What Professional Investors Are Doing Right Now with Kevin Simpson

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3:15As you heard on the pod earlier this month, the stock market had its worst day in years and has struggled really for months now to keep up the momentum we saw right after the election. So is this the beginning of a recession that we've been bracing for? That's just part of what I covered today with Kevin Simpson, the founder and chief executive officer of Capital Wealth Planning, an investment advisory firm with$10 billion of assets under management. So a lot of money. He's a big deal. Kevin and I talk about what pro-investors do during stock market crashes and where he's seeing opportunities right now.

3:47And Kevin plays bullish or bearish with me, my favorite, and he gives us his take on the stocks that are causing the biggest stir on the street right now. Here's Kevin. Kevin Simpson, welcome back to Money Rehab. Thanks for having me, Nicole. Great to see you. Are you okay? I just feel like it's been a wild few weeks. How are you holding up? It's so much about emotions, and that's the problem. For better or for worse, I've been in this industry for over three decades. And in the old days, we would experience one or two 10 % pullbacks, almost like clockwork. And it seemed like every other year, we'd have a 20 % pullback.

4:24Very often, it wouldn't be in the gregarian calendar where you'd have a start to finish, peak to trough 20 % downturn. But throughout the course of a year, it was very commonplace. So I feel like today, maybe we've been spoiled because the past two years were so good. But I think investors are freaking out a little bit. But we're only down maybe 10 percent, if that. Some stocks certainly more so than others. But on a grander scale, I mean, I think things are OK. So you're saying historically it's gone down more gradually and now it just feels like more whiplash. We need Valium looking at the market.

4:59No, no. We had the same type of whiplash. What we didn't have was 24 hour social media. So we didn't know what was happening all the time. I mean, even from a Fed perspective, if the Fed cut rates or they would hike rates. We didn't know about it for a couple of days, maybe a week until we read it in the Wall Street Journal. The problem when we have volatility today is that we just feel it so intensely because we can't escape it. And that's fine. It's okay. It's just how do we mentally overcome markets when they turn down? And what do we do about it to make successful investment decisions? You mentioned the correction 10%.

5:32That's not a recession, to be clear. No, no. And you're going to hear words like recession and stagflation and very, very scary things out there. But the resiliency of the labor market makes me a lot less concerned about a recession. Someday we'll have them. It's a part of a normal economic cycle. But when you look at the economy right now, we still have a GDP that's expanding, even though it's not expanding rapidly. Again, the labor market is what I'm hanging my hat on as being something that's super resilient. We have CPI and PPI that didn't really freak anyone out from an inflation standpoint.

6:05And you have a Fed that last week was saying that they're there to step in with rate cuts if necessary, looking at both the labor market, inflation and the broader economy. So you have a Fed put. Problem is you don't have a Fed put here at these levels. It could be another 10 percent down before they kind of step in with the white horses. So we're not we're not through the we're not through the end of this yet because there's so much uncertainty. But I'm not overly concerned just yet about any of the real grand, long term, grind out bear markets. So the white horses being rate cuts, of course.

6:39Do you think we're in this as a blip or are there going to be more bad days ahead? Have we hit the bottom yet? I think that's what a lot of people want to know. No, I don't think we've hit the bottom, but I don't necessarily care from the perspective of thinking about it like this way. Maybe we're halfway done. So if you have a 20 % roll down and then you have a bear market like pullback, which again, isn't the end of the world considering how much things have gone up. If we're halfway through it, you can start to invest a little bit now and continue to do so over the course of the next year, thinking that dollar cost averaging will allow you to kind of lean into that volatility.

7:15And if we're wrong and this is the bottom, well, great, we put some money to work here. The biggest mistake that any investor can make, even us as professionals, is to start thinking that we can time the market, that we want to be so clever that we want to kind of maybe get out now and try to call about them. Because it's very, very difficult to do that. And I'm certainly not going to try. Okay, you're way more chill than I was expecting you to be. So you didn't panic, it sounds like. A lot of people did panic, especially in the really, really bad day on March 10th. What did you do? So did you buy more?

7:51I know you buy more dividend stocks. We did. I mean, we bought JP Morgan, which was, again, kind of thinking that we're talking here on Monday and it's a week or so removed. But JP Morgan was down 17%. I mean, we bought more from a really good company. We actually bought some of the Qs. Now, that's not part of our dividend strategy, but really looking at things that had come down so much that you could write covered calls on, really good opportunity there. Wait, wait, wait, hold on. So when you say bought some of the Qs, you mean QQQ or? Yes. So we have a, you know, you know of us in our flagship dividend strategy, we were right covered calls, very boring, you know, never one for volatility or risk.

