Friday, December 9, 2022
Home Blog Page 2

Episode 975

Steve Pomeranz, Market Call, COVID-19

Steve’s Market Commentary

What’s Eating Warren Buffett?

Remembering Wayne Huizenga: An American All-Star Entrepreneur: Part I

With Wayne Huizenga, Entrepreneur, Owner of Blockbuster Video, AutoNation, Waste Management, Inc., Miami Dolphins, Florida Panthers, & Florida Marlins

 

Remembering Wayne Huizenga: An American All-Star Entrepreneur: Part II

With Wayne Huizenga, Entrepreneur, Owner of Blockbuster Video, AutoNation, Waste Management, Inc., Miami Dolphins, Florida Panthers, & Florida Marlins

The New Normal For Buying A Home

With Terry Story, a 31-year veteran with Keller Williams located in Boca Raton, FL

Which States Are Being Hardest Hit By The
Coronavirus?

With Jill Gonzalez, Personal Finance guru and Spokesperson for WalletHub.com

Which States Are Being Hardest Hit By The Coronavirus?

Jill Gonzalez, Coronavirus

With Jill Gonzalez, Personal Finance guru and Spokesperson for WalletHub.com

Steve talked with Jill Gonzalez, personal finance guru and spokesperson for Wallethub.com, to learn how much greater the impact of the coronavirus is in some states than in others along with the specific ways in which the various states are affected.

Jill is an expert in personal finance and investing and Wallethub did extensive research to find out which states are the most shut down and suffering the heaviest from the coronavirus pandemic.

Which States Are Shut Down The Most?

Jill explained that Wallethub’s study looked at six different metrics showing the decrease in visits to various types of places due to the coronavirus. Categories that were measured included retail stores, recreation areas, grocery stores, and workplaces. States were graded on a scale of 0 to 100.

Steve informed listeners that the state experiencing the most severe coronavirus shutdown overall is Hawaii which has a score of 92. Jill attributes Hawaii’s high score primarily to the fact that the state is so heavily reliant on travel and tourism, two industries that have virtually ground to a standstill. She noted that one interesting finding of the study was that even trips to grocery stores have declined by approximately 60% in Hawaii.

Number two on the list of hardest-hit states is—not surprisingly—New York. According to Jill, “In New York, people are still going to places like grocery stores, but everything else is pretty much a no-go. New York has seen the largest decline in the retail and recreation industries, along with usage of public transportation.” She remarked that the huge drop-off in people using public transportation is really hard to fathom for a city like New York, where so many people traditionally use the subway system.

Jill believes that New York City is one area where some of the changes brought about by the coronavirus are likely to have lingering, permanent effects on how people work and live. For example, she expects that many people who have transitioned from working in an office to working at home will continue being telecommuters even when the “shelter in place” restrictions are lifted.

How Is Florida Doing?

When Steve specifically asked where Florida ranked, Jill replied that it came in as the 6th hardest-hit state. Like Hawaii, a lot of Florida’s economy is driven by the travel and tourism industries. She added that another reason for Florida’s high ranking is the large elderly population there. She said, “I think the elderly are trying to keep themselves safe, not really venturing out as much,” and she added, “Florida is an interesting case. We see reports on the news of very crowded beaches while at the same time a lot of elderly communities are really locking down.”

Steve expressed some skepticism about how widespread the use of the beaches is, reporting that in the South Florida area where he resides, all of the parks and beaches are still closed.

States Suffering The Least From The Coronavirus

So, which states are on the other end of the scale, the ones that are the least shut down? As of the first of May, the state that’s the least shut down is Nebraska, followed by Kansas, Arkansas, Kentucky, Iowa, Alabama, and Ohio. Jill summed the situation up by saying, “There are a lot of Midwestern and Southern states that are showing the lowest level of shutdown or economic slowdown. And some of those states are already starting to reopen, at least partially.”

Red States Versus Blue States

Steve ran down some of the analysis done by industry rather than just by state. He told listeners, “The states seeing the biggest hits to the retail industry and the recreation industry are—in order, starting with the worst-hit—New York, New Jersey, Michigan, Hawaii, and Montana. Among the states experiencing the biggest slowdown in the grocery store and pharmacy sectors are Hawaii, Vermont, and Florida.”

There’s a notable difference when you look at the impact of the virus in red states versus blue states. Jill stated that “There’s quite a large difference. Red states are slowing down considerably less than blue states, overall.” In fact, blue states are, on average, about twice as shut down as red states are.

When Steve asked what might account for such a large discrepancy, Jill offered priorities as a possible explanation. She said, “I think that in terms of states reopening, they’re either prioritizing the economy or prioritizing health, and I think a lot of the blue states are prioritizing health while a lot of the red states are prioritizing the economy.” She added that blue states, for example, New York, were among the states that were hit the earliest and the hardest by the coronavirus.

Biggest Increases In Unemployment

Steve next asked Jill which states are showing the biggest increases in unemployment. Between 20 and 30 million people nationwide have filed for unemployment just within the past few weeks.

The week that Wallethub did its research, Florida was showing the highest increase in the rate of unemployment. Jill tried to put the situation in perspective for listeners by saying, “Florida has seen about a 6000% increase in unemployment claims, in terms of now versus this time last year.”

Louisiana was in second place, right behind Florida. Again, you’re talking about two states that normally have thriving travel and tourism industries. Jill also pointed out that both states are usually hot spots for spring break vacations. Finally, she added that “Louisiana has been hit twofold because the other industry that’s huge there is the oil industry, which has taken a huge hit.”

Steve asked Jill if she could offer any insight into why states such as California and Massachusetts are on the low end of things as far as unemployment increases. She suggested that states that have a lot of technology companies are suffering less because the tech sector is still doing well. She also commented that “The other sector that Massachusetts is very well known for is healthcare, which is, for horrible reasons, booming right now.”

You can find a wealth of financial tips and advice from Jill and other financial analysts at Wallethub.com.

Disclosure: The opinions expressed are those of the interviewee and not necessarily of the radio show. Interviewee is not a representative of the radio show. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by the radio show.

Read The Entire Transcript Here

Steve Pomeranz: With many industries in the US ground to a halt because of social distancing restrictions, the personal finance website WalletHub today released its report on the state slowing down the most during the COVID-19 pandemic, and I also want to talk about the states with the biggest increases in unemployment. Joining me is Jill Gonzalez, spokesperson and financial analyst for wallethub.com. Welcome to the program, Jill.

Jill Gonzalez: Thanks for having me.

Steve Pomeranz: The pandemic has definitely replaced the hustle and bustle of everyday life. We’re discouraged or even legally prevented from going out except to essential errands or work. Some industries have suffered more than others obviously, but let’s first talk about the states, and you did a survey or you created some research which showed which states are shut down the most or slowing down the most. Can you go through that with us, please?

Jill Gonzalez: Yeah, to really see which states are slowing down the most because of the pandemic, we looked at six different metrics, and they’re essentially the increase or decrease, mostly decrease, in visits to various types of places due to the virus. So categories are like retail and recreation, drops in visits to those types of places, or grocery stores, parks, transit stations, workplaces. We’re really seeing where people are staying home the most essentially, and where things have just really come to a halt.

Steve Pomeranz: You know, some states are incredibly buttoned up, like I’m looking at the state that has slowed down the most during the pandemic, and that is Hawaii with a total score of almost 92. Tell us about the methodology and how you get to a score of 92, and what did you think that score really means?

Jill Gonzalez: It’s all added up to a 100 point scale between those six metrics that I said. Everything is rated equally, and essentially the bigger the decrease in the mobility, the bigger the score. Hawaii essentially has seen huge decreases in how many people are going to retail and recreation places. Even grocery stores, which have probably seen the smallest decrease throughout this.

Steve Pomeranz: Yeah.

Jill Gonzalez: In Hawaii, we’re seeing a decrease of around 60%. People are going to the grocery store 60% less. And in Hawaii it’s a few different things. One, it’s such a state reliant on travel and tourism, so a lot of people are not able to work right now because that’s not really happening, and it has to really keep people indoors in their homes because it’s an island. They don’t have the resources to deal with a health epidemic and pandemic of this size.

Steve Pomeranz: Right. So it’s like some of these small countries around the world that are been able to shut down completely because they have a homogeneous population or whatever reason, the government has got more influence than other countries, and Hawaii represents one of those. The other state we hear about the most is New York. New York is number two on the list, and that has a score of 77, so there’s a large discrepancy between Hawaii and New York, even though New York is number two.

Jill Gonzalez: That’s right. In New York, people are still going to places like grocery stores a little bit more than they are say in Hawaii, but everything else is pretty much a no go. New York has seen the highest retail and recreation decrease in mobility, same with the highest transit stations. Not a lot of people are relying on public transportation, which is really hard to fathom in New York in general, and the same with the workplace. I think that’s something that we’re going to see remain in New York more so than other states. You know, if people do not have to report to a physical work location, they’re not going to now and probably for quite a while in the future.

Steve Pomeranz: Yeah, that’s going to be a very interesting outcome of all of this, is how work habits are going to change, how many of our habits are going to change. Now, most of my listeners are in Florida, so we’re all really interested to know where we rank in this measurement of relative slowdowns. Where does Florida rank?

Jill Gonzalez: Florida ranks sixth overall, so things have slowed down a lot there. I think the elderly population is certainly one reason, people trying to keep them safe, the elderly themselves trying to keep themselves safe, not really venturing out as much. Florida is an interesting case. We see reports on the news of very crowded beaches while at the same time a lot of elderly communities that are really locking down.

Steve Pomeranz: Yeah. Well you know, you see those reports about the beaches, but I can tell you from the area that I live, all the beaches are closed, all the parks are closed, and I noticed in some of the other research that that is really not the case in many, many states. The parks are open, golf is still something that’s made available under certain restrictions. But in the areas that I live, I live in South Florida, everything is pretty much shut down. I think some of the reports showing open beaches is really the exception rather than the rule, though I could be wrong.

Now, I have relatives in Illinois, in Colorado, in Massachusetts, and in California, and just out of potluck here, we see that Illinois, Chicago is, well, Illinois is ranked 22% with a score of 43, which is pretty darn low I would think. Let’s go, for giggles, let’s take a look at the very last state, which is Nebraska, right?

Jill Gonzalez: Yeah, Nebraska is 50th here, ahead of Kansas, Arkansas, Kentucky, Iowa, Alabama, Ohio. So a lot of Midwestern and a lot of Southern states with the least amount of slowdown, and like you said, a lot of those places have not closed parks necessarily, so people have been going out there. Some of those places as of now are reopened, or at least partially reopened.

Steve Pomeranz: Yeah, we hear about that.

Jill Gonzalez: So it’s a tale of two very different Americas.

Steve Pomeranz: That is America for you. Let’s take a look at the different industries. So the highest, retail and recreation, New York has the highest decrease in mobility. It’s kind of a funny way to say that. Followed by New Jersey, Michigan, Hawaii and Montana. The lowest, as you just mentioned, Kentucky, Nebraska, Oklahoma, West Virginia. Highest grocery and pharmacy mobility changes, well, you mentioned Hawaii. Florida is number three here. Vermont is number two. The lowest is Tennessee, Alabama, Kentucky. Highest parks decrease in mobility, Hawaii and Florida, as I just mentioned, Texas, Montana, California comes after that. The lowest is Wisconsin, Indiana, Connecticut and Ohio. You also did a study of how it breaks down to red and blue states, so that’s really interesting. Tell us about that.

Jill Gonzalez: Yeah, there’s quite a large difference here. Red states are slowing down considerably less than blue states during the pandemic. Their average rank here was about 32, whereas blue states were about 16. So essentially double the difference here.

Steve Pomeranz: Can you think of any reason for that in particular?

Jill Gonzalez: I think just in terms of states reopening, you’re either prioritizing the economy or you’re prioritizing health, and I think a lot of the blue states are prioritizing health right now and a lot of the red states are prioritizing in economy.

Steve Pomeranz: Yeah.

Jill Gonzalez: I think you could also argue that the blue states were hit sooner. New York, the epicenter, the blue states, hit much sooner. They essentially are witnessing or just witnessed the peak. So they are on the downhill now, whereas some of these states, especially down South, haven’t had their peak yet. So they might think that this problem is just on a smaller scale for them, when really they just haven’t seen the scale yet.

Steve Pomeranz: I also think there was some messages from the national government early on about the virus, not taking it too seriously, so that may be carrying over to some degree. Let’s talk about the US economy and look at those states that have had the biggest increases in unemployment. Florida, at least the week that this survey was done, Florida was the most affected in the country. Can you take us through some of those on the list?

