#285: What Stocks to Buy in a Market Crash? (w/ Sean Tepper)

0:00Over the last 100 years, there have only been about 17 bear markets or recessions with an average duration of about 10 months. That tells us when the market does pull back, it typically does not last for long. So would you recommend then for investors to keep a little cash pile handy for these opportunities?

0:26How are we doing, folks? Welcome to another episode of Stock Club. I'm joined today by a very special guest, Sean Tepper. He's the founder and CEO of Ticker, a platform that helps people buy and sell stocks with confidence. Today, Ticker has over 12 ,000 customers in over 50 countries, spelled T-Y-K-R. Sean, very important. Thank you for joining me today. How are you going on? Thanks for the invite. Appreciate it. So, Sean, we both at My Wall Street at Ticker, we both kind of focus on this retail investor. I think one of the most important stages is that setup phase, getting over those initial roadblocks.

1:00So I'd like to start this interview by kind of questioning you from the perspective of I'm a beginner investor. What advice do you have for me? Is that something you want to get in behind first and foremost, and then we can get into the current market and everything you're doing at Ticker and all the rest? I was going to say, absolutely. And I can give you a perspective on my journey from beginner going to, as we phrase it at Ticker, going from beginner to confident investor. Should I start there? Perfect. That sounds like a great place. Okay. And so, yeah, my background is about, and I'll keep this about to the two or three minutes or so, but my background is about 20 years in tech, 15 years investing.

1:37I had my first company in the 2000s, just building software and websites for small and mid-sized businesses. Went through a merger in 2010. There wasn't a check written like, hey, here's a million dollars and you ride off into the sunset. That was a big lesson learned on building a service business. If you are building a service business, that's totally fine. Do it because you love it. But the exit multiple probably isn't going to be there. That's the reality of the situation. So then I decided to get into investing. However, being a beginner at the time in 2010 or 11, I didn't know where to start.

2:08So I joined a broker. I think I joined E-Trade at the time. And then I would just kind of find stocks on online, on forums or wherever or podcasts. and it was kind of like shooting in the dark. And over five years, I maybe kept up with the market. And in 2015, I'm like, I have to do something different here. This is just not sustainable for the long term. So I was looking at, and you probably agree with this, I was looking at Warren Buffett and the late Charlie Munger and realizing that they were able to consistently beat the market. In fact, Warren Buffett has said if he were managing$10 million, he could make 50 % per year.

2:46I'm like, whoa, that's quite a steep statement compared to the six to eight, maybe 10 % at best I was making. So you and I both know that these guys are not making decisions based on emotions or feelings, which means they're probably starting with math. And I've got a pretty strong math background. So I'm like, all right, let's reverse engineer the math they use. And I decided to put together an Excel sheet. I went down the YouTube rabbit hole, watch as many YouTube videos as possible. And thanks to a guy by the name of Phil Town, I did find some of the calculus that's used. I put it into Excel, added a little more rigor, and then created a rating system that's really easy to understand.

3:25Because that was my biggest complaint to where I think most beginners run into issues as well as you can't, like if you look up any stock, you don't know if it's truly a good stock or bad. You have to go through all this analysis and all your own homework. And I'm like, I need to roll this up to something simple. And that's my background is a lot of process engineering. So GE and Kohler, I give them all the credit. But if you take like, let's say a hundred data points, you have to roll it up to ideally something that's binary, like a yes or no, or a traffic light. I'm like the traffic lights, the easiest to understand rating system around the world, in my opinion.

4:01So, so stocks and ticker are either on sale, watch or overpriced green, gray or red. I used that over the next four years, making returns between 15 and 50%. Just to make it really easy was my goal, but the returns were kind of like the icing on the cake. And yeah, 2019 was the moment where I'm like, let's share this with a few other people, like regular guys like ourself. And everybody's like, you need to turn this into a software to share with others. So that was the green light to create ticker. But yeah, it was like a 10-year journey, five years to kind of figure out that I'm doing something wrong and I need to do something right.

