Quality in the Streets, Momentum in the Sheets

16:59Downtown Josh Brown:Yeah. Tons of it. um we asked the question how is it possible that a company could have this many shareholders and not be public right and i think it's they are going to have to come public sooner rather than later because i think at a certain point we're going to see an exhaustion in the trust that we have that everything is fine with all these relationships and all this spending does part of this though remind you of like when facebook was on the runway to go public and they hadn't yet built a mobile app. There was so much doubt about the valuation, which now today seems quaint. But I think it was a$40 billion valuation.

17:35Downtown Josh Brown:People were fainting. And so some of this is reminiscent of that for me. And it's 12, 13 years later. But I do hear some of the skepticism as almost like schadenfreude or jealousy. It's not all legitimate skepticism, at least from where I it. You agree with that at all? I agree with that. And I think we have to learn more about Sam Altman. Is he an Elon Musk type figure? What is his contribution ultimately going to be? How is he going to deliver? Is he going to be able to achieve AGI, which is what this is really all about at this point, which I'm not necessarily sure I'm excited about him achieving?

18:22Artificial general intelligence because it basically means anything that I can do, okay, they could do with the technology. I'm not so sure that's good for us. But I think it's more we need to learn more and more about him. I wish they were public. It would be easier for us to have this conversation if they were public. And I think the longer they are not public, I think that has a little bit of a negative effect because I think we're exhausted at this point. I mean, how many more deals can you hear from OpenAI? I think the market's exhausted with that.

18:48Downtown Josh Brown:If a company comes public at a trillion valuation, the dollars to invest in that company do have to come from somewhere. Does that come from the market caps of the MAG7 stocks as people rebalance and the indexes have to reconstitute? Yes. So it's not necessarily a positive catalyst for the NASDAQ or large cap tech when this trillion dollar meteor does finally make contact with earth. No, it's probably the greatest example of sell the news.

19:17Michael Batnick:Joe, you're right. I think the market is, I just, there was an announcement earlier before we got here. OpenAI did a deal with Lububu.

19:23Downtown Josh Brown:Thank God.

19:24Michael Batnick:Wait, hold on. So I saw a take today that I think you'll like. I'm thinking about like being humble in the face of all of these unknowns that these market caps are swinging around hundreds of billions of dollars over the course of a couple of sessions. Like obviously as it relates to our clients and how we're thinking about it, a little humility is appropriate. No, absolutely. And you know, listen, on the other side of it, the bullish premise, which I maintain over the long term, is you haven't even really seen the ability of AI to improve the environment in the healthcare industry. Think about it.

20:01Have you seen technology, artificial intelligence being used in healthcare to the degree it's been used in other industries? No, you have not. And I think that's going to be a very powerful force, a very powerful tailwind for markets.

20:16Downtown Josh Brown:Some of the commentary about the healthcare rally, which has gotten a lot of attention over the last day or two, is that these are companies where the highest cost that they have is paying really fancy people with advanced degrees to do years and years and years worth of research only to discover that a compound that they're looking at is actually not going to lead to a commercial drug. And it's almost like lighting money on fire. If these companies start coming out and saying, we're cutting down the time to something as simple as investigating a compound or drug discovery from three years to one year, the ramifications for earnings expectations is pretty obvious.

20:58Downtown Josh Brown:And that's just like one very small example.

21:00Michael Batnick:Yeah. What do you say that – or maybe you wouldn't. It's hard to get too bearish when there is such healthy rotation under the surface. As much as the speculative stocks, all the quantum computer names are getting absolutely smushed. Money coming into healthcare, money coming into energy, money coming into financials, rotating out of tech, does that scare you? No, you're in a secular bull market that is at a moment, and you're stepping into a midterm election. We're going to talk about that a little bit later. But you say to yourself, all right, how do you identify the foundation of what the secular bull market is, right?

21:35You look at global – it's interesting because everyone looks at the Federal Reserve. It's global central banks. Right now, over 80 % of global central banks, their last policy action was a rate cut. Why is that important? Because as long as that figure sustains above 50%, if you look through the course of history, you have positive return. That's first of all. Second of all, one year ago, everyone said inflation was a global problem. No, it isn't. It's a US problem. Go look at the inflation readings in Europe. You've got two handles on it. India is 1.5%. China is negative three-tenths of a percent.

22:12Asia, you have one handles on it. Inflation is a problem here. And now you're coming off of four consecutive quarters of double-digit earnings growth. That's something we haven't done in several years. And the expectation looking forward into 26, and you could say, OK, maybe the estimates are a little bit too optimistic, is for a further double-digit earnings growth. So you have this confluence of factors that have been really positive. And then you have the fiscal policy. It's interesting because everyone likes to play an economist. Okay, you want to be an economist? Tell me what statistically you could model about the regulatory relief.