Jill Gonzalez: Yeah, absolutely. When it comes to unemployment in general, this is something that we update week to week, and we’ve seen it remain pretty consistent as far as the states that are pretty much hit repeatedly every week. I think that we might see that change soon as the different job industries are affected, but Florida, because it relies so much on the travel industry, on tourism industry, that’s one of the states that’s been hit repeatedly hard by this. They’ve seen about a 6000% increase in unemployment claims, just when you’re looking at this time now versus last year.

Steve Pomeranz: Interestingly, Louisiana is next either in both the week, affected in a particular week, and since the COVID-19 crisis began. Why Louisiana? Is it travel as well?

Jill Gonzalez: Oh yeah. Huge, huge travel place. It’s going to New Orleans, the live music festivals, Jazz Fest, to all of these things that are canceled. A big spring break place as well. So all of those plans canceled, and Louisiana kind of has it twofold, because the other industry that’s huge there is oil, and that’s taken a huge hit as well.

Steve Pomeranz: Right, right. Colorado was number 10 for the most affected during that week. 14 since the beginning of the crisis. We have California most affected, 36. California has maintained lower numbers. Any expectations as to why that might be?

Jill Gonzalez: I think when we think of California, we might think Hollywood, which is very affected here. The entertainment industry in general largely shut down. Tourism, again pretty big there, largely shut down. But what California has is the Silicon Valley, and tech is booming right now, so that’s really a saving grace.

Steve Pomeranz: Okay, interesting. And another thing that interests me too is Massachusetts, so it’s all in that Northeastern corridor. You think New York being a population center, you think Massachusetts or Boston being pretty much a population center, but yet Massachusetts, its effect unemployment wise, since the start of the crisis is 35th in the nation. Does that seem to be unusual to you?

Jill Gonzalez: Massachusetts is also a large technology hub. You have Harvard and MIT right there by Boston. A lot of tech companies are based out of Boston. And the other thing that Massachusetts is very well known for is healthcare, which is again, for horrible reasons, booming right now.

Steve Pomeranz: Interesting. Now, the blue states versus the red states with unemployment claims, how does that shake out?

Jill Gonzalez: Right now, blue states have a lower increase in unemployment claims. Again, because of the job families. When we talk about technology, the Northeast is very heavy there. The West Coast, very heavy there. So Washington, Oregon, California, not really seeing the amount of layoffs and furloughs that we’re seeing in a lot of red states. The average rank here, closer to the bottom of the center, was around 32 for blue states, 22 for red states.

Steve Pomeranz: My guest, Jill Gonzalez, is a spokesperson and financial analyst for wallethub.com. For more information about this and a lot of other good articles about money and other things, go to wallethub.com. Jill, thank you for joining me today.

Jill Gonzalez: Anytime. Thank you.

The New Normal For Buying A Home

Terry Story, New Normal

With Terry Story, a 31-year veteran with Keller Williams located in Boca Raton, FL

During this week’s Real Estate Roundup, Steve spoke with Terry Story, a 31-year veteran at Keller Williams in Boca Raton, about what the process of buying and closing on a home sale looks like in the coronavirus environment.

How Home Buying

All right, so we start with a listed property. Terry explains, “I would have already made videos of the home and taken my buyers on a virtual tour. Then, if they’re seriously interested, I arrange for them to do an actual real-world tour of the property, complete with mask, gloves, and even protective booties for their feet.”

Neither the buyer’s agent nor the seller or their agent can be inside the property when the buyer is doing an in-person tour. Social distancing, right? This is far different from the way it’s traditionally done, and it requires some trust. Terry noted that “We’re letting strangers into someone’s home, unsupervised, and the buyer and seller are being exposed to each other—possibly being exposed to the virus.” Terry pointed out that the positive thing about all of this is that the seller can pretty well safely assume that the buyer is a very serious, motivated buyer. Otherwise, they wouldn’t be willing to go through all these obstacles—the mask, the gloves, etc.

Terry continued explaining the procedure. “Let’s assume the seller’s agent knows the buyer by now and that the buyer has been qualified—really qualified, not just a pre-qualify. We’re talking about having proof of funds. That means that if the buyer is paying cash, then they’ve got the money in their bank account right now. If they’re financing buying the home, then they’ve been approved for the financing. It’s solid. They have a mortgage loan that’s been approved. The seller’s agent is going to, like, hold the buyer’s driver’s license while the buyer goes into the home, by themselves, for their do-it-yourself tour of the home.”

Steve added that getting that mortgage loan approval is noticeably more difficult than it was before the coronavirus hit. For example, because people’s employment situations are more uncertain, the bank is going to check on their income and employment situation not just when they apply for the loan but all the way up to right before closing, right before everybody signs everything and the bank hands over that big check.

Mortgage lenders are really just doing their due diligence. It’s just that things have changed, and the reality is that the buyer might have had a job when he first applied for financing, but he might have been laid off before we got to the closing. The lender is going to look at more than just the buyer’s assets or salary; they’re going to dig deeper and find out, for instance, if the buyer is considered to be an essential worker.

Terry summed things up by saying that the bottom line is this: it’s an agent’s job to act as a transaction broker. She said, “It’s my job as a listing agent to make sure that I’m bringing people to meet with the seller who is qualified and highly motivated to buy, especially right now.”

Getting To The Closing

Steve asked Terry to continue describing the step-by-step process of closing the sale. Once a qualified and motivated buyer is brought together with an eager seller, the next step is to come to an agreement on price. At that point, the process pretty much continues like it always has. As Terry explained, “It’s time for an inspection period. But one change is that inspection periods aren’t taking as long as they used to. They’re now typically a week or less, instead of ten days because inspectors just aren’t as busy these days.”

The lending process, from the agent’s point of view, is still basically the same, “Except,” Terry said, “that we’re checking on it every few days, calling the lender to make sure the money will be lent in a timely fashion. That could be a potential area of concern when you consider the strain that the coronavirus pandemic is putting on everyone.”

Terry explained that, in general, the name of the game is really just staying on top of everything, staying in touch with each party involved in the process to be sure that everyone is still on board. “We need to make sure that everyone still wants to be in on the deal, that everyone is still motivated and working toward the same goal of getting to the closing table. Frankly, we’re communicating more than we ever have before with the other realtor, just to make sure that we’re all still on the same page and that everything’s getting done properly.”

Sealing The Deal

Staying on top of each stage of the process is critical in preventing the sale of the home from falling through. As the process moves along, the final stage is the closing itself. This is another part of the process that’s changed as a result of the coronavirus.

Terry informed listeners that, “Closings can basically be done remotely now. Certain lenders have approval to close on a home completely remotely. The biggest issue is that some documents have to be notarized. But as we deal with more closings in this way, we’re learning how to get things done as smoothly as possible. The title companies are moving toward going completely digital, but if need be, someone from the title company will go out to the buyer to have documents signed. Agents are becoming couriers, doing whatever it takes to get all the necessary documents signed. We’re doing whatever it takes to get the job done and close on the home.”

Typically, the agent gets the seller to sign all the documents first, and then they get the documents to the buyer. Some lenders are sending a lot of the documents to the buyers in advance so that at the closing table there are fewer documents to sign. Once payment clears, the agent might have to be a courier once again to make sure the keys to the home get to the buyer.

If you’d like to learn more about buying or selling a home, visit Keller Williams.

Disclosure: The opinions expressed are those of the interviewee and not necessarily of the radio show. Interviewee is not a representative of the radio show. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by the radio show.

Read The Entire Transcript Here

Steve Pomeranz: I’m here with Terry Story, a 31 year veteran with Keller Williams and we’re going to talk about buying and selling real estate in the new norm, the new pandemic norm. Welcome back to the show, Terry.

Terry Story:Thanks for having me, Steve.

Steve Pomeranz: I especially want to take us through the process of closing on a home so we can kind of get an image in our mind’s eye of what it’s going to look like. So what is the first thing that happens?

Terry Story: Sure. Well, assuming that the property is already listed and we’re talking about the buyer side of things. So at this point I would have already made videos of the home, virtual tours, professional photography. We have the buyer view all of those items first and if they like the home enough and want to proceed to the next level, then we will bring them to the house, wearing protective gear, masks, gloves, booties if required.

And the way it works, Steve, is we’re not allowed to be on premise with them. So we would open up the door and let them in and we stay off site, we’re not allowed to be with them, nor can the seller be with them nor their other agent.

Steve Pomeranz: All right, so you have strangers going into someone’s house. How are you pre-qualifying these people?

Terry Story: Sure. So before we let a stranger into somebody’s house, first of all, we’re assuming at this point the other agent knows them. He has copies of their driver’s license and that they are qualified. The most important part in all of this is we want, if they’re paying cash, that we have proof of funds that they actually have the money in the bank as of today. And that if they’re getting finance, that they are truly already approved for their finance. In other words, they’re not a pre-qual approval, but something that’s more in depth.

You got to remember, we’re bringing strangers into people’s homes and we’re exposing them to people going into their house and we want to minimize that as much as possible. So, quite frankly, the only people really out looking at property are your serious, most motivated buyers because why would you be doing this right now unless you needed a house?

Steve Pomeranz: Yeah. The other aspect of this is that qualifying these days is a little tougher.

Terry Story: That’s right.

Steve Pomeranz: The banks are looking more deeply, not only into the assets that you have saved or the down payment, but they’re looking at your job and the ability for your job to stay in place.

Terry Story: That’s right. And so we’re going to ask more candid questions to make sure that we feel that your job isn’t in jeopardy and we do the best that we can. We can only qualify as far and deep as we can. But so far everything, knock on wood, has been going through for us.

Steve Pomeranz: Now, would you say that if you’re selling your home and the buying agent or the buyers come to your property and they haven’t been pre-qualified or the agent’s not doing this kind of work, should you look a little bit askance at that?

Terry Story: Yes, I think so. As the listing agent, my obligation is to, well we work as transaction brokers to make sure that we’re being fair to everyone and that we’re only bringing ready, willing, and able buyers through a seller’s property, especially right now.

Steve Pomeranz: Right now. So after all of that has happened and an offer is made, a price is agreed upon, what are the next steps?

Terry Story: So the next steps, once it’s agreed upon, and we know that they’re qualified, it’s business as usual. They go onto their inspection period. We’re doing them in a shorter period of time. We don’t need 10 days. We’re doing them in seven days because the inspectors aren’t that busy. You can get somebody out there the next day. So we don’t need 10 days, 15 days for an inspection period. So we’re doing those quicker.

Steve Pomeranz: Well, that’s good news.

Terry Story: Yeah, the lending process is still the same except we’re monitoring it every few days. We’re calling the lender to make sure that everything’s being done still in a timely fashion. The seller, the buyer’s cooperating, getting everything over to them as needed and just staying on top of it.

And then quite frankly, we’re communicating more so than we ever have with the other realtor to make sure that their buyer’s still in on it, that they’re still motivated, that everybody is working towards the same goal of getting to the closing table.

Steve Pomeranz: Well, generally you know what obstacles mortgage wise are coming your way. So you’re trying to get those questions answered quickly and upfront more than ever before.

Terry Story: That’s correct.

Steve Pomeranz: Okay. Also, every mortgage broker and bank in town now knows your name. Is that it?

Terry Story: Pretty much, by now they should. So we’re going through that aggressively and it makes a difference who you use for finance. I just had multiple offers and we went with the person that was most qualified who was already approved for their finance. And oh by the way, I happen to know who that mortgage broker was and so when I called him on a Sunday night, (a) he answered the phone and (b) already had the right answers that I was looking for.

So if you’re a buyer, make sure you’re dealing with a very reputable mortgage lender.

Steve Pomeranz: Okay. Now what about the closing itself? I don’t think that there is a table that everyone’s going to sit at. So how has that changed?

Terry Story: Right, so it can be done remotely. Certain lenders have the approval to do closings remotely. The issue is you need documents notarized, but there are ways of doing that and they have relationships with certain lenders. So that’s a new trend for us here. So we’re starting to do that.

Terry Story: The title companies, if need be, will go out to the buyer to have documents signed. Agents are becoming couriers, whatever it takes to get the documents signed. What we’re not seeing though is a coming together altogether at a title company. Buyers and sellers and realtors all sitting around as documents are signed.

Steve Pomeranz: Those days are over for a while.

Terry Story: Those days are over, perhaps forever.

Steve Pomeranz: But the title industry really hasn’t moved totally towards digital either.

Terry Story: They’re working towards it. There’s a lot of legalities that they’re going through. I know that one title company we work with has a relationship with a certain number of lenders and they are now able to go totally digital.

Terry Story: Some lenders are sending the documents in advance to the buyers to sign, a large portion of the documents, so that at the closing table there are less documents to actually sign. So that’s a nice thing too.

Steve Pomeranz:  Okay, so once the deal is closed, how does someone pick up the keys? What’s the process there? Something so simple but yet you wonder.

Terry Story: Sure, sure. So typically the seller signs the documents first, then the buyer signs the documents and the buyer does not get the keys until the funds have been wired and cleared, which is all usually done the same day.