8:30We recently launched in August, a more aggressive growth strategy. The symbol of the ETF is QDVO. And within that growth strategy, we actually bought some of the QQQ. We actually bought the NASDAQ just thinking that it's a pure bounce from technical. So from a technical standpoint, you've got a pure bounce there. Plus, we can write calls against it. I still have a lot of cash. So if I'm early, we can continue to put things to work. But we're buyers at these levels across the board where there's good reason to be. Profits, solid valuations, and projected growth. So when you say covered calls, not to get too technical, but if somebody is like, what are you talking about?

9:11Basically, it's like insurance that you're creating for yourself. Very, very modest hedging. Yeah, I don't want to overstate it as being something that's going to really protect the downside, but it does a little bit and it helps to smooth out the ride. And maybe the next month or two, we can just dedicate a show and talking about what covered call writing is because let's play out the volatility and say, OK, well, we have a new administration. Things were kind of calm for two years. Now, all of a sudden, we have a constant overload of information that's causing this volatility. Maybe that continues for the next couple of years.

9:43In a range-bound market, covered calls can be a really helpful way to buffer some of that volatility and also generate a little cash flow. I mean, that's the cool part about this, right? If you did have cash on the sidelines, and some people are like, okay, I had cash on the sidelines. Now there's a dip. Now I have no more cash, so we can't buy more. But dividend stocks are now having a moment. There's so much more discussion about dividend stocks. I think in any market downturn, people want to get a dividend, which is basically a little present from a company in the form of cash. Or if you are in a drip program, it's reinvested into the stock.

10:20Are you having an I told you so moment because you have been talking about this, whether it's a downturn or not? This is your thing. No, I had my I told you so moment on dividend paying stocks in like the year 2000 and the early 2000s. I'll tell you a very brief, funny story. But first, the idea that you're mentioning dividends and dividend reinvestment and the power of compounding, that's true wealth creation. I mean, that's how we become really, really rich over time. But I remember in 1998, I was fired by someone. This was during the dot-com bubble. It was a really sweet, nice lady that said she wouldn't refer me to her worst enemy.

10:54And I was like, that's pretty harsh. And the reason was I bought Merck, M-R-K. I put her in an investment that I thought was a quality dividend payer in 1998, Merck. and she wanted to own Lucent Technologies, which was a much more high-flying tech stock, very similar to some of the meme or dot-com stocks that went by the wayside. In fact, this was one that did just that, but it was like a hundred dollars stock. They didn't really make any money. And I thought that it was a little bit outside of her risk profile. And maybe the stock was around a hundred dollars,$105. And within a year, I think it went down to like 65 cents.

11:31And I felt very much like that was my aha moment in those early times. But yeah, dividend stocks never really go out of favor. They just become less popular when NVIDIA doubles every day. And then all of a sudden value plays a little bit more of an important role in people's portfolios. Yeah. And if you want to take advantage of that compound effect, if you are buying a share of something, you can typically just right there on an app, just click reinvest dividends or not. And so that's what a drip program essentially is. When you were on the show in August, Kevin, we had a particularly bad day then.

12:08I feel like we always meet in these not so pleasant times. But you were talking about the idea that Warren Buffett was stockpiling cash. You mentioned that you were buying JP Morgan. I know Jamie Dimon cashed out recently when his stock was at more of a high. Do you think that Jamie Dimon, Warren Buffett knew something we didn't know? Or do you think this type of opportunity, this March 10th big dip was the buying opportunity they were waiting for? Well, I think they both know more than we do. So I will be too humble to compare myself to either one. But certainly Jamie Yavin has an inside track on JP Morgan.

12:43But it seems like he's always telling us not to buy it. And the stock always seems to go higher for the most part. So if I was buying it in August, here I am buying it again in March. We've owned it for 13 years. I really like the position. The cash stockpile that Warren Buffett has within Berkshire is very interesting. Is that a macro call and we'll see a sell-off and then they'll look like geniuses once again? I mean, that possibility certainly exists. It's also very possible that they're making acquisitions and purchasing shares now on this pullback that we'll find out about in their next filing.