22:50How do you think about that?

22:51Downtown Josh Brown:The regulatory. Deregulation. So it's more of a vibe than it is a data series. It's a fuel thing. It's sentiment in the C-suite. It improves the sentiment in the C-suite. But think about this one second. In President Trump's first administration, there was something called a two-for-one order. Does everyone know what that is? It basically says, if you want to eliminate, if you want to introduce one existing, you want to introduce a regulation, you have to repeal two existing regulations. Okay, President Trump comes in. What does President Trump do? What he normally does? He says, let's make it 10 to 1.

23:28Where does he come up with that number? Who knows? Okay, but now you have to repeal 10 regulations, right, based on just introducing one. Then you have all these things that are contributing, whether it's qualified business deductions, right, the salt cap being raised to$40 ,000. It's just hard to statistically measure the effect on that. To Josh's point, it really is just a reflection of confidence.

23:53Downtown Josh Brown:I think it's a sentiment and a confidence thing. And one of the interesting things we were talking about on the air today, the Dow is now outperforming the S &P 500 on a very short-term basis. But you look under the hood, why is that happening? The second best Dow stock this year is Goldman Sachs. I forget how much it's up, but it's up way more than the overall market. And then the best-performing S &P 500 name is Robinhood. I don't know what the quantified effect, to your point, is of deregulation on Goldman. I'm sure it's a lot. I certainly don't know what it is on Robinhood Robinhood never acted as if there were regulations to begin with but that's these two stocks to me are very emblematic of this moment if you want to do something you pretty much do it in financial services you want to get into a line of business you've never been in go for it you want to do M &A you can do that too you want to bring things public no problem plenty of appetite these companies are making a lot of money and multiples are expanding in financial stocks as a result of that vibe that we can't quite capture with a number.

24:59In addition to that, you also have the positive effect, which we don't really talk about. But when President Trump was preparing to take the oath of office, the price of oil was above$80. $60? $58. $58. $58,$60, somewhere around there. $6,$7. $6,$7. Don't be there. And embedded in that is in the month of June, we had a military conflict. between Israel, the US, and Iran. So think about that for a second. You've got lower energy. And then the last thing, which is incredible, which a lot of people tend to ignore unless you talk to the fixed income traders, is how calm the volatility is in the bond market.

25:38What do you think the range is so far? Tight. In 10-year treasury? 20 basis points. Okay. So in 2022, it was 285 basis points was the range.

25:49Michael Batnick:All right. What is it? What is it now? 95 basis points. So that's an incredible environment, okay, if you think about transacting and be able to have the availability of credit to be able to plan in the C-suite again. So there's these conditions that are in place that are really good. I love the conditions right now. I think the conversation that we're having is so consensus. On any show, it's a lot of doubt. It's a lot of disbelief. It's a lot of negativity around private credit and valuations and the sustainability of the bull market. It's year three of this. I love all that. There's so much doubt.

26:25Michael Batnick:And yet the Fed is easing. Listen to Satya or any of the other major CEOs. They're all, all the way in, all the way in. Earnings are at an all-time high. So are expectations, obviously. Margins are at an all-time high. Investors are dying, dying to buy any dip, a 3 % dip they run face first in. And yet like the people like us, there's just a lot of doubt out there. And I think it sets us

26:50Downtown Josh Brown:up very nicely there's not euphoria what yeah that's a good point but what the reasons for that doubt um keep shifting is the other interesting thing people that were skeptical six months ago were skeptical for reason a reason a turned out not to matter that much so then they shift to reason b but they remain skeptical and i ask myself like what is the reason why they always have to find a reason to be worried and i think there's just something about human nature where things are good for a really long time, the mind gets really busy inventing ways that it's going to end badly.

27:24Michael Batnick:100%. People have been waiting for the shoe to drop for 10 years. Yeah. You know what's interesting? Why do you think the most successful people are the ones, as they grow older, that get the most bearish? Because they have the most to lose by that point. And life is better when you're young. I mean, you're just, obviously. And also, but the older people, the older people have seen...

27:44Downtown Josh Brown:I feel like he's talking shit about us. I've seen how - My life is better now than it was when I was your age.

27:50Michael Batnick:How damaging drawdowns are.

27:52Downtown Josh Brown:Yeah.

27:52Michael Batnick:Psychologically, financially.