So the keys, the way that I personally handle it, is all the keys are left in the house with the clickers except one key. One key I hold back and as soon as the transaction is totally closed and funded, we will make arrangements to get that key to the buyer.

Steve Pomeranz: My guest is Terry Story, a 31 year veteran with Keller Williams, and she is a weekly participant on the Steve Pomeranz Show, which is a clip from what you’re listening right now.

The show can be listened to online at stevepomeranz.com, or it also airs on WLRN NPR station for South Florida. And again, once again, Terry Story. Thank you so much for joining me.

Terry Story: Thanks for having me, Steve.

What’s Eating Warren Buffett?

Steve Pomeranz, Warren Buffett

Hi, Everyone, welcome to our 975th show…and guess what? I have an announcement for you.

After 19 years of weekly shows, I have decided to hang up my spurs and ride off into the sunset of retirement.

It has been an amazing part of my life as I have met so many interesting people, some of whom became clients and others who have written in or attended my talks throughout the years and those who have remained loyal listeners. I especially would like to thank all of you in the Sunday Morning Breakfast Club, as I call it—those who rise early and put my show on as the first or second part of their morning routine. It is an honor that you thought enough of the work we did to include me in the Sundays of your life.

Today’s program will be the first of the final three, with our last airing on May 24th. In the meantime, I will be keeping you up to date on the investment world during this crazy time as well as re-playing some of our favorite shows from over the years.

I will be keeping the website active with all the past episodes, so if you want to hear something again or get in touch, you can contact me at www.Stevepomeranz.com.

Before I get to today’s commentary, I want to tell you a quick story of how we got started, and the one person who was most helpful at the very beginning.

His name was Daryl Logullo. For those of you who have been with me from the beginning, you may remember that Daryl and I co-hosted the show in the first few years. Daryl was helping me market my fledgling investment practice, and he was the one with radio experience. As a matter of fact, when he approached me with the idea of doing a radio show, I told him the only network I would do it on was NPR. Incredibly, he suggested we contact the local station, WXEL, and ask them. Honestly, it was not something I thought was possible, and sure enough, they said no at first.  So, we told them we were going to be a different kind of show and could we make a demo to show them what we had in mind. You see the fact that I was a fee-only advisor, who did not sell products and wanted to educate and protect our listeners, was a pretty rare thing 19 years ago. Well, the rest is history. The station took a chance on me.

So, thank you, Daryll Logullo, who sadly passed away a few years ago. I am forever indebted to him for guiding me onto this wonderful path.

Okay, let’s talk about what’s going on out there right now.

Where’s Warren?

So here’s a question: Where’s Warren Buffett been?

If you remember the 2008 crisis, he was all over the airwaves telling us to buy America and even doing a lot of buying himself.  His billion-dollar deals with Goldman Sachs and GE for 12% interest plus options to buy more stock at very reasonable prices became the stuff of Wall Street legend. Hey, $5 billion could get you a lot back then. Heck, he even bought Burlington Northern Santa Fe Railway for $26 billion! Now that was a bet on America!

Today, however, he’s silent. So, I did some digging and this is what I found.

First, it seems we can only see the selling part of his activity.  He sold his investment in a slew of airlines, from United to American to Southwest Air, stating that the industry had changed dramatically, and while he hoped the industry would come back, he can’t tell whether it will or won’t. So, he sold all the shares he owned. Other than that, we know that he sold a small amount of Bank of New York-Mellon shares too. 

Some who follow Buffett have made some guesses though, so let’s see what they have to say.  A few of them have looked into his 4th quarter buying of 2019 and extrapolated from there.

#1) It seems pretty clear that Buffett likes bank stocks. He likes JPMorgan (JPM)and US Bancorp (USB) for example, and both stocks got slaughtered during the selloff, so maybe he picked up some more of those two.

It’s also a good bet that he purchased shares of Berkshire Hathaway (BRK.A). He’s been talking about this for a very long time, and there’s nothing stopping him as far as I can see. He’s not taking any money from the government and, considering Berkshire had something like $128 billion in cash on hand recently, means he’s got an awful lot of money to buy back his own shares.

Unfortunately, we won’t know exactly what he’s done until mid-May when he files the 13F with the SEC and discloses his activity.

Other stocks he may have picked up could be Kroger’s, General Motors, Biogen. He seemed to like Occidental Petroleum recently, but with the latest insane sell-off in oil, he may take a wait and see attitude.

Finally, his partner Charlie Munger has given us a little insight into the way things are being viewed. In a recent Wall Street Journal interview, Munger was quoted as saying “Buffett has been  fairly conservative with his investments in the current market. Nobody in America’s ever seen anything else like this,” he said. “This thing is different. Everybody talks as if they know what’s going to happen, and nobody knows what’s going to happen.”

He continued, “Companies are not calling Berkshire for capital like they were in 2008. The phone is not ringing off the hook because many companies are all negotiating with the government for bail-out money so they’re not calling Warren.”

Warren Buffett Isn’t The Only One With A Lot Of Cash To Spend

Companies like Blackstone, Carlisle and KKR have $1 trillion in cash to swoop into troubled companies, and they’ve wasted no time making purchases in industries like travel, entertainment, and energy.

It’s not that easy for the whole private equity industry though. They already have billions invested in many of these troubled areas, and they’re suffering a lot of losses at the moment. So much so that they are begging the government for monetary relief.

For those PE firms with money, investments have already been made in Expedia for over 5 billion from Apollo Global and Silver Lake. Apollo Global Management also is investing $300 million in Cimpress, the commercial-printing company that owns Vistaprint

Silver Lake along with Sixth Street Partners has invested in Airbnb which raised $1 billion in a new round of funding.

And so, the cycle of capitalism does its work—transferring ownership from weak hands to strong hands. Weak hands that perhaps used too much debt to finance expansion or whose business model wasn’t able to withstand a shock of this magnitude.

Strong hands are those that saved excess capital and didn’t get caught up in the excitement of a market that seemed to go up forever. This is one of a number of cycles I’ve seen since I entered the business in 1981.  It was going on well before me and will continue well after I’m gone.

Speaking of gone, I am moving on to other things. My plans for the future are many-fold. First, you might not know this, but I am also a musician with my own band, The Steve Pomeranz Band, which you can follow on Facebook and Instagram plus at our website www.stevepomeranzband.com. And I plan to travel for long periods once it is safe, and Italy is our number one choice.

I have a son and daughter who are in the arts as well, so I will be working with them. My daughter, for one, is a wonderful singer and talented songwriter, so I’m ending today’s show with a little slice of her music. She calls herself Waltzer and can be found on Spotify and all the other important music platforms.

Please remember that our last show will be on Sunday, May 24th, and we will keep the website active if you would like to stay in contact after that.

So, farewell until next week. Here’s a bit of Sophie’s music. Please enjoy!

Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. There are no investment strategies that guarantee a profit or protect against loss. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however, their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by the radio show.

Remembering Wayne Huizenga: An American All-Star Entrepreneur

Wayne Huizenga

With Wayne Huizenga, Entrepreneur, Owner of Blockbuster Video, AutoNation, Waste Management, Inc., Miami Dolphins, Florida Panthers, & Florida Marlins

Remembering Wayne Huizenga

“I always like to stop what I’m doing and make an effort to remember the people who helped change our lives, even if they were only tangentially involved in our consciousness. One such person was Wayne Huizenga.” – Steve Pomeranz

On March 22, 2018, we saw the passing of one of the most preeminent business figures in our community and the country.

Steve interviewed Wayne in 2005 and came away extremely impressed with his honesty and down-to-earth demeanor.

So, Steve invites you to enjoy his discussion with Wayne Huizenga, master entrepreneur, philanthropist, dedicated family man, and employer.

Who Was Wayne Huizenga?

Wayne Huizenga was the only person in history to build three Fortune 1,000 companies from scratch:

  • Waste Management
  • Blockbuster Entertainment
  • AutoNation

He owned the Miami Dolphins, the Florida Marlins baseball team, and the Panthers hockey team, making him the only person to own three pro teams in a single market, two of which won National Championships.

In 1992, he received the Horatio Alger Award which honors Americans who overcome adversity to achieve great success.

He was also a five-time recipient of Financial World magazine CEO of the Year.  He was named Ernst & Young’s US Entrepreneur of the Year and 2005 World Entrepreneur of the Year.

How Wayne Became An Entrepreneur

Wayne got his start in the waste business in 1962 by being in the right place at the right time.  He got out of the army and landed a job in South Florida with his father’s friend who had three waste trucks and needed a new manager.  Wayne wasn’t keen on the waste business but agreed to do the job for three weeks while they looked for a new manager.

Three weeks turned into three months, and Wayne decided to buy the business.  While he did not have the $35,000 asking price, he got the owner to finance him.

Over the next ten years, Wayne expanded operations in South Florida.  Then, through a relative in the same business in Chicago, he merged the two operations and renamed it Waste Management.

Six months later, he took the company public.  While Waste Management (WM) shares traded at 30-times earnings, he bought companies out at 10-times earnings.  These boosted earnings per share and WM’s stock price.  Wayne continued expansion across the country and the world.

The Rise Of Blockbuster Video

Wayne took a break from Waste Management in November 1986.  He got a call from John Melk, a former Waste Management employee in Chicago.

Melk told Wayne about his investment in Blockbuster video stock.  At the time, Wayne didn’t even own a VCR and had no interest in the business.  But Melk hounded Wayne and finally got him to visit a Blockbuster video store.

Wayne was “very, very impressed” with the store.  He saw Blockbuster as something they could grow organically.  He could build more stores in great locations before the competition did. There was nothing proprietary about the video rental business.

Wayne joined the company when it had a market cap of $32 million.  Over the next six years, they grew the business quickly, opening a new Blockbuster store every 17 hours.  Seven years later, they sold Blockbuster for $8.5 billion to Viacom.  Under Wayne’s leadership, Blockbuster shares were up 4,100% over a seven-year span!

Growing AutoNation

After selling Blockbuster in 1994, Wayne started looking for his next business, focusing on industry dynamics.  In about 18 months, he honed in on the automobile sector.  This was a trillion-dollar industry due to new and old car sales, parts, service, etc.

Wayne found that about 75% of car buyers weren’t returning to the dealer they bought from and saw an opportunity.  If you treat the customer with respect, you could retain more customers. He used this concept to raise money and acquire 375 car franchises across 17 states, all under the AutoNation brand.  Under Wayne’s leadership, AutoNation grew revenues to $20 billion a year through superior customer service and transparent pricing.

Dealing With Conflict At AutoNation

The path forward wasn’t all smooth.  For instance, if an automaker decided to suddenly offer a $2,000 rebate, AutoNation would take a $2,000 hit on cars that it had already purchased for resale.  This resulted in unpredictable profits.  This led Huizenga to get into the new car business, and thus to the acquiring of new car dealerships.

AutoNation also suffered from inconsistent branding.  Car dealers were unwilling to let the AutoNation brand overshadow their own.

Extended Stay Hotels

George Johnson, a good friend of his from the Blockbuster days, approached Wayne with a new concept.  George was big on real estate and introduced Wayne to a new idea in Atlanta called extended stay hotels.  An extended stay hotel is where the average traveler stays an average of three weeks.

They offered a small room with a full kitchen, so guests could have breakfast or dinner in their rooms if they preferred.  Room costs were lower, sheets were changed every three days, and maintenance overhead was low.

Wayne liked the concept and bought the hotel in Atlanta. He expanded to 475 hotels in a short span of time.  He then took the company public and used proceeds from the IPO to build more hotels.  He later sold them for $3.5 billion.

Selling A Business Vs Continuing Growth

Steve wondered why Wayne chose to sell didn’t hold onto them to watch them grow forever. According to Wayne, most of the growth occurs in the startup stage of taking something small and making it big.

Once it’s big, it’s hard to grow and is akin to running a business day-to-day.  Wayne Huizenga did not like this as much.  So, he opted to sell when he got an offer beyond his expectations.  This was based on standard valuation multiples.

A Winning Management Style

Wayne attributed his success to hiring the right people and effectively communicating with them across distances.  While he did not finish college, he thinks a college education is essential today because the business world is far more sophisticated.

While he’d prefer hiring someone who is both intelligent and street smart, if given a choice between extreme intelligence and a great personality, he would always pick the latter.

Thank you for taking a moment to remember Wayne Huizenga, one of our greatest contemporary entrepreneurs.


Disclosure: The opinions expressed are those of the interviewee and not necessarily of the radio show. Interviewee is not a representative of the radio show. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by the radio show.

Read The Entire Transcript Here

Steve Pomeranz: Last week we saw the passing of one of the most pre-eminent business figures in our community and the country. I always like to stop what I’m doing and make an effort to remember the people that helped change our lives, even if they were only tangentially involved in our consciousness.

One such person was Wayne Huizenga.