13:16So I think it's always great to have cash on the sideline. It's easy for us as professionals to do that because we're always generating cash. We're trimming things. We're bringing in call premiums. We're collecting dividends. And to your point, that's not always the position that the retail investor is in. As we're building portfolios, when we're newer to investing, we don't have that luxury all the time. So I think that the lesson of dividend reinvestment and securing a drip is something that I've literally practiced for over 30 years. There's nothing really that I would own that wouldn't give me that dividend reinvestment ability for my investment portfolio.

13:51And I will give you a statistic. I know no one likes to hear stats, but since 1926, so for almost 100 years, the S &P 500 has generated 10.2 % per year, which is a great return. That's why we invest. That's why you teach people so wonderfully in the way that you do to get them motivated to start investing. 10.2 % a year is really, really powerful. Of that return for almost 100 years, 39 % of it, almost 40 % comes from dividends and distributions reinvesting. If the market's up 30%, we feel like geniuses. If it's down 30%, you and I are probably talking, I want to jump off a bridge or at least we feel like we might want to.

14:31But overall, it's that power of dollar cost averaging, compounding and dividend reinvestment that is the secret to investing. I mean, it definitely helps increase what you have in the market. And we know that time in the market is better than timing the market. Although we do feel like, you know, we might miss a blip because in theory, we know buy low, sell high, obviously. But when it's low, we get scared. Like, is it ever going to end? And when you have cash on the sidelines, you also think, well, is it just going to keep going up? And so now I need to put my money to work. These are the plights of the retail investor, which is, I think, a euphemism for just folks like us that don't have all the Bloomberg terminals and other fancy technicals that you guys have.

15:15Don't be fooled by our multiple screens. You know, it's very, very hard to separate that emotion from it. I mean, we have to think of everything as a math equation. We look for companies that are profitable businesses. And if they can earn more money next year than they did this year, in all likelihood, their share price will trend in the right direction over time. investing is really easy. But the application of trading, knowing when to buy, when to sell, when to move in, when to kind of dial back a little bit, that part can be just incredibly emotional. And if you let the emotions bleed into the decisions, that's when you're more apt to make a mistake.

15:50So for us, it's always thinking like, well, if it's down 10%, we'll put some money to work. If it's down 20%, we'll put a lot more to work. And that's a hard thing to separate the emotion from it. For sure.

16:06Hold onto your wallets. Money Rehab will be right back. And now for some more Money Rehab.

16:19Let's play a game to kind of get a sense of where your head's at for different stocks. If you could let me know if you're bullish or bearish right now. How about Meta? That's my favorite stock. I mean, I'm absolutely bullish. It had a 20-day run where it just seemed like it couldn't go down and it definitely got higher than the valuation deserved and warranted. Now that it's pulled back, it's absolutely a buy. The reason it's pulled back is because investors are fearful of advertising pullbacks, which would affect Meta's profitability. But from a MAG7 valuation standpoint, maybe Nvidia is close, but this is very, very reasonably priced.

16:57They pay a dividend now, which is why we like it. They just had a modest dividend increase recently. For the past three years, they've been buying back shares, so they've reduced the float. This is also a stock that's getting into hardware to compete with Apple. I wear the Meta Ray-Bans and I swear by them. So not that that's a reason to buy a tie, but they're super cool. Okay. I didn't know that people were actually wearing them, but good to know. How about NVIDIA? So NVIDIA, also a pretty good buying opportunity here. The problem is everyone already owns it. And you think like, gee, it was just 150, now it's 110 or so.

17:32Should we buy more? Can it go to 90? Can it go to 80? It could. It could. So the thought process there is, again, you're just trying to continue to buy it at valuations that make a lot more sense because looking at their earnings, people get freaked doubt because it's not 200 % growth. But 30 % to 60 % growth is really, really good. Apple's growth is maybe 9%. NVIDIA's growth is probably 20 % to 30 % when you kind of take away some of the hype. And this is a CEO that has this pulse on what's happening with the future. I wish they paid more of a dividend. They do pay one penny a quarter. To me, that's a rounding error down to zero.

18:08But for anyone on the planet besides me that doesn't own it, you can certainly start buying shares here at this level. Why the heck do they even give a penny a quarter? Because dividend managers can then say it pays a dividend, they can put it in their strategy. I think that's cheating. Yeah, that doesn't seem right. Oh, last time you were on, you were very bullish on NVIDIA. And that was before all this deep seek stuff came out. Of course, the Chinese AI company saying that they spent so much less than OpenAI to build their software. Would you say you're still bullish at the valuation we are now.