27:54Downtown Josh Brown:In dollar terms, if you tell a 27-year-old, danger ahead, Michael Burry just posted a selfie. All right. Telling a 27-year-old who maybe has like$38 ,000 in their 401k and then another 20 grand bar mitzvah money that they're trading on an app. It's like, all right, what do you want me to do? what do you mean danger ahead 20 correction burry says definitely dr burry excuse me um the 27 year old's like all right so what will be will be you see that somebody with five million dollars in equities all they can picture is i'm about to lose a million dollars expenses kids grandkids right and more responsibilities not only more dollars at risk but more responsibilities i think it's more than that though i think it's the voices in our industry for what we do okay whether it's on cnbc a business platform it's just us there's no recording equipment here but but but you'll see that you know the billionaire crowd come on air and say oh you know this this looks this looks heavy to us this looks like market needs to roll over i think it's a little bit more than that what's interesting is if you know you know what i call that crowd the family the family office crowd you're right for sir you have a family office are you here as a public service announcement to warn all the welders and fishermen about these visions that plague you in the evening?

29:17Downtown Josh Brown:What is the motivation to be worth$2 billion and feel the need to come on TV once a month to scare the shit out of everyone? I'll never understand it. You will never hear from me. I don't get it. And the other side of it is the engagement has never been higher. People are interested in the market and they're engaged in the market. And you talk to the younger generation. So I have three children. One is 20. One is 19. And then my daughter is about to be 17 years old. These kids are interested in the market in a way when I was that age. I wasn't thinking about it the way they are. The younger generation, the younger generation, they're bullish.

29:55Maybe it's because markets have gone up during their lifetime. I don't know. But it's good to be bullish because I will tell you this, okay? Short-term pessimism will fail all the time against long-term optimism. Long-term optimism always wins. If your kids are too bullish, have them hang out with Jeremy Grantham for an afternoon.

30:18Downtown Josh Brown:See if they want to take Jeremy Grantham to the zoo. All right. Are we doing any of these charts or am I just holding this as a paperweight?

30:26Michael Batnick:You can do whatever you want. Where do you want to go? So one interesting dynamic that occurred last week. the market cap weighted index has been outperforming the equal cap weighted index for like literally a decade. Every day, the ratio, depending on what's on top on bottom, it goes lower and lower and lower and lower. And last week, the bandaid was stretched and it snapped. There was a four-day period where the cap weighted index outperformed the equal weight by 3.6%, which over a four-day period, that's only happened two other times. It happened in October 2008, and it happened in June 2020.

31:10Michael Batnick:And the other two times, I know it's a sample size of three, but bear with me. I'll get to the point in a second. The other two times, both of the baskets were moving in lockstep. This time, the S &P had been outperforming by so much, and then it just broke. it crashed from an already stretched position. And not maybe, that was a short-term top in the all-in on the AI trade that we're seeing unwind over the past couple of sessions. Do you think that this is a story about strength

31:39Downtown Josh Brown:in the other sectors where the equal weight would pick that up? Or is it a story about just sudden weakness in that mega cap basket? Or is it really truly a combination of both things at the same time? I think it's a confluence of all factors, but I think we're in a room full of financial advisors. What does that mean to you? What's a benchmark? Benchmarks are gone. Tell me, what's the benchmark in the last couple of years? Right. Is there anything legitimate about the S &P 500 benchmark at this point, knowing that it's 40 % five stocks?

32:12Michael Batnick:I mean, clients are benchmarking you to Apple and NVIDIA and Amazon.

32:15Downtown Josh Brown:Okay, but you're managing a portfolio. Is that fair? No, of course not. It's not meant to be fair, would be my comment. You can't tell somebody what not to compare you to. You can strongly – So therefore, you're supposed to concentrate. No. That's not the takeaway. But you can tell – You know what our friend Stephen Weiss told me on air. I love Stephen. Okay. You know what he told me? Do you love him though? I do. All right. He's lovable. He told me that diversification is the enemy of performance. Come on. Sort of right if you're trying to become a billionaire. Sort of right. No. If you want a family office.

32:52Downtown Josh Brown:Yeah. Okay. I guess I would say the takeaway is not, therefore, try to race the S &P 500 with like 15 % Apple and 30 % NVIDIA positions. I would say the takeaway is as a financial advisor, not as an investor. As an advisor, you can strongly suggest to people, no, actually, the benchmark is 60-40. Or no, it's actually MSCI, All Country World Index, and then ACWI and all these things. But like they don't look at that. It's not in their Yahoo Finance page and it's not in their Apple stocks app. So they're going to default to like the big five stocks that they know really well and probably own. And they're going to default to the S &P.