I interviewed Wayne in 2005 and came away extremely impressed both with his honesty and down-to-earth demeanor.

I also know a few individuals who worked with him over these many years and they have said exactly the same thing.

So, join me for a few minutes and I think you will enjoy my discussion with Wayne Huizenga, master entrepreneur, philanthropist, and dedicated family man and employer.

Announcer: Time now for Entrepreneur Spotlight, a weekly feature segment with advice, tools, and the insight. Listen now as Steve Pomeranz speaks to guests to help business owners and professionals start, run, and grow their businesses more successfully. Here is this week’s entrepreneur spotlight.

Steve Pomeranz: My guest is a person that needs little introduction. He is the only person in history to build three fortune 1,000 companies practically from scratch—Waste Management, Blockbuster Entertainment, and AutoNation.

He is the only person to have developed six New York stock exchange listed companies. He also owns the Miami Dolphins and is the previous owner of the Florida Marlins baseball team and the Panthers hockey team making him the only person ever to own three pro teams in a single market, two of which won National Championships.

In 1992, he received the Horatio Alger Award given to honor Americans who have overcome adversity to achieve great success. He’s also a five-time recipient of Financial World magazine CEO of the year, and he was named Ernst & Young’s US entrepreneur of the year and 2005 World Entrepreneur of the year.

The list goes on but instead let’s meet the man who has achieved all of this and get some insight into his world. Wayne Huizenga, welcome to On the Money.

Wayne Huizenga: Thanks, Steve, happy to be here.

Steve Pomeranz: Wayne, let’s start at the beginning. How did you end up in the waste business?

Wayne Huizenga: Man, you talk about being in the right place at the right time, that’s the way it was for me. When I got out of the army, my father took me to lunch the next day and at lunch bumped into an old high school friend of his who turned out to be in the waste collection business in Chicago.

He was down here because he had three trucks operating up in Pompano Beach, Florida. And, over lunch he said, he was looking for a new manager. He asked me, what I was doing and I said, “well, I just got out of the army yesterday and I don’t have a job yet.”

He said, “Good, you’re my new manager.”

Steve Pomeranz: [LAUGH]

Wayne Huizenga: Well, that is not what I wanted to hear, but he said, “Okay, fine, I understand you don’t want to be in a waste business, but do me a favor and take this job for three weeks to help me out until I can bring someone from Chicago down here to run the business.”

Well, three weeks turned into three months and four months and so forth. And, so finally one day, I flew to Chicago and I said to him, “I want to buy your business.”

Steve Pomeranz: I don’t understand that. How did you start from the very beginning and get to the point where you could turn around and buy his business?

Wayne Huizenga: Well, I didn’t like the business to begin with, but after I was there for three or four months, I thought this isn’t such a bad idea and at the same time there was a small business for sale in Fort Lauderdale. And it was when I say small it was really small, it was $500 a month worth of business.

So I thought about buying that business and I thought about Haman’s business, and so I flew to Chicago and I said, “Haman I want to buy your business. He said, “Great!” This was a long time ago now, this was in 1962. He said, “I want $35,000 for my business, and I don’t own any of the trucks, I lease the trucks.”

And I said, “Okay, fine, I’ll buy it from you.’ He said, “How are you going to pay me?” I said, “You’re going to finance me.”

Steve Pomeranz: [LAUGH]

Wayne Huizenga: And he looked at me and he said, “Okay, I’ll take a chance on you, sir, but understand one thing. I’m not doing this for you.
I’m doing this because I’m a friend of your father’s.” And I said, “Great.” So I bought that business and then bought the little business in Fort Lauderdale.

So now we had three trucks running in Pompano Beach and one in Fort Lauderdale. And back in those days, they were separate cities.

They weren’t connected like they are today. And so, I got in business kind of by accident, something I really didn’t want to have and that’s kind of been a story for me, Steve. I’ve been lucky in being in the right place at the right time and sometimes I even said I didn’t want to be in that business and ended up going in it anyway and turned out to be the right thing to do.

Steve Pomeranz: So, Wayne, how did you manage to build this company— waste management as it turned out to be—into this giant public company that it has become?”

Wayne Huizenga: Well, I ran the company here in South Florida for about 10 years and by that time, we had expanded down into Miami and Hollywood, and we picked up the refuse for the city of Key West and had a small business in Tampa.

And then a fellow that was married to my cousin ran a family-owned business, a business that was owned by my three uncles. My three uncles all died under the age of 50, and so he was running the business in Chicago and I heard of his name because he was married to my cousin but I never met him.

So came down to Florida on vacation, and we chatted and talked, got to be good friends and a year or so later he came back to Florida and he said, I’ve been thinking. He said, “You’re really in a fast-growing market. How are you growing this business so fast?  Where are you getting the money?”

I said, “Man, I owe every bank in Florida money, are you kidding?” And he said, “Well, we’re doing really well up there but we’re not growing so fast because it’s more of a stable market.” So to make a long story short, he suggested, not me, but he suggested that we merge the two companies together.

And mine was called Southern Sanitation, his was called Ace. So we merged the companies together and called them Waste Management.

Steve Pomeranz: Wow!

Wayne Huizenga: And, six months later took it public, and then we had a high multiple on our stock and so we went out. Our plan was to grow nationwide but, rather than start from scratch with one or two trucks in each market, we thought we’d buy the best guy out in each market we wanted to be in.

Most of that was in the sun belt, and so we went around the country trying to find the best operator in each market. And we acquired that person and let that person stay on and manage the business for us and grew the business internally very aggressively after that.

After we once made the acquisition, we wanted internal growth rather than acquisition growth, and so we acquired 100 companies in 9 months around the United States.

Steve Pomeranz: So, Wayne, you had this high multiple, in other words, the public stock was selling at high price to its earnings, and you were able to use that as a kind of currency?

Wayne Huizenga: Yeah, we were about 30-times earnings, and we were buying people out at 10-times earnings, and so we had to spread and not only help the stock grow up more.

Steve Pomeranz: Sure.

Wayne Huizenga: The more companies we bought the higher the stack went up and-

Steve Pomeranz: Because Wall Street is looking for growth, right?

Wayne Huizenga: That’s exactly right, and so it wasn’t long before gave them all a growth they wanted without doing so many acquisitions because we were in the great markets and we were growing internally.

Steve Pomeranz: So eventually, I guess, you got that business to a certain size and you decided to change direction?

Wayne Huizenga: Well, we grew all around the United States and then we went international. And we had businesses in Australia, in Argentina, in Venezuela, and all throughout Europe. We were in Hong Kong; we were in Saudi Arabia. It grew to be a very big company in a short period of time.

And I was commuting from Florida, for ten years I commuted to Florida every Sunday night, came home on Friday night or Saturday. And, I got tired of doing that and said, “Well, I’m going to retire for a while and so we did not sell the company and I did not sell my stock.

And decided I was going to take a year off and kind of goof around for a while. Well, that lasted three weeks and I was climbing the walls, and so I start going in other businesses.

Steve Pomeranz: When we come back, and I’m going to take a short break. When we come back, first of all, I’m speaking with Wayne Huizenga.

Probably one, if not the most, one of the most successful entrepreneurs in the country, perhaps the world. We’re going to find out about starting Blockbuster, I think it’s not as you think. We’ll be back with Wayne Huizenga in just a moment.

Steve Pomeranz: I’m talking with Wayne Huizenga and we’ve just discussed how he developed the business, Waste Management. Wayne, let me ask you this question about Blockbuster. Some have called you a visionary for starting Blockbuster, but you see it a little differently. How did that business begin for you?

Wayne Huizenga: Well, a good friend of mine by the name of John Melk lived in Chicago and he used to work for Waste Management. He retired a year after I did. And, he called me one day, it was in November of 1986, and he said, “Wayne, I’ve got a great business. I’ve invested in as a limited partner in a video store. And, the guy that owns this business, he said he’s going to grow rapidly and you should see this video business, Wayne, it’s really great.” And I thought to myself, there’s no way. I didn’t even own a VCR at that time, much less, I’d never been in a video store or rented a video.

And this fellow would call me once or twice a month. And finally, in late January, I was in Chicago doing some business and he called my office, and my assistant said, “No, he isn’t here, he is in Chicago.” He said, “Chicago?” So, he tried to run me down in Chicago and he couldn’t find me so, he went to the airport and waited for me to come back to get on the airplane.

And when I got there he said, “No, no, no, you’re not going home till you see my video store.” So, reluctantly, I went with him to see the video store. After that I was very, very impressed with his Blockbuster store. But that’s not the way the newspaper writes it or the magazines write it.

They talk about what a great Visionary Wayne is and he came up with this concept and this idea and that really wasn’t the way it happened.

Steve Pomeranz: You were no technology guru who saw the future?

Wayne Huizenga: No, it was just that my good friend saw an opportunity. I thought that renting videos was a dark, dirty, dingy, dimly lit stores that rented adult movies.

Steve Pomeranz: Yeah, sure.

Wayne Huizenga: And I was surprised after I saw a Blockbuster store.

Steve Pomeranz: So, I guess Blockbuster in your mind had the potential kind of similar to Waste Management of a serial business with a lot of cash flow coming in all the time?

Wayne Huizenga: Well, Waste Management we had to acquire a lot of businesses to get started, but in Blockbuster we did not and Blockbuster, it was the matter of building stores, before the competition did because we had nothing proprietary.

So, it was just a matter of getting to the best real estate before the competition. To make a long story short, we opened regions around the United States, each one was staffed on their own for real estate and construction. In over six years, we averaged opening a new Blockbuster store every 17 hours.

Steve Pomeranz: Wow!

Wayne Huizenga: So, we opened a lot of stores in a short period of time.

Steve Pomeranz: Now, when you got involved in Blockbuster, this small company, this one store that was already a public company?

Wayne Huizenga: Yeah, they went public to be in the oil services industry. And then that changed and they went into the video business kind of by mistake, but they went into the video business and then when we bought the company, it had 8 company-owned stores and 11 franchise store.

Steve Pomeranz: I see, so you developed that business for how many years?

Wayne Huizenga: We’re a total of seven years. And when we bought the company, it had a $32 million market cap. And seven years later, we sold it for $8.5 billion.

Steve Pomeranz: That’s unbelievable, you sold it to Viacom, right?

Wayne Huizenga: Sold it to Viacom, and the stock price over that seven years went up 4,100%.

Steve Pomeranz: Incredible, why do you think Bob Viacom wanted that business so badly?

Wayne Huizenga: Well, they were trying to buy Paramount Motion Pictures at that time and they needed to borrow a lot of money to do it.

And they didn’t have the cash flow to do it. We had a lot of cash flow at Blockbuster, so they paid us stock. And then ended up with a cash flow that they needed to finance the acquisition of Paramount.

Steve Pomeranz: Did Paramount’s anxiety or the need for their cash flow help get you the price that you were looking for?

Wayne Huizenga: Yeah, no question about it. You had a buyer on the other side that, in order to make the transaction that he wanted to make Paramount, he needed something to make it happen and we were that something.

Steve Pomeranz: When we come back I’m going to ask Wayne about the third business that he started which is now running revenue around $20 billion a year.

Stay tuned. I’ll be back with Wayne Huizenga.

Steve Pomeranz: I’m talking to Wayne Huizenga. We’ve been talking about Blockbuster, how he got started. Not really the visionary as everybody, as maybe the media, has played it up to be. How he got started in Waste Management. Now there’s another company, Wayne, that you were involved in that you started very much from scratch and I’m talking about AutoNation.

I looked it up and AutoNation has an enterprise value now of $8 billion with revenues approaching 20 billion. How did you get that going? What was the concept there?

Wayne Huizenga: Well, after we sold Blockbuster in 1994, we looked around for a year, maybe a year and a half, trying to find the right business.

And we’d hear about a company, but before we would look at the company, we would always look at the industry. And after we looked at different industries, we would pass on them. And then finally, we came across the automobile industry, it was obviously right in front of our eyes and we never really focused on the automobile industry.

But if you think about it, it’s a trillion-dollar industry. There is about 350 billion in new cars sold every year, 350 billion in used cars. Then you do the warranty work, then you add in the parts and services, and you’re up to a trillion dollars. And so, the industry was so huge, we started figuring, boy, if we could get 5% of that industry, or if we could get 10% of the industry, we’d be $100 billion company.

Steve Pomeranz: Let me see if I understand this because, I mean the automobile industry is a very mature industry. But, you’re looking at something else besides the number of units being sold. You’re looking to consolidate within it?

Wayne Huizenga: We were looking at consolidation and actually when we were looking at the business, we found some disturbing trends that we didn’t like.
And because we didn’t like it, we thought there was an opportunity there. For example, most people don’t realize that the average car dealer, 75% of the people who bought the car there this year, will not go back to that same dealer. For a number of different reasons, maybe they thought they paid too much, maybe they didn’t like the service, maybe they decided to go a different way.