4:40And then it was another four to five years of testing this Excel sheet with my own money before I even think about handing it to people. So yeah, it took 10 years to really come up with an idea and then execute it into a business from there. So, so yeah, that's, and you listed the metrics. We've got over 12 ,000 customers in 50 countries. So that brings us to the present. That's great. And I think what I love about that is you kind of simplified it. At least you simplified a process that works for you. And I think that's where beginner investors struggle is finding, building a foundation for themselves that works because it's very individual process.

5:15You build a process that works for you. And like, if you have a high risk tolerance, that might mean you have to dip your toe and get involved in whatever gamble is going on at the minute. But in terms of building that foundation for a long and successful investing career, what would be your number one piece of advice? Education. Because if you can become educated in the shortest amount of time, you can be confident. And I won't go into too much detail here. But, you know, making money, building big returns or retiring early, all that kind of stuff is nice to have. A lot of our customers in our community really stress.

5:51the home run feeling is actually knowing what to buy and sell having confidence is it is everything so so we in ticker we do have educational modules we get a lot of articles our email sequence of onboarding gets you up to speed as we phrase it and you can go from beginner to confident investor in 14 days or less but yeah i tell every beginner you want to be educated and and fortunately we've got the analytics and education and one clean location. I have other resources I recommend. Phil Town, of course, is great. He's if you want education. But yeah, start with education. Everything else becomes easier thereafter.

6:30That's great. And you're talking about confidence, probably the most important thing, because that's what will keep you coming back and keep you doing it. So if you don't really believe in a process, you're never going to stick with it. And then And on the opposite side of things, then you've kind of said the first thing to do. What's the number one mistake or pitfall you see beginner investors fall into? And how do you avoid that? Because they're very, they're cliches for a reason. You know what I mean? People do the same mistakes over and over again in these processes, I suppose. Yeah. So this is good news for everybody listening is you do not have to be an expert at math.

7:06You do not have to be the smartest person in the room. I'm certainly not myself. But you do need to control your emotions. That's where most people go wrong. A good example of this is let's say you buy a stock and the next day that stock goes down. A lot of people will freak out. They will think they did something wrong. Sky is falling. They're going to lose all their money. And that's the nature of the stock market. You need to look at it like waves in the ocean. They're going up and down at every given moment. You find good stocks right off the bat. But then thereafter, it's let it go up and down.

7:41You're going to keep investing over time if that business still has really strong financials. And if you can train the discipline of not worrying about the ups and downs daily and weekly or monthly, you will do very well. And I've got tons of case studies of people who have very low salaries who have built up multimillion dollar portfolios because they can control their emotions. They don't worry about what's going on day to day. Yeah, there's that famous story from the Morgan Housel book, Psychology of Money. I think it was, was he a janitor at college and he built up an$8 million fortune? Ronald Reed.

8:21Exactly. I share that story with everybody. It's the Ronald, he held about 10 to 15 blue chip stocks through the 70s, 80s and 90s. Of course, no financial advice here, but I think it was like Johnson & Johnson. GE was in there. Dow Chemical, Walgreens. Anyway, it's like he's going into a select group of stocks and he's going to make his first million and then build up$8 million or after Warren Buffett. And listeners, if you don't know this, Warren Buffett, yeah, Berkshire has 40 businesses today, give or take. However, he built his first million investing in about 10 businesses. You want to build your wealth, you have to be focused, find strong businesses and keep investing over time.