18:40Yeah, even more so. It's like the Deep Seek is like in Iron Man 1 when Tony Stark built his suit of armor out of a box of scraps in a cave. You know, like that was a movie. Deep Seek didn't build their Iron Man suit in a cave with a box of scraps. They took open source material and they probably have NVIDIA servers in other countries. So I don't think that the$6 million price tag was as accurate now in hindsight as maybe it was that the day the news came out. I know it was such a good headline, but it's totally bogus. So tell me about OpenAI. It's a private company, you can't trade it, but let's pretend we could invest.

19:17Would you be able to share? Well, it's hard to pretend because you don't know what the financials look like. So I want to see profitability. And I know that at this point, they're not profitable, at least to what they tell us. But if you look at their user base to what they do report, I mean, it's amazing the exponential users that are out there. I use ChatGPT. I find it to be pretty helpful in consolidating a lot of the things that I'm thinking about. It makes it a little bit more concise. Some of my team members use Gronk and some use Perplexity, but for us, we're able to really use artificial intelligence in our work to simplify.

19:54I'll give you a great example. So in the old days, maybe like six months ago, I would have to listen to an earnings call and maybe that would take 45 minutes of my time for all these companies. Now we can have the AI listen to the call, give us a complete transcript, and then a four to seven minute read of a synopsis to which we can then cite the data that we want to see. So rather than spending 45 minutes somewhat zoning off at times or dozing off at least with some boring calls, we can get that information and be a lot more efficient. So I think that there's tremendous opportunities with AI and for those people that own open AI in the private sector.

20:32I think that there's lots and lots of upside down the road. Yeah, it's not all pretend. There is a secondary market. My husband, I think, put some money into perplexity at a bajillion dollar valuation. I mean, their valuations on the secondary market for these private companies are ridiculous. On Friday, perplexity had a report that they were doing another fundraise, which was going to be 6x of what it was last year. So congratulations to your husband. Oh, thanks, Kevin. Are you hiring? Okay, what about Supermicro? Is there room for other AI companies other than NVIDIA? I think that we have to see if the accounting irregularities are really something that was not as horrific as maybe initially thought.

21:14When you see an auditor quit, that's a really bad sign. Now, I know they have another accounting firm that's in there. I know they're reporting and trying to get all of their listing and filings up to speed and up to date, certainly there's room. I mean, absolutely there is. I'm not sure if that is the one, but from an investment thesis, I would not be an investor until we see what the actual accounting numbers look like. So a little bit sketchy there, but sometimes the higher risk can be the highest reward. And so that if things are all kosher on the other side, then those investors who took that risk will be well rewarded.

21:49I know that's how it works. Higher risk, higher reward, lower risk. I don't take risks, but I'm wealthy because I do it slowly. Tesla is a really, really interesting one. And some people use it as a proxy for Grok too, which, you know, of course, Elon and Sam Altman hate each other. There's like sharks and jets of the AI world. What do you think about Tesla right now? Well, there's no valuation stamp, like there's no valuation case for it. It is not a fundamental story in which you would invest in a car company that trades at that multiple. So they're at a crossroads. Either the company is going to pivot into a multi-factor, to your point, AI, autonomous driving, energy company that warrants that multiple and isn't dependent upon car sales exclusively.

22:32If not, then you own a car company with an insanely high multiple, and that would not last. So I like the thought process of owning Tesla because I think that those things are just so awesome and neat down the road. And if you do own Supermicro or you do own Tesla, you can write calls against it and generate massive, massive premiums. So I don't know exactly what the future holds from the standpoint of the car company, but very, very excited about what the future holds for the other aspects of those companies. Yeah, we'll have to double click on all things calls and another call for us. But I think right now, just looking at Tesla on its own, it's down 35 % from the beginning of the year.

23:17I think Elon just came out and said to employees, don't panic sell your stock, it's coming back. But just as we were, you know, logging on for this interview, nearly all cyber trucks were recalled. What do you think? Luckily, there's not that many cyber trucks. Yeah, I don't know that that's really a a reason to buy. I don't think Cybertruck's a reason to buy or sell the stock. So if that's the headline concern, I wouldn't let that weigh on your thesis. And do you think of it as a proxy for SpaceX and other, is it like Elon stock? I think people that are really into Elon are really into the Elon ecostructure, much like you had, and we've talked a second ago about open AI and the private markets.