But if you are a businessman, and you lose 75% of your customers every year, that’s pretty doggone tough. And that’s why today, we see so much advertising in the automobile business because they lose a lot of customers and they have to keep trying to gain new customers.

And so we looked at that and said, wait a second, there has to be a better way. If you treat the customer with respect, if you listen to what the customer and your employees are saying. If you think about saying, hey, thank you for the order, it’s pretty easy in business and so, we kind of said, there’s an opportunity here.

We just treat the customer better, we ought to be able to retain more of the customers. And to make a long story short, we took this concept public, raised a lot of money, then once again, went out and acquired 375 different car franchises. And today AutoNation sells virtually every type of car.

And we’re in 17 states now and we have 375 different franchises all around the state. And so now, like you said, we do about $20 billion a year, and business is very good and we try to treat the customer different than most people do. In some markets, we have one-price sales where we quote one price and we don’t negotiate and it’s a good deal for everybody, and we do that wherever we can.

But in some markets, we can’t in some markets, we can’t but still we use the best practices concept. Where we take the best practice from every dealership around the country, we use that, and we treat the customer right.

Steve Pomeranz: Now, Wayne, the way AutoNation looks right now, is not really the way it looked when you started. You guys made some initial mistakes at the beginning, describe some of those.

Wayne Huizenga: We made some huge mistakes. See, you can’t just go out and start a Ford dealership or a Chevrolet dealership. So, we went out and we started building used car lots and they were big used car lots.

Steve Pomeranz: I remember that.

Wayne Huizenga: 20 acres at a crack and we did that but what would happen is we’d have a couple of thousand cars on the lot, and all of a sudden one morning you’d wake up and one of the manufacturers would say, okay, we are giving a $2,000 rebate on cars.

Well, all of a sudden, every car on our used car lot was worth a couple of thousand dollars less. And so then we’d have a great quarter, and we’d have a bad quarter, then we’d have two good quarters, then we’d have two bad quarters. And so we said, okay, this is okay, but what we really need to do is get into the new car business as well.

So, then we changed our concept slightly and then we went in to acquire new car dealerships along with used cars and that’s pretty much what we do now. Like I said, we have 375 dealerships.

Steve Pomeranz: Well, I know from the early days you were trying to brand the AutoNation name, but you weren’t really able to do that.

Why was that?

Wayne Huizenga: Well, we did want to brand, no question about it. We wanted AutoNation nationwide. But when we start selling new cars, the manufacturers said no, no, no, you’re not going to have the AutoNation name be bigger than the Ford name or the Chevrolet name or whatever the case may be.

So you can call it AutoNation in one market but in another market, you have to use a different name. So all around the country now, in Las Vegas, for example, we’re called Desert and here in Fort Lauderdale we’re called Maroone. And so in different markets we’re called different names even though the parent company is still called AutoNation.

Steve Pomeranz: Talking with Wayne Huizenga. Wayne, of course, has been in this area for many, many years, he started out in this area as he’s just described. And he, again, as I said earlier in the program, he’s the only person in history to build three Fortune 1,000 companies practically from scratch.

We’ve been talking about Waste Management, Blockbuster, AutoNation and this is for our entrepreneurial spotlights segment. I know there is another business you got involved in with a chain of business hotels called Extended Stay, how did that start?

Wayne Huizenga: George Johnson is a very good friend of mine from Spartanburg and he used to be a big Blockbuster franchisee.

And he and I were friends and after we sold Blockbuster, we were looking for something else to do, and one day George called me. And George was real big in real estate, mini-warehouses, and so forth. And so called me one day and he said,” “Listen, I was just talking to a friend of mine and he told me about a new concept in Atlanta and are called extended stay hotels.”

That wasn’t the name of the company but it’s like Waste Management, it’s picking up waste management. So, we said okay, fine. And he said, “I’m going to go take a look at this hotel, Wayne, would you like to meet me? So he flew from Spartanburg, and I flew from Fort Lauderdale, we met in Atlanta.

I looked at this hotel, it was the extended stay concept, where the average traveler would stay about three weeks. It was a small room with a full kitchen, and so the people that stayed there could have breakfast or dinner there in their room, if they wanted. They could cook if they wanted, or they could pop something in the microwave or whatever they wanted to do.

But there was a full kitchen there and we liked that concept and so we bought that hotel.

Steve Pomeranz: Why did you like that concept?

Wayne Huizenga: We liked the concept because it was different than anything else was out there. They operated it pretty much as you would at home.

They changed the sheets about every third day. And the room cost was down, there was no lobby, there was no restaurant, there was no ballroom, it was very simple. It was more like an apartment building than anything else with a bunch of one bedroom apartments and a kitchen.

And we looked at the projections and we liked that a lot, they actually turn out to be better than we thought they would be and in a very, very short period of time, we ended up with 475 hotels.

Steve Pomeranz: Did you take that public again?

Wayne Huizenga: We did take it public.

Steve Pomeranz: And had a high multiple and you used that to build.

Wayne Huizenga: We did have a high multiple but there was nothing to acquire. So, we used a high multiple to acquire cheap money on Wall Street and we used that cash to build hotels.

Steve Pomeranz: I see.

Wayne Huizenga: And we did extremely well with that and we sold that about a year and a half ago for $3.5 billion.

Steve Pomeranz: Wayne, you seem to take your businesses to a certain level and then you sell them. Why do you do that? Why don’t you hold onto them and watch them grow forever?

Wayne Huizenga: Well, the growth is in startups.

Steve Pomeranz: Yeah.

Wayne Huizenga: The real growth is taking something small and making something big.

But, once it’s big, you don’t have much growth because the base is so large. Now, and it’s more like running a business day to day where we’re more in the growth mode all the time, and that’s the reason.

Steve Pomeranz: Well, I mean also when the stock price gets so high, I mean literally speaking you have to grow like crazy at almost impossible amount in order to get that stock price higher.

Wayne Huizenga: Yeah, and at the hotel company, we average building a new hotel every week. When you think about building a new house every week, well, we were building a new hotel every week. And there was a period of time for two years where we averaged opening a new hotel every three days.

Well, when you’re doing that there’s a lot of moving parts. And so, finally, you get it to where you got a good stock price and business is good and you can’t keep growing at that rate anymore. So, we then sell, take our money, and start a new business.

Steve Pomeranz: How do you determine what the right price is?

Wayne Huizenga: Well, when get an offer that’s beyond your expectation.

Steve Pomeranz: Well, that’s number one, sure.

Wayne Huizenga: [LAUGH]

Steve Pomeranz: [LAUGH] That’s the easy one.

Wayne Huizenga: Obviously, there is the rule of thumb in a business you get the blank times cash flow, blank times EBITA, that type of thing.

Steve Pomeranz: Sure.

Wayne Huizenga: And when you get higher than the rule of thumb, then it’s time to sell.

Steve Pomeranz: It’s time to sell.  Let me ask about your management style. You make it sound like kind of just very casual how you managed to do this. You must have an aggressive management style.

How do you get your companies to perform so well? I imagine it’s in who you hire. How do you hire people and make sure that that’s a success?

Wayne Huizenga: Well, in the early days when we started waste management and we were operating all around the United States, and then we were operating around the world, I learned because I had to learn.

I learned how to deal through people over the telephone many miles apart and so forth and you’re just forced to learn. And I made a lot of mistakes along the way, but I’ve finally learned how to hire the right people to make things happen.  Where you could communicate with that person over the telephone and not have to have them in the same office as you.  And I got comfortable with that.  And that’s how we were able to build so many Blockbuster stores.  Through regions and through the right people in the regions.  And the same with Extended Stay America and my friend George Johnson.  And so, I just somehow got lucky in learning how to work with the right people.  We made some mistakes along the way and had to change management from time to time. But basically, it’s all through people.  You know, you hear it said here so often, people are the name of the game.  And we hear it said so often it goes in one ear and out the other ear.  But that is the most important in growing a business quickly.  You have to have confidence in the people that are making it happen.

Steve Pomeranz: I guess you’re also using that as a form of leverage because you’re only one person and the more qualified people and confident people you can have working for you, I guess the greater growth you can get.

Wayne Huizenga: That’s exactly right.  So instead of just growing one business, you’re growing several businesses at one time.

We don’t have any public companies anymore, but we’re investors in lots of companies.  In some cases, we own a minority piece, but in most cases, we either own 100% or we own a majority.  Even if we have partners, we usually own a majority.  And right now, companies that we have, we operate now in 42 states in the United States and 15 foreign countries.  And we operate some businesses that I’ve never been to. All operated through good people in those markets.

Steve Pomeranz: Also, what are some of the ideas that are percolating now?

Wayne Huizenga: You know; we’re looking every day for something.  It’s not as important to us now because a lot of years have passed and I’m getting older.

Steve Pomeranz: How much time are you spending in the office these days?

Wayne Huizenga: Oh, I spend 12 hours a day in the office except I try to take 2 months off in the summertime.

Steve Pomeranz: And are you successful at taking 2 months?

Wayne Huizenga: No, it hasn’t worked for me, yet but I’m still working on it.

Steve Pomeranz: So, you’re still looking at other businesses but not with the same hunger or interest?

Wayne Huizenga: Yeah, we’re still looking and we’ve come up with things.  Right now, we have, like I said, we have quite a few businesses now.  Several of them are in real estate, which we have never done before, so we’re learning that.

Steve Pomeranz: Is that different for you because it’s harder to figure out the right price or the right multiple and so on?

Wayne Huizenga: Yeah, it is.  And we don’t have any desire to be a home builder or condo builder or anything like that.  We buy the land and get the land entitled and maybe put the streets in and then let somebody else come along and build the buildings on it.

Steve Pomeranz: So, you’re buying the raw land kind of in the outer sections of…

Wayne Huizenga: Yeah, in the path of progress and then, like I said, we take it to a certain level and then we sell the rest of it all.

Steve Pomeranz: Now, I know when we were talking before, you think that people of today absolutely need an education and I know that you didn’t finish college.  But what’s more important to you?  Street smarts?  Academic smarts? Or what?

Wayne Huizenga: Well, you know when I didn’t finish college, it was a little different.  That was some time ago, that was 50 years ago.  And I think you could get away with it back in my day, but I don’t think you can get away with it today, I think you need a college education and maybe more.  You know, it’s very, very sophisticated today.  A lot more sophisticated than when what it was when I was starting out.  And so, I think people really do need to have an education.  There’s no question about it.  But you know there’s a lot of difference between someone who’s intelligent and someone who is smart.  And obviously, I’d like to have someone who’s intelligent AND street smart.

Steve Pomeranz: They seem to be the same to me.  Tell me what the difference is in your mind.

Wayne Huizenga: Well, someone who’s really intelligent, but they can’t see an opportunity or they’re so intelligent they can’t really relate to people that aren’t intelligent, they can’t work with the average person.  You know it’s tough, and so if I could only pick one person who had a great personality and was smart, I would pick that person over the extremely intelligent person.

Steve Pomeranz: That’s very interesting.  Especially, I don’t know the exact name of the award, but you received Yale’s highest award I think for non-academic achievement.  So here you are saying that perhaps academic smarts are a little less valuable than street smarts.

Wayne Huizenga: Depends on which business you’re in.  You know, but I think someone with a great personality, someone who gets it, is someone more important than someone who’s extremely intelligent.

Steve Pomeranz: So that concludes my interview with Wayne Huizenga. I hope you enjoyed listening to it as much as I enjoyed doing it.

If you have any comments or questions don’t hesitate to contact us. Go to StevePomeranz.com—that’s StevePomeranz.com.

Episode 974

Steve Pomeranz, Market Call, COVID-19

Steve’s Market Commentary

The Search For High Dividends In A Low Earnings World

How To Live Richly – No Matter What

With Farnoosh Torabi, Finance Expert, Journalist, and Author of the book You’re So Money: Live Rich, Even When You’re Not

 

Do You Understand The True Nature Of Risk?  Learn It Here

With Jonathan Clements, Founder and Editor of HumbleDollar.com and Personal Finance Author

Learn How Covid-19 Is Changing The Way We Buy And Sell Real Estate

With Terry Story, a 31-year veteran with Keller Williams located in Boca Raton, FL

This May Be A Great Time To Buy, But Do You Really Know How To Invest Wisely?

With Dr. Bud Labitan, Physician, Investor, Author of Illustrated Valuations

Do You Understand The True Nature Of Risk?  Learn It Here

Jonathan Clements, True Nature Of Risk

With Jonathan Clements, Founder and Editor of HumbleDollar.com and Personal Finance Author

Jonathan Clements is the founder and editor of Humble Dollar and a prolific author. His latest book, “From Here to Financial Happiness: Enrich Your Life in Just 77 Days” offers tips and tricks to bolster your personal finances. This week, Jonathan and Steve talked about investing and understanding investment risk.