9:03Okay. And I have this next question worded in as basic language as I could come up with, because I think there's a purpose behind that. And the question I'm going to ask you is, how do you find good stocks? Yes. So if you don't want to use ticker, I'll give a quick pro tip here. But thanks to all the training from Phil Town, Warren Buffett and Charlie Munger, there's really eight lines on the financial statements you'll pay attention to. I won't go into too much detail here, but in the income statements, you've got revenue net income and EPS on the cash flow statement you have free cash flow and then on the balance sheet you have assets liabilities debts and equity and what you want to do is you want to look at the last four to five years and make sure the numbers six of those eight numbers are increasing quarter over quarter and if you can look at it you can just eyeball it and quickly determine in about 60 seconds or less if it's a strong stock liabilities and debts you want to see going down but everything else i mentioned you want to see moving up and to the right so a good example is let's say you've got a company that the revenue was you know i'll use nice round numbers it was a million a lot um it was a million five years ago four years ago is 1.25 three years ago 1.5 two years ago 1.75 and now the recent year is two two million so those numbers are increasing that's a good sign and that's pretty easy to visualize of course if you want this gamified and made easy ticker has all the all the ratings but but that's how you determine if a stock is stronger or weak and i'll give one one more example here we at ticker we collect a lot of data to pull like raw financial data and with that we don't always have the newest ipo stocks because you need historical data to make a correct analysis well figma went public recently they're all the rage people piling into the stock and yahoo finance ended up getting the data a little earlier than than us and they do they've got a different data source but i showed the ticker community hey let's go manually look at this stock and we could quickly see the net income and eps were drastically decreasing however everybody's piling into stock and people don't know this the number one most important line on the financial statements is eps In most cases, not all, but earnings per share is just net income divided by outstanding shares.

11:29If that number is increasing and you beat your earnings report, in most cases, share price goes up. Of course, your profits or EPS is decreasing and you miss your earnings report. Most cases, share price goes down. I'm like, guys, the rug is going to be pulled out on Figma here. And sure enough, it doesn't mean it's a bad company. We use Figma at Ticker, but would I invest in Figma right now? No. We want to wait longer. We used to have a golden rule at My Wall Street. You couldn't, this is back when My Wall Street was much more expensive platform and everything. We couldn't select a stock within six months of IPO.

12:05That was the no-go zone. Figma is a great example. Phil Town teaches one year. We actually tell people try to watch every quarter, but it's going to take four quarters or more for that business to get into a strong financial state anyway. So you see your six month rule is spot on. Yeah. Good call. Yeah. So then this is a ticker specific question now. So I've been doing some research and you say there are four types of stocks you can invest in. Could you break that down for me? Yeah. So you have value stocks, you have growth stocks, speculative stocks, and dividend stocks. So kind of break those down.

12:42So value stocks, that's what ticker is all about. We're not traders, we're investors. We've got an article that teaches the difference there in our onboarding. So that's number one. Those are value stocks are essentially financially strong businesses. All those numbers are moving up and to the right. We care about the fundamentals. We do not care about charts and graphs or anything that's trading focused. So value, again, strong financials. Now, then you get to growth stocks. I'll give you a framework here. And thanks to Phil Town and Warren Buffett, it's called the 4Ms of investing. We actually gamified this and put a patent on it and ticker but here are the four m's so you get the math part that's the financial strength of the business you get the meaning that's how the business makes money how many revenue streams does the business have and how scalable are those revenue streams the third m is the moat how it compares to other businesses in the same sector and industry and then you have the management that's the track record of the ceo so typically a value stock will check all four boxes all four Now with growth stocks, that first M may not be strong.

13:48The financials might not be there, but the other three M's, that meaning, motin management, those boxes could be checked. Doesn't mean it's a bad business. Just be careful. It can be a little more volatile. So we at Ticker, we do tell people lean towards value. But if you find growth, that's okay. Just prepare for a roller coaster ride. The third category would be speculative. In that case, those stocks are primarily overpriced in ticker. And that's the great majority of stocks in the market. Most people don't know that. It's a very topical moment right now for those speculative stocks. That's most businesses, they're businesses, but they just don't have the strongest financials.

14:27And unfortunately, most people holding ETFs, index funds, and mutual funds, if you ever take a look at your funds in ticker, not all, but a lot of them, they're either watch or They're overpriced the entire fund because the majority of the assets, the majority of the stocks within are overpriced. And that's why I tell people you're not getting big returns because all those stocks, they're holding you back. You want to be Warren Buffett, invest in individual stocks. Of course, retirement age, you can move to funds, but you're protecting your money. So anyway, speculative, primarily you're not passing any of the M's.