33:35Downtown Josh Brown:So the greater task that we have in front of us as people who are responsible for the money that other people give us is to just say, I'm willing to take the abuse. You call me up right now and complain, how come I don't have more NVIDIA? I can't talk you out of looking at NVIDIA And judging whatever stocks I bought for you Including NVIDIA I can't stop you But what I can tell you is Give it to me as hard as you can I'm going to give it back to you though So we had people ask us Why on earth would I ever own international stocks Every year for 10 years Nobody's asking that this year International stocks doing better than US This is just the nature of the business that we've chosen And there's not really a great answer other than go ahead, say whatever you want to say to me.

34:20Downtown Josh Brown:I know I'll be right in the long term. In the short term, I'm willing to take the shit that you want to give me. What's comical about 2025 is actually you can diversify in a much better mannerism than you could in the last several years. You just said international stocks are working. Look at taxable fixed income, investment grade, high yield, both up 7%. Gold, Korea. But just go to the traditional places. Emerging market debt's up 7%. Municipal bonds have snapped back. They're up 4%. You have various different places that you can go that the last several years you could not have. And even if you look at the sectors, the 11 sectors of the S &P, as long as you stayed high up in the equity size class, mid caps and large caps, you could find opportunities.

35:08The Fin 5, they just keep making all-time highs.

35:12Downtown Josh Brown:What is that? J.P. Morgan, Bank of America. Keep going. Morgan Stanley. Long as the Goldman Sachs city. There you go. Fin five.

35:19Michael Batnick:So outside of the mag seven, which is what we spend all our time talking about. So we're wrapping up Q3 earnings season. And we've got in the 493, this is wisdom tree, 11.8 % earnings growth. 11.8%. It's pretty damn good. Pretty good. And it's also supports the premise, which people have, the bears have said, well, this is all multiple expansion. It's, it's not. Not true. Not true at all. So Tony Pasquarello, good friend of ours who is over at Goldman Sachs, he puts a note out and he says going back to the great financial crisis, the NASDAQ is up like 2 ,200%. How much of that is attributable to multiple expansion?

36:04What would be your guess?

36:07Michael Batnick:A fifth. A fifth? What would you say? A fourth. 16%. 16%.

36:14Downtown Josh Brown:So was that closer than Michael? No, you're wrong. You can't do math. It's earnings growth, it's earnings growth, and it's dividends. So it supports, okay, it supports the price appreciation. And that's what's going on right now when you read the 493 is up 11%. It's not multiple expansion.

36:31Michael Batnick:All right, so Joe, two times ago you were on our show. You were in the studio. It was, I guess, however many years ago we were talking about midterm elections and how strong the results are. So since World War II began, there have been 21 midterm election years in the United States. We've got 21 consecutive positive performances, 21 for 21. We've got 14 double-digit positive performances, only two occurrences with positive performance less than 5%. Why do you think that is?

37:05Downtown Josh Brown:Wait, positive performance like how long after the midterm or just in that calendar year? In the following year. June to June. No, no, no. Next year. No. No, no, no. No. Wrong. November 3rd, 2026 is the next midterm election date. If you buy the market on the date of the midterm election, November 3rd, 2026, you sell it out June 30th of the following year, you're undefeated. You're 21. That's a nine-month stretch immediately following election day, inclusive of election day.

37:35Michael Batnick:That's pretty good. Is this your new ETF? So what do you do? No, but I'll tell you something in 2022. So what do you do with that information? So it's interesting. Long as shit. Leverage. No, I'm going to tell you. I really don't care if they're watching. It's fine. So in 2022, I was doing a lot of advisor events in the various wire houses, and I did something at Morgan Stanley. And at that time, Mike Wilson, who doesn't come on our shows anymore but goes on CNBC. you know first of all i don't understand why people have price targets you can't tell me you know where the market's going it's for the content like that's it 12 months from now you have no idea where the market's going all you could do is set an expectation and define the environment so in 2022 everyone's got all these real bearish you know we're going back to the covid low we're going 3400 all these different price targets and really what you should be doing is just setting the expectation and telling the client, all right, this is going to be a little bit more of a prolonged process because the Federal Reserve is aggressively raising rates.

38:44And you just understand time is the enemy and you want to use patience as your ally. Why did I say that in 2022? Because I'm looking at these midterm election statistics and I'm saying to myself, well, guess what? November is coming. And I know I'm at that point 20 for 20. so I'm going to rely on these statistics and the market's down 19 % at this point. I'm willing to take that shot, okay? And that shot actually worked and I think this helps you understand in 26 if there's a moment where markets are down, okay. Based on the environment we've described in the tailwinds, I think it's an opportunity.

39:21Surely you can't be serious.

39:22Downtown Josh Brown:Can you think of anything else that's 20 for 20 though?

39:26Michael Batnick:21 for 21.