Risk Tolerance And Risk Capacity

Steve opened their conversation by pointing out that, “investment risk is often misunderstood.” Most people have experienced some level of risk over the past month or so because of the coronavirus pandemic. But, as Steve said, “We need to be asking ourselves some important questions, such as what exactly is risk and how can it be measured.”

Jonathan helped to simplify things with two terms that financial experts typically use when discussing risk. “Financial experts distinguish between risk tolerance and risk capacity. Risk capacity is our objective ability to take risk. If, for example, you have a stable job and many years before retirement, you can objectively take on more investment risk. A large percentage of your portfolio can be invested in the stock market.”

The issue, then, is “how much risk can you take before you freak out”, as Jonathan put it. That, in a nutshell, is risk tolerance. How much risk can you tolerate before you become unsettled or uncomfortable. Jonathan said, “Some people are perfectly happy watching their stock market investments drop 30 – 40%. Other people will lie awake at night worrying about the end of the world.”

Steve noted that, in most cases, you’re making your investments when the market is doing well or is at least neutral. “You generally have this feeling that the markets will rise. In most cases, you understand that recessions happen and that markets fluctuate. But it becomes a totally different situation when you’re invested and the markets are down double digits, and everything seems chaotic. Your emotional risk tolerance changes.”

Behavioral Finance

Jonathan explained that the concept of emotional tolerance in regard to risk is largely covered by behavioral finance studies. He said, “Behavioral finance looks at our mental and emotional mistakes that we make when markets are both up and down. If the market is up and we make gains, we tend to extrapolate them into the future, wishfully imagining that share prices will rise indefinitely. The more we are successful, the more we think we have an expert handle on investing. As our confidence grows, we begin to take on ever more risk.”

But consider the past few weeks. The coronavirus pandemic emerged, and the market responded drastically. Share prices dropped and the market tanked seemingly overnight. Jonathan continued, “Most people in this situation tend to freeze. They don’t buy or sell, but simply stick their head in the sand, hoping things will pass, without looking at their account statements.” But as the plummeting market continues, some investors commit what Jonathan calls the “cardinal sin”. “Fear makes them panicky. They’re worried about their nest egg, so they sell out close to the market bottom. They lock in their losses, forfeiting tens of thousands of dollars.”

Jonathan shared his view on a standard for good behavior during a market decline. “It’s optimal to try to invest more when the market is down. Try to rebalance your portfolio. Take your tax losses and then use the proceeds to make stronger investments. If you’re not able to do this, at least don’t pull out of all your investments. Freezing isn’t the best option, but it’s better than cutting and running.”

Steve jokingly suggested that perhaps our investment portfolios should be put in quarantine just like we are.

Risk Tolerance Questionnaires

Steve turned the discussion to the risk tolerance questionnaires that brokerages have people fill out when they open an account. There tend to be a lot of different opinions among those in the financial industry, specifically brokers and financial advisors, about the efficacy and accuracy of these questionnaires. Steve pointed out that, “They tend not to work because feelings and thoughts on investing change over time.”

One question that’s typically asked is “When will you need the money you’re investing?” which is a fair question. Jonathan’s opinion is that “If you have money that you’ll need to spend in five years, regardless of the reason, that money shouldn’t be in the stock market. It really should be invested in super conservative investments, like high-quality short-term bonds, certificates of deposit, or high yield savings accounts. You shouldn’t be taking any real risks with that money.” Steve added, “And if you’re retired and know you’re going to take income from your portfolio, you need to have a good cushion of non-equity investments in order to draw from when your equity investments are down.”

But these questionnaires also ask a lot of hypothetical questions about how you will respond to market movements. The biggest issue with hypothetical questions, as both Steve and Jonathan agreed, is that you generally say you’ll respond in the best possible way, but it’s virtually impossible to know if that’s really true. “It’s enormously difficult to imagine – when faced with the reality of a plunging market – if we’ll sell, sit tight, or buy. Until you’ve lived through some market declines, I don’t believe you can honestly say what your true risk tolerance is,” Jonathan said.

Steve added, “Most people aren’t really in touch enough with their thoughts and feelings about their investments to answer most of the questions on those questionnaires. In truth, I think the questionnaires are really more for investment companies, to protect them from legal liability in the future.”

Advice For Investors

Steve asked Jonathan to offer some general advice for investors. Jonathan recommended that “Anybody new to investing should start out by being more conservative than they are initially inclined to be. Start conservative, figure out what your risk tolerance is from experience, and then you’ll know how to invest.” This goes back to the idea that until you’ve lived through at least one major market decline, you don’t really have a good idea of what your risk tolerance is.

You can get more personal finance and investing tips from Jonathan at humbledollar.com.

Disclosure: The opinions expressed are those of the interviewee and not necessarily of the radio show. Interviewee is not a representative of the radio show. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by the radio show.

Read The Entire Transcript Here

Steve Pomeranz: I’m very happy to welcome back Jonathan Clements. He’s founder and editor of the HumbleDollar website. He’s also author of a fistful of personal finance books including From Here to Financial Happiness, and How to Think about Money. And I asked him to join me today to help us define investment risk and appreciate its true nature. Hey, Jonathan, welcome back to the program.

Jonathan Clements:  Hey, thanks for having me on, Steve. I really appreciate it.

Steve Pomeranz:  Sure. Now, investment risk is often misunderstood and it takes times like these to get to the root of it so we can make the right decisions about our money going forward. Now we know that we’ve all gotten a taste of what risk feels like over the past few weeks, and it brings up the question of what exactly is risk? How can it be measured? And what should we expect from the outcome of taking more risks, Jonathan?

Jonathan Clements: Let’s start with two notions that you hear financial experts discuss, and I think it’s a really useful distinction. Financial experts distinguish between risk tolerance and risk capacity. So risk capacity is our objective ability to take risk. So, if we have a stable job but we’ve got decades to retirement, we can objectively take a lot of investment risk. We can put a large percentage of our portfolio in the stock market.

The problem is, even if we have a high capacity to take risk, we may have a very low tolerance for risk. And when we’re talking about tolerance for risk, it’s really a subjective issue here. How much risk can you take before you freak out? That essentially is risk tolerance. And some people are perfectly happy seeing their stock market investments drop 30, 40% and other people will lie awake at night worrying about the end of the world.

Steve Pomeranz: A lot of decisions about how to place your money are made when times are either benign or good, you see the market’s rising or you generally have this feeling that markets will rise. You also may generally know that recessions happen, markets go down, and maybe you’ve ridden one or two of them, so you have a pretty good idea. But when you get into the heat of the battle and markets are down double digits in one day and it seems like things are just totally chaotic and out of control, your tolerance, your emotional tolerance for risk, changes. Now, take us through that change, Jonathan.

Jonathan Clements: So these issues have been pretty thoroughly explored by experts in something called behavioral finance. Behavioral finance looks at the mental mistakes we make both in up-markets and in down-markets. So when the market is going up and we take those gains, we extrapolate them into the future, we imagine share prices will rise forever. As we make money, we attribute those gains to our own brilliance. We start to think that, wow, we really know what we’re doing. Our confidence grows and grows. We start to take ever more risk.

And then, suddenly, a pandemic turns up. And share prices start to decline and all of this goes into rapid reverse. We lose that self-confidence, we’re suddenly unsure of what we’re doing. We see our portfolio falling in value. We watch the market coming down and we go, “Oh, my goodness, it’s going to zero. This nest egg I’ve built within a few short weeks is going to disappear down a black hole and I’m going to be broke.” Most people in that situation simply freeze. They don’t buy, they don’t sell. They just stick their head in the sand. They don’t look at their account statements and they just close their eyes and wait for it to all be over.

But for some minority of investors, it’s just too much. And they commit what is probably the cardinal sin of investing, which is they sell close to the market bottom. They get out, they lock in their losses and they say goodbye to tens of thousands of dollars that they will never see again.

Steve Pomeranz: Yeah. I’ve been saying that there are two things that should be quarantined right now—our bodies and our portfolios. You put your portfolio into quarantine. That doesn’t mean you can’t take something out of it and replace it with something else if necessary, of course.

But generally speaking, this idea, maybe the freeze, maybe the deer in the headlights effect, is a positive for some people. What do you think?

Jonathan Clements: I think you’re right, Steve. I mean we know what good behavior is during a stock market decline. Good behavior is you try to invest more in the stock market, you rebalance your portfolio, you take tax losses and then take the proceeds and reinvest into other stock market investments. Those are good behaviors during a stock market decline. But if you can’t get yourself to act well, at least don’t act badly. And simply freezing your portfolio and not doing anything isn’t the worst way to behave.

Steve Pomeranz: Right. A lot of people who have brokerage accounts, whether they be of the discount broker variety like the Fidelitys and the Schwabs or they be the stockbroker variety, have to fill risk tolerance questionnaires. Now I know you have opinions about them. I was, I’ve been using, I’ve been investing for over 40 years as a professional, and I stopped using these tolerance questionnaires about 25 years ago because I found they didn’t really work. They don’t really give you any information, because of what you just mentioned. The fact that feelings change over time and most people don’t really know. They’re not really equipped to make the kinds of decisions that risk tolerance questionnaires ask.

So I’d just like to go through some of these questions here and get your opinion on them. First of all, they will ask you, when are you going to need the money? And you may say, well, less than a year or five to 10 years. I think that’s a pretty valid question. Would you agree?

Jonathan Clements: Yeah, I would agree with you, Steve. I mean, if you have money that you’re going to need to spend in the next five years, whether it’s your emergency money or it’s your next five years of portfolio withdrawals once you’re in retirement, that money should not be in the stock market. It should be in super-conservative investments, maybe high-quality short-term bonds, maybe certificates of deposit, maybe a high-yield savings account. You shouldn’t be taking any more risk than that. So, yeah, that’s a perfectly valid question.

Steve Pomeranz: And that means that if you’re retired and you know you’re going to take income from your portfolio, you need to have a good cushion of non-equity investments in order to draw down from for when your equity investments are down. This will help you keep your head straight. So that’s a good question. No problem with that question.

And then it asks, so here’s a question that I have some problems with. This is from a Vanguard questionnaire, by the way. From September 2008 through November 2008, stocks lost more than 30% of their value. If I owned a stock investment that lost about 30% of its value in three months, I would sell all my remaining investments, sell some of my remaining investments, hold onto the investment and sell nothing, or buy more? Now, what do you think of that question, Jonathan?

Jonathan Clements: Well, Steve, if you asked me if I was walking by and I noticed a house was burning and that there were people inside I could save, hypothetically, I would run in the door and save them. But if I was actually walking past a house and it was actually on fire, I think I would think twice about running into that burning house.

Steve Pomeranz: Yeah.

Jonathan Clements: So similarly, you can ask people hypothetical questions about how they would behave and, of course, they’re going to say, “Yes, I will behave well.” But when you put them in that situation, they may not act as well as they might imagine. And that’s true for all of us in all kinds of situations. It’s just enormously difficult to imagine when we’re faced with the reality of a plunging stock market, whether we will sell, sit tight, or buy. And until you’ve lived through some market declines, I don’t believe you can honestly say what your true risk tolerance is.

Steve Pomeranz: I think that most people are not really that in touch with those kinds of thoughts and feelings to be able to answer questions like that. I think these questionnaires are more for the companies that use them to protect them from legal liability in the future or something of that nature. But in reality, I think they do more harm than good.

For example, they’ll ask you to pick from a group of allocations— 10% stocks, 90% bonds, all the way through the spectrum to 90% stocks and 10% bonds. And they’ll say, on average the decline in worst cases have been X and the return has been Y, the average return over time. Pick one. And I think that reflecting this idea that it’s all so hypothetical, I think that the idea of actually asking even myself to pick one which would be better is misleading. What do you think about that?

Jonathan Clements: I agree with you, Steve. I mean, again, it’s partly because it’s totally different when you experience it, but also nobody in the history of the world has ever gone to the shopping mall and spent a percentage. When we go to the shopping mall, we spend dollars.

And so it’s one thing to say, “Oh, yeah, losing 30%, no problem.” But when somebody says to you, “Your thousand-dollar nest egg is now worth $70,000. That money is gone. It may never come back.” How are you going to feel? Suddenly it becomes a whole lot more real. And maybe you would freak out and-

It’s so hard to gauge how we’re going to react in any particular situation. And moreover, let’s just go to today. It’s never just that the stock market is going down. There’s always some reason for a big market decline. And today, we’re not just fearful because our investment portfolios are worthless. We’re fearful because we may be about to lose our job. We are fearful because we or members of our family or our friends may get this horrible disease and end up dying. I mean, there’s fear piled on top of fear here.

Steve Pomeranz: That’s the idea that this fear piling on fear turns into an irrational conflagration in your brain and makes it very difficult to know what to do and to even know who to trust and who to believe. I think that’s the big problem. So I guess doing nothing turns out to be the final decision. But nevertheless, this idea of actually going through it.