15:01And then dividend stocks are kind of in their own category because a dividend stock can also be a value stock. Essentially, if a business has strong financials and they can pay you and I a dividend for simply holding the stock, that's a good place to be. But I tell people this, and this is in the training. You're not going to build your wealth even close to as fast as value stocks because the returns of compound interest are significantly greater. unfortunately I see too many people in like their 20s and 30s maybe in 40s like all right I'm going all in on dividend stocks I'm gonna I'm gonna get rich it's like yeah you'll you'll get rich in 30 years through a dividend stocks but we tell people try to build your wealth with value investing and when you get within five years or less of retirement then consider moving to funds like ETFs and index funds or go into dividend stocks and we get a few financial advisors they do exactly that with our customers.

15:58They're like, yeah, we're Sean, we're just transitioning from value stocks, dividend stocks. And that way in retirement, hopefully you've got your home paid off and other things paid off, but you can just pay yourself a dividend to enjoy the hobbies you want to enjoy. So you don't have to sell any shares of businesses. So anyway, a lot of cover there, but those are the four types of stocks in the market. Ideally, your value and growth stocks would eventually turn into dividend stocks by the time you retire if you hold for that long and correct they turn out to be that successful um you sparked an idea and i asked this question to a lot of people that come on the podcast in in your view what's the difference between and this is specific specifically in the stock market specifically for stock pickers what's the difference between wealth creation and wealth preservation yeah so that relates to the strategy and we phrase it a little different but it's very much in line where you're going, which is wealth building mode and wealth protection mode.

16:54So you've got wealth creation and wealth protection. When you're still working and you have a timeline to retire, and we have this all broken down mathematically, so it's super easy for people to understand. So if you have a timeline to retire that's five years out or more, then you want to be leaning towards individual stocks, getting those higher returns. Now we do not guarantee it, but we tell people if you're finding strong stocks and have a focused portfolio of about 10 to 15 stocks you should be getting returns again no guarantees but your returns should range between 15 and 50 in ticker we are seeing the returns we're going to show this to everybody this is an analytics feature but it shows our customers on average they typically get between 15 and 20 per year over the last five years over the age of ticker that's great because compound interest and here's here's some nice math for you.

17:47And then we'll jump to wealth protection order here in a second. But we're starting a club called the$100 a week club. And I'm going to ask you a question here and see how close you get. But if you invest$100 a week in 17 years, what do you think that will equate to? What number do you think? Just$100 a week at earning over 15%. What will that equate to earning over 15 oh wow so what's that uh we've got five grand a year and so we've got 75 grand going in and then you will earn at 15 is a lot uh it doubles every four years it doubles every five years it doubles every seven years at 10 is that correct so um to my maths here 200 grand you're I like the math there.

18:40And to do it in your head, I'd give you credit. You'd be Rain Man if you could pull that off. Yeah, the number is if you start, and I left out one metric, but if you start one of the count size of 5 ,000 and then do the$100, it'd be 1.1 million in 17 years. Yep. And then 2 million in 20 years. So it's like when people will hear that, they're like, oh, that's not a lot of money. What if I could do more than 100? Then do more than 100. Right? Right. So people need to be focused on the discipline. Like we talked about Ronald Reed is he he didn't have a big income, but he had the discipline to never skip a month.

19:15That's the issue. One issue I talk to brokers right now, but their customers, retail investors, is they will join a broker and they will wait three months or six months or nine months. And I'm going to just I'm going to sit on the sidelines. I'm just going to read some more and see what's going on. It's like, no, no, no, can't do that. You're going to be in the game. So we, that's why we shorten that timeline to learn. So that's the wealth creation mode, as you phrase it, or wealth building mode, as we phrase it. Wealth preservation is that's when your timeline is the five years or less. And we talked about that.

19:49You can move to funds. You should not expect big returns at that point. It's just protecting your wealth or you move to dividend paying stocks. So I'll tell you right now what my play will be, will be dividend stocks. So I just keep the stocks I hold. I don't have to sell shares, but I simply get paid a dividend. Yeah. Yeah. I think that's very, that goes along with the ability to keep doing the same thing over and over again. I think Warren Buffett said investing is not easy, but it is simple. It's a very simple process, but you need to find the process that works for you and that will help you sleep at night and that you can do consistently every month, every week, whatever it is, whatever that time period is that you put in money.