39:27Downtown Josh Brown:Like in other words, the only other thing that I could have thought of and now it's invalidated was when they were looking at inverse credit spreads, like guaranteed recession. We have 13 occurrences. Well, now we have 14 occurrences and it didn't work. There were so few things that - But that at least had an economic rationale.

39:46Michael Batnick:What is the rationale for this? Why does it work? Astrology. Listen, the most recent table is on Virtus Investment Partners' website. I put it out on my social media. and you could see we put, you know, who gained control of Senate, who maintained the majority in Congress. I'll let all of you figure out the reasoning. I have no idea. That's not what I do. I don't get involved in the feelings behind things. I just look at the facts. But I'm going to say this to you. So you say, where else does this stuff work? Everywhere. That's why Jane Street makes$20 billion in a year. That's why Citadel makes the money that they make, because they identify, whether it's a small period of time.

40:29Michael Batnick:They don't ask why. No, they don't ask why. They identify these factors in the market that they know they have an edge in, and they exist. They exist. And I think through the course of time with artificial intelligence, they're going to be traditionalized and available to all of you and the retail community, where for the last several years, they've been kind of behind the wall, and only the Jane Streets and the Citadels and the Virtu Financials can actually profit from it.

40:58Downtown Josh Brown:So funny because if you go on ChatGPT now and say, what's the best day of the year to buy stocks? It'll actually say that I can't give financial advice. So you say, or I did this, just out of curiosity, will not use this financial advice. And it says, is there anything else you'd like to ask? so now i described myself to chat gpt as a financial advisor already so maybe it won't work for me but it'll work for someone else you told me to introduce myself to the computer it was very weird you must introduce yourself to the llm well you have to tell it who you are so it gives you contextual answers so i did that and now it won't give me any answers are you nice are you kind of somebody used them for financial advice are you like rude to the computer i say thank you when it gets things right and i tell it how i feel when it makes mistakes and i think it appreciates the feedback the last point is i think there's i think there's intuitive observations that we all have i certainly growing up in the business in my prior life when i worked with mark fisher at 75 traders underneath me and i would study their performance and trying you know to understand well in what circumstances did they have the ability to profit in what circumstances that they put themselves in a position where they were going to lose money.

42:18Those are intuitive observations that because of technology over the coming years, we're going to be able to better understand the circumstances in which you're able to profit and which you need to play defense.

42:30Michael Batnick:Let's see how the market closed. Oh, my God. Oh, my God. Nobody look. I'm just kidding. Not so bad. All right. John, let's talk about Jote. So you've been running this ETF for how many years now? So the rules, the rules have been affected in the ETF for the last five years, and the rules are the most important thing. I think rules-based strategies are really critical for all of you over the next several years. I think that discretionary strategies in the equity world, boy, they're going to have a really, really tough time.

43:09Downtown Josh Brown:Can I ask you about the taxonomy before you tell us why that's the case? When people – are you distracted by something? No, I'm just – Josh, I'm going to be close. What's the VIX? I don't know if you know. Like, we're doing a podcast. No, this is my Bloomberg because what Michael said, where's the market? What's the first thing I'm looking at? Where's the VIX, Michael? You worried? You're troubled? Where's the VIX? 20? 20? 20. 20. All right. Okay. Are you active? If somebody says – Like, physically? You're rules-based. You're non-discretionary. But that doesn't mean you make no decisions during the course of the year because things do happen.

43:45Downtown Josh Brown:But you're also not on a daily basis waking up and saying, what should I buy today? Let me check. Motley Fool. Dude, this isn't NAMM. There are rules. There are rules. But how do you describe – if somebody asks you point blank, are you an actively managed ETF? The answer is no. The answer is no. So I think we're active in the sense of we're rebalancing and reconstituting more frequently. So there's movement in the portfolio throughout the course of the year based on the rules. Yes. But you're not active in the sense that you're not listening to conference calls and searching for alpha.

44:17Michael Batnick:Wait, hang on. If he's not active, then what is he's not hyperactive? No, I don't. I don't know.

44:21Downtown Josh Brown:It's an interesting question because he so most of the biggest active ETFs are personality driven. We can agree on that. Dan Ives, Tom Lee, Kathy Wood, Katie Stockton. And you have a, I wouldn't call yours personality driven, but you are a big personality. You're famous. People know you, but you're rules-based. Sets you apart from what the others that I just listed are doing. And I find that interesting. So ultimately, what I'm trying to deliver in the product is different than what they are. Right. So I'm a believer in, I want to give all of you a core equity holding for your portfolio. So over the course of time, what does that mean?