So what’s your final advice for those who have to pick an allocation and then have to live through their decisions when bad things happen? Final words?

Jonathan Clements: I would advise anybody who is new to investing to start by being more conservative than their initial inclination. Because the fact is until you’ve lived through a market decline or maybe more than one, you simply don’t know how much risk you can tolerate. And you don’t want to be in that situation where the market is down 40%, and you’re bailing out of stocks because you’re so panicked. So start conservative, figure out what your risk tolerance is from experience, and then you’ll know how to invest.

Steve Pomeranz: And remember, you’re going to suffer from FOMO, fear of missing out. When the markets go up, you’re going to probably kick yourself that you weren’t more aggressive. But always remember the other side of the coin. Jonathan Clements, editor of HumbleDollar website, which I really recommend this website. It’s great commentary. Jonathan’s got a lot of experience as editor and journalist, and you definitely want to follow him on a regular basis. That’s the HumbleDollar website. Jonathan, thank you so much for joining me today.

Jonathan Clements: It’s been my pleasure, Steve. Thanks so much for having me on.

Steve Pomeranz: Thank you.

This May Be A Great Time To Buy, But Do You Really Know How To Invest Wisely?

Bud Labitan, How To Invest Wisely

With Dr. Bud Labitan, Physician, Investor, Author of Illustrated Valuations

To get some insights for investors, Steve talked with Dr. Bud Labitan, who is both a physician and a value-investing devotee. Bud is the author of several books on value investing, including A Fistful of Valuations, that explain his investing strategies crafted on the principles put forward by Ben Graham, Warren Buffett, and Charlie Munger.

Note: Steve made it clear to listeners that none of the stocks he and Bud discussed should be taken as recommendations. Listeners should do their own research in consultation with their financial advisor.

The Current Market Situation

To start things off, Steve asked Bud for his opinion on the current market situation, specifically, whether he believes stock prices accurately reflect the current economic situation or if stocks may be a bargain at the moment. In reply, Bud said that he sees stock prices as still slightly overvalued. His thinking on the future of the overall market is that it all depends on the rate of return to normalcy, which he sees as dependent on how quickly a coronavirus vaccine or effective treatments are developed. While he sees the overall market as overvalued, he noted that there are still individual stocks that may be a bargain. “I saw Boeing at $100 or below a hundred as a bargain at that point because, prior to the coronavirus, Boeing had been selling above $400.”

Intelligent Speculation

Steve next asked Bud to talk about the factors that go into his Intelligent Speculation Model. He noted to listeners, ”Remember, investing is investing in businesses, not just in numbers that move up and down in the market.”

Bud explained that he developed the model based on the 1946 lectures Ben Graham gave to his students, combined with the four filters that Warren Buffett and Charlie Munger use: Products, Enduring Customers, Managers, and Margin-of-Safety, along with the fifth filter of Catalyst. He noted that Graham said, “There is a real difference between intelligent and unintelligent speculation and the methods of security analysis may often be of value in distinguishing between the two kinds of speculation.”

The first factor in Bud’s Intelligent Speculation Model is understanding the basic economics of supply and demand for a company’s products. Another factor to consider is the individual investor’s time frame for investment—short-term, medium-term, or long-term. A third factor is a company’s advantages and disadvantages, which should be considered both in the long-term, as well as specifically within an investor’s investment time frame. As an example, he mentioned the fact that demand for Netflix is up right now because everyone’s home, but that investors have to consider if that demand level will drop significantly when everyone returns to work.

Steve made the point that many investors make the mistake of extrapolating to infinity based on recent stock market action. When stock prices fall dramatically, as they have recently, investors think like they’re going to keep falling all the way to zero. Conversely, when the market is strong, investors act as if prices will just continue rising infinitely higher.

A Wife, A Girlfriend, Or A One-Night Stand

Steve next asked Bud to talk about his Stock Tracking Template, which uses a stock screener to identify potential investments. Bud screens potential stocks for investments into one of three categories that he refers to as a wife, a girlfriend, or a one-night stand. He explained, “A wife is someone you want to be with forever. Thus, you’re looking for a company that has characteristics of endurance and profitability and good superior qualities. A girlfriend has some attractive qualities. Applied to a business or a stock, there might be opportunities where the business is selling at a significant bargain and you may want to buy it and hold it for a year or two. A one-night stand is a short-term speculation where you see a bargain, there is a catalyst, and you have a high confidence or probability that the catalyst will kick in.”

Steve mentioned the importance of one of the criteria that Bud uses in screening stocks. He said, “I think the first criteria that you’re using, and I think it’s incredibly important to use that today, is the amount of debt that a company has relative to their equity or relative to their assets. Because if business is going to slow down and for a protracted period, these companies need to be able to survive, so they need a decent balance sheet. They need cash on the balance sheet and access to borrowing, if necessary.”

Other criteria Bud uses include net profit margin and estimated intrinsic value. In several of his books, Bud talks about the discounted cash flow model that he uses to estimate intrinsic value.

You can find Dr. Labitan’s books on Amazon to learn more about his investing strategies.

Disclosure: The opinions expressed are those of the interviewee and not necessarily of the radio show. Interviewee is not a representative of the radio show. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by the radio show.

Read The Entire Transcript Here

Steve Pomeranz: I’m very happy to welcome back Dr. Bud Labitan, a physician and investor who has produced books related to value investing as practiced by Warren Buffet and Charlie Munger. According to what I saw on Amazon, he’s written 23 books including The Four Filters Invention and Illustrated Valuations, which we have discussed on air, and he always has the kind of grounded insight that is sorely needed in times like this. Hey, Bud, welcome back to the program.

Dr. Bud Labitan: Good morning, Steve. Glad to be here.

Steve Pomeranz: Good morning. Where am I calling you from today? I know I’m from my new studio in my office. Where are you currently situated?

Dr. Bud Labitan: Steve, I’m actually visiting my mother in Titusville, Florida and have been sheltering in place down here for about five weeks now.

Steve Pomeranz: Wow.

Dr. Bud Labitan: Normally I live in Schererville, Indiana, which is in the Northwest corner of Indiana.

Steve Pomeranz: Strange times, aren’t they?

Dr. Bud Labitan: Yes.

Steve Pomeranz: So did I count 23 books on Amazon, including the one that stated that you’re running for president?

Dr. Bud Labitan: I believe I have about nine or 10 books, Steve, some of those are different versions. There’s a large-type version, and then four of them are audiobooks on audible.com.

Steve Pomeranz: Oh, wonderful.

Dr. Bud Labitan: So I think the count is around nine or 10.

Steve Pomeranz: Okay, that’s enough. Let’s get to the business at hand. This virus has wreaked havoc on the world economy to a point where much of the business world is shut down. I asked the question that I think is on most investors minds, would you say that current stock prices in the US accurately reflect a dire outcome or exactly where we stand in the uncertainty or do you think American businesses are on sale right now?

Dr. Bud Labitan: I’d like to break your question into two parts there, Steve. In my view, most of the market prices are still slightly overvalued but not as overvalued as they were in late January. As far as outcome, it all depends on the rate of return to normalcy, which could be accelerated if we have a viable vaccine or could be accelerated back if we have good treatments that prevent patients from going into the ICU. Those are the two factors in my view.

Steve Pomeranz: So when you’re looking at stocks to buy—and we’re going to get into some of the screens that you use and how you think—forgetting about the fact we all tend to look at the market as one thing, but it’s actually a conglomeration of many different businesses and many different industries operating on many different factors. When you look at your stocks that you’ve modeled for so many years, are you seeing particular pockets that look incredibly attractive now?

Dr. Bud Labitan: I saw a couple that I viewed as intelligent speculation a couple of weeks ago when the market had really dipped. I saw Boeing at a hundred or below a hundred as a bargain at that point because prior to the coronavirus, Boeing had been selling above $400.

Steve Pomeranz: Yeah.

Dr. Bud Labitan: The other one that has kind of attracted my eye was Ford Motor, but Ford Motor has a complicated balance, so in general, I tell folks to be careful, do your homework, and also look at their balance sheets and their long-term debt structure.

Steve Pomeranz: Yeah, I want to get into that. And also, I want to say that any stocks mentioned are not recommendations, we’re just discussing stocks. You have to do your own research, have your own advisor. Again, let me make that perfectly clear.

Dr. Bud Labitan: Oh, sure, sure.

Steve Pomeranz: You mentioned intelligence speculation. That’s just not a couple of words put together, that’s actually a thing because you developed this intelligence speculation model from your meeting of Ben Graham and Warren Buffet and Charlie Munger, and I have the chart out in front of me. I want to go through each one of these so our listeners can understand the disciplined way of thinking about investing. Remember, investing is investing in businesses. It’s not just in numbers that move up and down in the market or on the internet, Yahoo Finance page, or wherever you’re getting your quotes. There’s actual economics behind it. Let me start you off. This is the Intelligent Speculation Model.

Dr. Bud Labitan: Sure.

Steve Pomeranz: Number one: understand the economics supply and demand of the situation. Explain that for us, please.

Dr. Bud Labitan: This model that I developed is based on the 1946 lectures of Ben Graham to his students, and in that last talk when he was saying goodbye to his students, he sort of said to them, “I know some of you are going to end up on Wall Street and some of you are going to get the temptation to speculate.” And let me just read the one sentence to you that kind of summarizes everything, Steve. Ben Graham said, “There is a real difference between intelligent and unintelligent speculation and that the methods of security analysis may often be of value in distinguishing between the two kinds of speculation.” The model was imagined in a way that what if Graham had lived into the modern Buffet and Munger era and applied the four filters as well as adding the fifth filter of catalyst and conditions needed for a quicker profitable outcome. So that’s how the model came into being.

As far as number one, understand the economics of supply and demand of this situation. On that one we have to really look at the timeframe of the individual business that the person is looking at because over the short-term, demand is near zero right now.

Steve Pomeranz: Yeah.

Dr. Bud Labitan: And hopefully things will start to pick up steam and then a person who engages in this, which I don’t really promote at this point because I think most folks should just stay calm in the waters right now, but really have to think about the timeframe in which they want to lock up their money. Is it for short-term, medium-term or long-term value?

Steve Pomeranz: Right.

Dr. Bud Labitan: And then the rest of them are fairly understandable. Number two is advantages versus disadvantages. You have to really think about are there real advantages or are they just imaginary?

Steve Pomeranz: The company’s competitive advantages?

Dr. Bud Labitan: Right, right. And also advantages in the period for which they are speculating. Right now, everyone can understand that the demand on Amazon is going up because everyone’s at home. The demand on Netflix is going up because everyone’s at home watching, streaming.

Steve Pomeranz: Yeah.

Dr. Bud Labitan: But then you have to be a little bit more realistic down the road is when everyone returns to work. Will that demand still be at this level or will it be 10 or 20% less?

Steve Pomeranz: I think when things get exciting, sometimes nasty, but volatile and aggressive, people tend to extrapolate current conditions far into the future. For example, if the stock market’s going down and you get that feeling in your stomach and you want to bolt, let’s say you want to sell everything, it’s because you’re extrapolating that things are going to go to zero or they’re just going to keep going down. And, of course, they never do. On the flip side of that, when things are exciting and prices are going up and you’re feeling like you’re really a genius because somehow you’re making all this money and you have some role in that. People tend to extrapolate into infinity the earnings of some companies like an Amazon or otherwise. Psychology plays an important role in this, right?

Dr. Bud Labitan: Right. I agree. Psychology and careful thinking. I think the number one thing is to think about safety, think about defining reality and if you do those two things or the three things we talked about, people will make better decisions if they put more thought into them.

Steve Pomeranz: Talking about putting more thought into what you do. If you’re going to take an approach of investing in individual stocks, I think there are methodologies and disciplines that one should use and one of the most common types is setting up a stock screen. This is where you can actually go online or get a piece of software or use an app where you can ask or put in certain conditions of what kind of balance sheet a company should have, what type of net profit margin and so on. And you’ve done that and you do that all the time. And I want to go over one of the templates that you’re using. The Stock Tracking Template, I think you call it.

Dr. Bud Labitan: Sure.

Steve Pomeranz: What I really liked about this was that when it all came out in the wash, you would rate a particular company in three ways. Is this a wife, is this a girlfriend, or is this a one-night stand? And I got a kick out of that because at first when I looked at that I was like, “What are you talking?” You’re asking your opinions of your wife, your girlfriend, about what you should be investing in. But seriously what you’re really saying is what?

Dr. Bud Labitan: What I’m saying is if you were really digging into it and thinking about it, a wife would be someone you want to be with forever. And thus you’re looking for a company that has characteristics of endurance and profitability and superior qualities.

Steve Pomeranz: Okay.