20:30because I noticed it even myself, like as in I'm here on this podcast telling people what to do and sometimes I want to sit out for a month because the market seems frothy or I don't have any good ideas or whatever else it is, you know? And like, I feel like with that, certain stocks can really help. A stock like a Berkshire Hathaway or I always quote, it's a Swedish company, Investor AB, where it's not really a stock. It's a collection of 100 or 200 to 300 businesses that if you have no better ideas okay well i'm very confident my money is in safe hands here i trust the ceos the ceos are essentially investors they're not they're not particularly running the operations of the business they're just putting their money to work and they're not going to put it into a bad investment you don't get to right the warren buffett obviously is going out the door next year but greg abel you know he's going to be the heir apparent for berkshire hathaway he's not going to get that position without being a good investor that's it comes down to these kind of companies that act as they take the weight of um responsibility somewhat of managing the money off your hands do you know what i mean i'll just give it to a more trusted uh qualified investor than myself to go and spend that in the right way so that's that's one piece of advice i would like to say in terms of don't get caught sitting on your hands so it's of what you're saying as well to have that kind of backup plan in terms of a good safe blue chip asset you were happy to put in money month after month and not worry about a position building up too much compared to say i would be very nervous if uh i had a very large position in quantum computing stocks or something like that where it's incredibly speculative right now it's okay to maybe dip the toe and have a have a little small punt if it works out owning just a little pieces enough but to have a lot of money invested in those kind of speculative assets it would would would affect the sleep you know and all we're trying to do i think is sleep tight at night knowing we're building a wealth for our future selves so yeah in terms of in terms of avoiding sitting on the hands would you have any more advice to add to that or yeah i would say it's not like you have to spend hours if not days of research fortunately is we phrase it you know 15 minutes a week and phil towns is the same thing 15 minutes that's one thing where people are like and i run to people all the time like oh you did individual stocks i don't have time for that so i'm just going to the s &p 500 or i don't have time for that i'm just going into a mutual fund it's like no no no like this literally our platform not to oversell the thing but it's like 15 minutes a week but again phil towns teaching he does the same thing in his his process a little more manual well, Ticker is a bit more advanced, but he's right in line.

23:18Like you want to be about 15 minutes a week. It's like, I think everybody can carve out 15 minutes a week to become a multimillionaire in the not too distant future. I think most people would be like, oh, okay, that trade-off I could align with, you know? So there's a lot of myths and we could probably talk for hours on the myths of investing. And that's just one of those. Like you don't, you don't need lot of time yeah yeah okay talk to me about tecker you ticker you set it up in 2020 that's correct yeah we went live in 20. yeah yeah so that's been like the busiest five years of the market in in terms of you know we've seen a market crash we've seen a bear market we've seen the whole game stop saga interest rates went from three percent to zero to five percent in no time at all and despite everything the s p 500 is it's more or less doubled in that time period and we're back sitting at all time highs today.

24:10So how has that journey been at Ticker? Because I imagine you've had a lot of, a bit of a roller coaster to put it mildly. Well, this is a key strategy and I have to give Phil Town the credit on this one. And then Warren Buffett is one of my favorite quotes from him is you want to be greedy when the market is fearful and fearful when the market is greedy. Well, fortunately, as we teach at Ticker, you actually want pullbacks because that's where you make the of acres returns. We're not shorting stocks, but what it is, is if you find financially strong stocks and the market pulls back, that's when you need to strike when iron's hot.

24:45So for transparency, 2000 and what was that? 20. That was my best returns ever because the market went down because of COVID, nothing we can control as investors. And I knew based on the training, when you find financially strong businesses and the market pulls them down, there's nothing wrong with the businesses but the market pulls them down the market went down 30 percent well that year my returns were over 120. will i make 120 every year absolutely not but when the market goes down you want to use that opportunity so i we train i say our platform and then my teachings you want to keep buying every month dca but then when the market pulls back like it did in 20 and And then it was, what was that, 2021?