45:02That means that you should look at the product and see how it's performed, and it should be middle of the fairway. So in a market that's a risk-on, go-go market, okay, maybe we're not performing as well. But when markets go through periods of turmoil, and we've been tested by four of those periods over the last five years, we should be, because of the confluence of factors, quality, momentum, equal weighting and using growth to define quality, we should be acting as a shock absorber in those environments. And if you look at the returns, I'll let you guys do the homework, but I'm satisfied that we've delivered in that regard.

45:43So I look at it as a core equity holding, and I also look at it as our ability to rebalance and reconstitute on a quarterly basis is critically important to us. Do you like the rents?

45:55Downtown Josh Brown:you would like I feel like if you were running a rules based strategy and the market went through like a moment of turmoil and all these like high beta stocks that you were looking at every day and you were saying like there's a lot of risk here if they all got rinsed out on a reconstitution you would probably look at it like this is healthy this is the whole point of being rules based

46:18Michael Batnick:big rinse guy you like the rinse I think I sort of do also

46:22Downtown Josh Brown:how do you feel about the rinse So like meaning you have this portfolio, how many names on average? Get rid of them. 125 names. 125 names. From a universe of 500 we start. Okay, 10 % correction, the highest beta names that you have getting hit the hardest based on the rules that are all getting removed. You're a trader, so I know you like that process. Of course I like that process. Now, if you were doing it outside of an ETF, that's really uncomfortable. One of the reasons the ETF wrapper for these types of rules-based strategies is so helpful, if you're having people do this with tickers, you're basically telling people like, yeah, you're down 28 % in this since you bought it and you're selling it anyway.

47:02Downtown Josh Brown:That's really hard to do, especially if they have some familiarity with the actual names. Can't do it. You're fired. You can't do it, right? Okay. So here's the way I think about that. I said before I think benchmarks have been obliterated. I think what's more important is that you capture the personality of the market. The market always has a personality. Sometimes the market's happy. Sometimes the market's angry. Bashful. Whatever. However you want it. But there's a personality to it. So here's a great example of this. So in 2022, as we get towards the end of the year, all the 13F filings come out.

47:35And it's hard to even remember this. But what is everyone doing with the MAG-7? They're selling out of them. The fourth quarter of 22, everyone's getting out of the MAG-7. So the strategy has its first opportunity rebalance in January of 2023. Where's Bill Smalley? There he is. Okay. Seth, Matt Brown, right? So we do shout outs at the end usually. So these are all my partners on what we're doing, Vertice ETFs. And we all see the same thing. January of 23, what's going to happen? Let's pick one name. We're selling NVIDIA in January of 23. And it's already down how much? Oh, my God. So at that point, it's trading like 50 percent.

48:17No, it's trading like 24, 25. Okay. Twenty four dollars or twenty five dollars after the split after the split. Okay. So we sell it. All right. We're going to rebalance again. When? When's our next chance to do something in NVIDIA? April. Okay. Where's the stock?

48:36Michael Batnick:Higher. No. Twenty seven. Twenty eight. If I'm sitting there and I have my trader hat on from when I was back. I can't buy this thing back. at 27 i just told it at 24 no way i'm not buying it back what do the rules do goes in and buys nvidia that's the benefit of a rules-based strategy but not just the human

48:57Downtown Josh Brown:emotion but rules based in a wrapper where the outside observer isn't staring at the ticker symbol with a buy or sell decision back in right back back back in because you have to and i'm sure we were back in ahead of the hedge funds who got out in December and been in ever since. One of the hardest things in the world is to sell out of a stock with a loss and then rebuy it higher. But if you have rules that force you to do it and you could do it in a wrapper so that the individual person on the other end doesn't even notice when you're doing it, you don't have answer questions no okay let me let me give you one more example if i could let me ask michael michael palantir how many times have you have sold it in the last 18 months i can't ride a 10 beggar like if i if i get a double i'm out so okay i need rules so we scan a universe of the 500 largest u.s companies by market cap and in january of 24 palantir qualified wasn't in the sap at this point because we're not scanning the S &P.

50:09So the strategy takes a position in Palantir at$16, and I believe it was 76 cents. We know where Palantir is today. Even after the sell-off, it's what, 175? It was up to 200? I am telling you, 100%, I would have sold the stock if I had discretion six times over. I would have found six different times to sell that stock. The strategy, the discipline.

