogue 39:48
It's been my pleasure. I appreciate it. You know, I love seeing people come to the channel and become part of the community. So so yeah.

Andrew Stotz 39:55
Well, you've got some great new fans for your YouTube coming your way. So that's a wrap on another great story to help us create, grow and protect our well fellow risk takers. Let's celebrate that today. We added one more person to our mission to help 1 million people reduce risk in their lives. This is your worst podcast host Andrew Stotz saying. I'll see you on the upside.


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About the show & host, Andrew Stotz

Welcome to My Worst Investment Ever podcast hosted by Your Worst Podcast Host, Andrew Stotz, where you will hear stories of loss to keep you winning. In our community, we know that to win in investing you must take the risk, but to win big, you’ve got to reduce it.

Your Worst Podcast Host, Andrew Stotz, Ph.D., CFA, is also the CEO of A. Stotz Investment Research and A. Stotz Academy, which helps people create, grow, measure, and protect their wealth.

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