25:33It was November through about March of 23. It was almost a year and a half. There was the triple threat. It was like the Omicron variant of COVID. It was the rumors of Russia invading Ukraine. And then there were rising interest rates. That triple threat moved us into recession. Some people were like, eh, it wasn't a recession. But it's like, hey, what was it? Two consecutive quarters or more is technically a recession. We were there. That was another stockpiling opportunity. When Trump started the whole tariff negotiations, again, there was an initial pullback there. And I told our audience, get that free cash ready, deploy it.

26:09You're going to make the bigger returns. And it's really just rinse and repeat. So now that ticker communities, you become more educated. You realize like when things are good, I mean, that's all right. But you want things to go south because that's when you make the big returns. And I'll say one more thing here, and we teach people this is over the last 100 years, there have only been about 17 bear markets or recessions with an average duration of about 10 months. That tells us when the market does pull back, it typically does not last for long. So would you recommend then for investors to keep a little cash pile handy for these opportunities?

26:49Yeah. So what we teach people is whatever your paycheck is, we'll use some nice round numbers here. Let's say you put$1 ,000 into your broker per month. Doesn't mean you invest$1 ,000. What we tell people is 50 % should be DCA, dollar cost average, 50 % DCA and 50 % kept in cash. The reason I like to keep my cash in the broker is there are times when you move money. Let's say you get a big pullback today and you got to move money from your bank to your broker. Sometimes it's instantaneous, but other times it can take a few days and the market can go back up and you miss your opportunity. So you want that free cash sitting as close to the stocks as possible.

27:34So that's what we tell people. 50 % DCA, 50 % stockpile, it's called. and then when the market pulls back, you've got all this cash ready because you're going to make your biggest returns. And there are things to fill town in these case studies. If you get one or two stockpiling events in your life, like a big one, like I knew a plumber in 08 that took 100 grand and turned it into 2.5 million in about a year and a half. The reason he went into Ford because they're the only company that did not take the bailout because they had a strong enough balance sheet. He was listening to Warren Buffett's teachings.

28:10And he admits today going all in on one stock was pretty speculative, but he was following the logic. But yeah, he was done working in his younger 30s because of one stockpiling event. That was it. 100 grand into 2.5 million. Yeah, yeah. So talk to me then about the current market where we're seeing very, very different sentiments, I suppose, is the way of wording that. We've got pre-revenue stocks at$20 billion valuations. We've got short squeezes like Opendoor. Companies are adding trillions of dollars to their market caps in the space of a few months. And even private companies like OpenAI are having huge influence on stocks.

28:54Big, big stocks like Oracle, AMD. all of this is happening. To me personally, it feels quite frothy. And there's almost an acceptance of, oh, we're in a bubble. But is it 1996 or is it 1999? What are your thoughts on the current market? No fears right now, to be honest. I think the market's going to continue the way it is. Based on, again, those last 100 years and 17 bear markets, if we see little blips, there's got to be a reason for it. So we got desensitized to the Trump tariff wars. We saw what I have a blog post on this. There was Trump tariff war one, which was between 2017 and 18. And then two was this last year.

29:37Like if he says anything about tariffs, again, the market's going to keep rising. It's not going to pull back. So that's not it. Inflation is at a good spot. What are in the US? We're at like, I think 2.95. I checked yesterday. And if you can be between two and three, that's really good. So inflation is where it's at. Interest rates on homes are coming down. I think it's like six point something. It's not ideal, but it's moving in the right direction. All the levers being pulled in the right direction. Like we're in a really good spot. Now with businesses, you make a good point. There are businesses that are speculative.

30:10They're taken off like a rocket. Fortunately, and this is why I created Ticker, is I needed to cut through the clutter so So I don't buy these highly speculative businesses that sure, they can make me a ton of money in the short term, but they're just too risky for the long term. So as long as I'm using ticker, I know my portfolio is going to continue doing very well. Like right now, even if people are calling it frothy and there are news outlets in the States that will say every year, they've literally said this since 2008, that this is the year there's going to be a crash. This is the year there's going to be a crash.