50:33Downtown Josh Brown:Not even based on anything. You'd be like, 16, it's at 50. Bring the register. Because it's like the quote-unquote responsible thing to do. And then it 3Xs from there. Sell it again. We already sold it. There's three words. We used to laugh about this. There's three words that my traders would all say the same thing. And I lived through, as you did, 99. So the best thing in 99, here's a great story. So we have the currency crisis in August of 98. price oil gets obliterated mark comes running out of his office right calls me in we're gonna start trading equities we're not commodities traders so now would everyone's trading equities and we're doing really well we're trading equities right but everyone's just sitting there staring at the screen and there's three words that i always would hear as markets would go up to an extreme level or go down this is ridiculous and that was the reason you're selling it six times over because this is ridiculous and that's just an observation nothing else but it's pure feelings so i know it's not easy for everyone in the room to see the screens um i can't okay joe can't see them do you want to just walk through a couple of these concepts it's his stuff all right so joe i want to have you explain um just briefly on each one so we can get through a few why these things are important not just to you or to Joe T, but just as investing concepts.

51:59Downtown Josh Brown:John, are you in control of this?

52:01Michael Batnick:So, John, this is your chart. We're looking at the rolling batting averages over various time periods, 1, 3, 5, and 10, for quality, low volume, momentum. And you mentioned earlier, quality has gotten the shit kicked out of it over the past 12 months relative to anything. But there are other factors. It's not just one thing. So talk about diversification of factors and why that's important to your strategy. So I believe this chart has seven different factors, and the strength in those seven different factors is clearly reflected in quality. And I think quality over the course of time wins out.

52:34What's interesting is if you think about markets over a long period of time that may be correcting, generally what you will find is that a lot of the stocks that you could define as momentum ultimately become quality. So I'm pretty sure that if we see a significant correction, you're going to call Apple and Nvidia and stocks like that quality. So quality is always the leading factor that, to me, you don't want to turn away from. I think the trick is how do you define quality? And when the rules were being written for the investment strategy, we looked at quality and we had an intensive conversation.

53:14I still remember it being in a conference room with Bill and Seth and Matt. And we said, okay, the street looks at quality a certain way. But you know what? That leads to some value traps, the way they look at quality.

53:26Downtown Josh Brown:The street is looking at balance sheet strength and, I guess, the consistency of earnings. It's return on equity traditionally. So what we said, okay, we agree with is return on equity and debt to equity. What are those two critical metrics that are, to your point, Joshua, reflections, balance sheet. But we wanted to include growth in there because it's just my view that the markets are more and more growth and they continue to move in that direction. So what we did with the third crisis - Sorry, obvious to everyone now, not as obvious five years ago. Correct. But that's how things have played out.

54:01So we said, okay, we're going to have three critical components to define our quality, return on equity, debt to equity, and let's look at revenue growth. But let's look at revenue growth over a three-year period to make sure that you're reliable and your revenue growth is sustainable. It's not like Zoom or Peloton. Well, I believe Zoom is actually in right now. It's in the strategy.

54:28Downtown Josh Brown:Also in my SEP IRA. So let's all be nice.

54:31Michael Batnick:I meant like COVID Zoom, where you get this big spike and it's a pharma. Unsustainable revenue growth. Excellent point. Let's see what you've done over a three-year period. That's really important. So that combination is how we define quality. And if you look on that chart, you'll see what growth has done. Growth, quality, momentum. These are all the strongest factors of the seven factors that we're looking at over a period of time. So I think it benefits from having each of these factors because, look, I look at it as the formulation of a team. What do I mean by that? That means that at certain times, if you are following a sports team, you can expect that continually the strength of performance is going to come from one or two individuals.

55:22If you're going to build a championship team, one or two individuals are going to contribute. And then every so often when they step back, someone else is going to step forward. That's how you win a championship, right? And it's the equivalency to a core equity holding. Sometimes momentum isn't going to be there for you. what quality is. Or sometimes quality is not going to be there, but growth is going to be there, or being equally weighted is going to be there. So that's how I kind of think about it.

55:48Downtown Josh Brown:And what you sacrifice is in certain market environments, somebody that doesn't know anything would just look at the highest bar and say, why aren't you just 100 % momentum? Right. Because they don't understand that give and take and what it's like to go through a six-month period where the factor you're most heavily weighted toward is the worst factor, which can happen to anyone, any strategy. What's interesting too, is I think people look at it and because I'm on CNBC, people always say, well, you're underperforming the S &P. Okay. We're equally weighted. And we went to 2023. How did you do in 2023?

56:22If you own four stocks, you did really well, but for the rest of us, no, we didn't.

56:26Michael Batnick:So Joe, one of the most impressive things that you've done, and this is real live performance, momentum, which has been an incredible factor, it is prone to crashes, when it unwinds, it goes hard and fast. You have a track record of live performance where in the bear market of 2022, two slides forward, please, John, in the bear market of 2022, which is really painful, a lot of whipsaws, you significantly helped on the drawdown, which is really difficult. There we go. Perfect. I mean, this is impressive. This is real performance. So in 22, it was equal weighting and quality that lent itself while momentum and growth took a backseat.

57:04Downtown Josh Brown:What's interesting is as this decline begins, you're sort of neck and neck with the markets, which is normal because you're fully invested in your equities at the end of the day. It's not until that downturn lengthens and goes on a little bit longer that all of a sudden that quality tilt, if you will, starts to shine. But like it takes a minute. But think if you could. But then ultimately, that's what wins out. And that's how you survive till the next bull run is not taking the knockout punch. Not taking the knockout punch, but also what I said earlier, I really believe. And it's, okay, you're on CNBC.

57:48Your benchmark is the CNBC, is the S &P. No. So if you look at that, do you think that the strategy properly captured the personality of the market through the course of time? Your personality. Absolutely. I think it absolutely captured the personality of the market in each one of those instances. And that's what we're trying to do. Because if you capture the personality of the market, in the most recent rebalance, increase the weight into health care.

58:13Michael Batnick:So right now you're like - One month later, you're seeing that's actually strategically the right move to be making. You're Sidney Sweeney right now. I am? Yeah, that's your personality, your portfolio. Impossible. Impossible.

58:25Downtown Josh Brown:That's a good place to end. What? Guys, round of applause for Joe Terranova, please.

58:35Downtown Josh Brown:How about Michael Batnick? Let's hear it.

58:41Downtown Josh Brown:I would really love a round of applause for our host, the folks at Virtus. Please give them a round of applause.

58:50Downtown Josh Brown:last but definitely not least the people who make what we do possible each day Nicole, John, Duncan and Daniel are here they do an incredible job making sure this all goes smoothly, please guys round of applause for my crew

59:08Downtown Josh Brown:almost done are you leaving? you have to go to the bathroom we always end the show asking people to let us know something that they're looking forward to. And I have a feeling I know what Michael's looking forward to. What are we looking forward to, Michael? I don't know. Antsy, should we all stand? All right. More prediction markets.

59:31Michael Batnick:What are you looking forward to? I'm looking forward to taking my kids to Disney again in December.

59:36Downtown Josh Brown:Florida?

59:36Michael Batnick:Florida.

59:37Downtown Josh Brown:All right. Very cool. Very cool. Round of applause for Disney. Yes. Do we have any Disney adults in the room? Okay. We will identify you later.

59:46Michael Batnick:Wait a second. Hold on. How old are the... Six and eight. Six and eight. Okay. I think it's my last time with them, right? Before it gets weird.

59:53Downtown Josh Brown:Then you do Universal Islands of Adventure after. And that's pretty dope. I think I took the kids five times to Disney before they were 12. I asked them recently their memories, and they looked at me with a blank stare.

1:00:10Never did anything for me, daddy. All right. Joe, what are you looking forward to? there's so many different things what am I looking forward to first of all the kids just to see where they go right where they go so Tucker who worked with all of you right Nicole shout for

1:00:30Downtown Josh Brown:Tucker Terranova round of applause for Tucker he was our media intern one summer so out of nowhere Bridgeport Sound Tigers minor league hockey team for the New York Islanders and he says to me, I need you to turn on the radio broadcast. I turn on the radio broadcast. I'm like, that's Tucker. What's he doing on there? He's doing the color commentary for the Bridgeport Sound Tigers for the hockey games. Doing phenomenal. Then we have Tanner playing junior hockey up in Danbury. And then the boss of the family is just trying to get reservations at the corner. Wherever Taylor Swift goes to eat, she wants to go.

1:01:08So it's the corner store. It's all those different places. So I want to see where the kids go. So that's important. Myself, professionally, I'm not stopping. Like, I'll be just keep going forever. And then next year, you got to join us. I'm looking forward to hanging with him on the golf course. We have a ton of fun. We're going to have a lot of fun.

1:01:26Downtown Josh Brown:That's my looking forward to. I learned to play golf this summer, partially from watching Joe and partially from watching the things that Joe doesn't do but should on the course. I'm terrible on the golf course. But that's my looking forward to is getting back out at the club with you next spring. Yeah, no, we're going to have fun. You guys should bring the show there. That'd be fun to do the show from the golf course. I have to actually learn how to play decently first, but I don't hate the idea. He hits the ball well. All right, guys, thank you so much for watching. Thank you for listening. Really appreciate it.

1:01:57Downtown Josh Brown:Sorry my back was turned to you the whole time. I didn't set the chairs up. Thank you guys for all the kind things you've said about the show. All your ratings, all your reviews goes very far. We love you back. Thanks again. Thank you.

1:02:17Thank you.

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