Dr. Bud Labitan: As far as the girlfriend, the girlfriend has some attractive qualities and applied to a business or a stock you would put that category on your watch list because there might be opportunities where the business is selling at a significant bargain and you may want to buy it and hold it for a year or two. And then finally the one-night stand is the speculation where you see a bargain and it meets the criteria on the Ideal Business Speculation Model, there is a catalyst and you have a high confidence or probability that the catalyst will kick in. It’s a speculation, it’s a short-term speculation and you have to set upper limits and lower limits on your speculation. So you have to be more careful about those.

Steve Pomeranz: All right, so let’s take a look at some of the companies. I think the first criteria that you’re using, and I think it’s incredibly important to use that today, is the amount of debt that a company has relative to their equity or relative to their assets. Because if business is going to slow down and for a protracted period, these companies need to be able to survive, so they need a decent balance sheet. They’ll need cash on the balance sheet, they’ll need access to borrowings if necessary. Their relative debt to their structure has to be pretty reasonable. I noticed that that was in the first column. What kind of filter are you using to debt to assets here, Bud?

Dr. Bud Labitan: This is simply taken from a program that I wrote called StocksCalc.  It gets data from multiple online sources, I think one of the examples I mentioned here is Apple has a long-term debt to asset ratio of 0.27, so that means 27% of assets or relative to the assets, 27% are in long-term debt.

Steve Pomeranz: That’s pretty low.

Dr. Bud Labitan: Yeah, it’s pretty low and some companies have a lot higher. I believe Ford’s is around 0.47. If you compare those two, Apple has a lesser proportion of debt to assets.

Steve Pomeranz: I was surprised to see on this list that ExxonMobil, which is in a really terrible industry right now—we just saw oil prices plummet once again—they only have 7% of debt to assets. This is a company that just on this one metric,—and don’t trade on this metric, folks—but it seems like a fairly strong possibility that they should be able to get through this based on this one metric.

Dr. Bud Labitan: Oh, I agree, Steve. ExxonMobil has a lot of oil in the ground and they have control of numerous large oil fields across the world, so you know they’re going to ride right through this difficult period, it’s just a matter of when prices return to near normalcy.

Steve Pomeranz: Yeah. We’re, unfortunately, running out of time this went really quickly, so I’m just going to quickly mention some of the other criteria.

Dr. Bud Labitan: Sure.

Steve Pomeranz: The net profit margin, the estimated intrinsic value. Now, intrinsic value is something that is kind of a floating figure and there are numerous ways to calculate intrinsic value. But, one way is the discounted cash-flow model, and so I think you use that in your filters?

Dr. Bud Labitan: Yes. For your listeners, I mentioned that my model in several of my books, briefly, it’s just taking an approach on the free cash flow, growing it out at a conservative growth rate for 10 years, flattening it from year 10 to 15, summing that all up, and then using the net present value method to get the present value of that amount of money, and then dividing by the number of shares outstanding. I know we’re limited for time, but it is mentioned in several of my books.

Steve Pomeranz: Actually, I invite my listeners to go onto Amazon and take a look at those books, and if you’re interested in this to purchase some of them. My guest is Dr. Bud Labitan, L-A-B-I-T-A-N, a physician and investor and, as I mentioned, he’s produced these books and as a devotee of the Buffet-Graham-Munger school, uses these metrics to measure investment quality, especially in times like this where you don’t want to be stuck with companies that can go out of business and get into serious financial trouble, you really want to go with those that are tried and true and safe. Bud, thank you so much for joining me once again.

Dr. Bud Labitan: Oh, my pleasure, Steve.

Learn How Covid-19 Is Changing The Way We Buy And Sell Real Estate 

Terry Story, COVID -19, Real Estate

With Terry Story, a 31-year veteran with Keller Williams located in Boca Raton, FL

During this week’s Real Estate Roundup, Steve spoke further with Terry Story, a 31-year veteran at Keller Williams, about the state of the real estate industry amidst the coronavirus pandemic.

Pending Homes Sales

The coronavirus pandemic is definitely affecting pending home sales, at least it is in the Palm Beach County area where Terry operates. Since March 19th, properties under contract have fluctuated significantly. She noted, “When I first began monitoring properties under contract, we had 311. The next week, it was 297. The third week, the number dropped all the way down to 209. Then, in the fourth week, the numbers went back up to 217. And then up again the next week to 232. I’m starting to see a pattern. We have a tendency to freak out when numbers drop, but this seems to be our new norm. Things are starting to pick back up.”

Steve observed that the pattern of pending sales looks like it may be parallel to recent stock market action.

The Overall State Of The Market

It’s not unexpected that numbers are generally down. Inventory is lower and sellers are concerned about finding buyers. Some are simply pulling their homes off the market. “What I really think we’re seeing is a pause. Buyers are pausing, sellers are pausing,” Terry said.

There are, however, still sellers who want to sell their homes. And in order to sell in the current market, sellers have been willing to lower their prices a bit. “And buyers, especially motivated buyers, are seizing the opportunity to get the home they want at a lower price,” Terry added.

The question then is “What will this look like on the backside?” Terry believes that buyer demand will be greater than seller demand for quite a while. “We’re going to stay in a seller’s market until we get to a point where there are more sellers than buyers. And that will happen. We can’t stay in a seller’s market forever.”

Steve noted that a keyword Terry used is “motivated”, saying, “I think that’s the key driver here because these people who are motivated to sell, they’re going to be willing to drop their price, and buyers that are motivated are going to be willing to work through the greater difficulties involved in buying.”

Steve closed their conversation out by having Terry reiterate the main points of previous discussions about how the coronavirus has actually changed the process of home buying and selling. Agents are using virtual tours, protective gear is required for actual home visits, and mortgage financing requirements have become significantly stricter.

If you’d like to learn more about buying or selling a home, check out Keller Williams.

Disclosure: The opinions expressed are those of the interviewee and not necessarily of the radio show. Interviewee is not a representative of the radio show. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by the radio show.

Read The Entire Transcript Here

Steve Pomeranz: It’s time for Real Estate Roundup. This is the time every single week we get together with noted real estate agent Terry Story. Terry is a 31-year veteran with Keller Williams located in Boca Raton, Florida. Welcome back to the program, Terry.

Terry Story: Thanks for having me, Steve.

Steve Pomeranz: So, life in the time of coronavirus.

Terry Story: Yes, yes.

Steve Pomeranz: So, we were talking off air about what you call pending sales because there’s some interesting numbers there. Take us through that.

Terry Story: Sure. So I’ve been monitoring now, we’re going into our sixth week of this, and I’ve been monitoring it. So the first week they started tracing this was March 19th. And at that time in Palm Beach County, we had 311 properties go under contract. Then the following week, that number dropped a little bit to 297. Then the third week, it dropped even more to 209. But by the fourth week, we see the numbers starting to rise. It went from 209 to 217. And then last week it went up to 232. So I’m starting to see a trend and a pattern. And what it’s telling me is it’s saying, “Okay, we all freaked out and panicked. Sales slowed down. And now we’re in the new norm if you will. And this is the way it’s going to be.” So we’re seeing the transactions start to pick up.

Steve Pomeranz: When I write down these numbers, 311 to 297 to 209, up to 217, up to 232, it looks a little bit like the stock market, you know that big downward swoop.

Terry Story: I’m going to call this the V shape. I’m going to say I see a V in this.

Steve Pomeranz: You think you see a V? Well, you’ve got a long way to go to get back to 311 though.

Terry Story: Yeah, but I still think it’s going to be a V.

Steve Pomeranz: Okay. All right.

Terry Story: And not a U.

Steve Pomeranz: I’m going to take these numbers, and there are only five numbers, so this is not going to be really statistically accurate-

Terry Story: No, we don’t have enough data yet.

Steve Pomeranz: … but I’m going to plot it up against the S&P 500 and see if there’s a correlation. Okay. All right. So, anything new and different in your world? What are the other agents saying? How is business, in general?

Terry Story: I mean, in general, the numbers are down and we’re seeing that some sellers have taken their home off the market. And quite frankly, what we’re seeing is more of a pause. We’re seeing buyers pausing, sellers pausing, but keep in mind there’s plenty of buyers that need to buy a home and sellers that have to sell a home. What I’m seeing on the seller side, even though our inventory is already low, it’s gotten lower. The sellers that want to sell are adjusting their prices a little bit and the buyers are seizing that, especially the motivated buyers.

So I’m anxious to see what does this look like on the backside. I believe for quite some time we’re still going to see the buyer demand greater than the seller. So what does that mean? I see that we’re still going to stay in a seller’s market until we come to a point where there are more sellers than buyers.

Can that happen? Sure it can. Will it happen at some point? Yes, it will because we know that we can’t stay in a seller’s market forever and this is, even though it hasn’t been technically declared a recession. So I would think that at some point, this is when we will see it begin to reverse a little bit.

Steve Pomeranz: You mentioned the word motivation, and I think that’s the key driver here because these people who are motivated to sell, they’re going to be willing to drop their price, and buyers that are motivated are going to be willing to work through the greater difficulties. Those who have listed that aren’t as motivated, for example, I have friends in New York state who listed their home, but they’ve pulled it off the market because they feel that a home listed on the market for a longer period of time when they’re not quite so motivated can be a detraction from the sale. What do you think?

Terry Story: Yeah. And I’ve had a lot of people express that, but I think we’re all going to get a pass on this one. I would say in normal times, yes, people monitor days on market. This is so explanatory that I don’t believe that that’s going to have an impact.

Steve Pomeranz: Okay. I wanted to ask you about how the process of buying and selling homes from your agent’s perspective has changed and what has stayed the same? Because I would be thinking that if I were looking to buy a home, I would see this chaotic world out there and figure out, well, how is this ever going to get done? How am I going to see these houses? How am I going to close? So I’ve asked you to walk this through with me so we can see it in our own minds from the agent’s eyes. So I want to start it off. So I know the first step is that you have made these virtual open house videos as a virtual tour. So just tell us a little bit about that.

Terry Story: Correct. So, the consumers start their home shopping on the internet, and a lot of the agents have created virtual tours, professional photos. All of that makes a huge difference in impact on whether or not a buyer wants to see the home. So, a buyer identifies a home that they want to see. I personally take it a step further. When the agent calls and inquires about a particular property, I will then send them my little homemade walking tour of the house, which was made before all of this began. And it shows in greater detail as if you were with me. I’ll show you the closets. I’ll give you a really detailed tour of the house. Once the client has seen that homemade video and they still want to see it, then I know that they’re serious. We’ll take it to the next level, and that would be to bring them into the property.

So now we’re going to take you through the house where you go with protective gear, gloves, masks, and booties if required. You now like the house. We’d go to contract like we normally would and then the fun begins. We’re going to do a lot more deeper qualifying of the buyer, make sure that we are in constant contact with that lender. There’s a lot more requirements right now to obtain finance and make sure that we have weekly conversations with all the parties involved, to keep everybody motivated to stay in the deal and make sure that everybody is doing everything in a timely fashion to get us to the closing table.

Steve Pomeranz: Once you’re at the closing table, what happens? Is there a closing table?

Terry Story: Is there a table? Yeah. So no, we don’t have a table anymore. They’re done remotely. They’re done in parking lots. You can come into the office. We don’t have buyers and sellers and agents all together anymore.

Steve Pomeranz: So, the deals get done how? They are shuttled, paperwork? Are you a paper shuttler now?

Terry Story: I have become an official carrier of paper, yes. Whatever it takes to get it done. And same with the title companies. They’ll do what they need to do to get it done. We’re now doing remote. There’s the capability to do complete remote closings with the right lenders and the right title companies.

Steve Pomeranz: The real estate business in the time of coronavirus. My guest, as always, is Terry Story, a 31-year veteran with Keller Williams located in Boca Raton, and she can be found at terrystory.com. Thanks, Terry.

Terry Story: Thanks for having me, Steve.

The Search For High Dividends In A Low Earnings World

Steve Pomeranz, High Dividends

Weird Oil Prices And The Search For High Dividends

By now you’ve heard that in some places in the world, interest rates have turned negative. When interest rates are negative, it means you can borrow money and receive interest payments from the bank instead of paying interest. I know it sounds crazy and it is crazy—a crazy, messed-up thing. But now because of Covid-19, something crazier just happened. It’s called negative oil prices.

That’s right, the price of oil went below $0. Essentially, it means that a seller of oil, like the US or Saudi Arabia, Russia and others, could actually pay the buyer to take possession of the oil. It’s like filling up your tank at the gas station and getting paid to do it. Crazy! How could this happen?

Oil Surplus Meets Covid-19

Well, it seems the world is running out of places to store all the excess oil that continues to build up. The excess continues to rise because production has remained strong just at the time demand has fallen off a cliff. All the storage tankers are filling up, all of the ships with tanks to hold oil are filling up, and even though Russia and Saudi Arabia have come to an agreement to start reducing their output in May, demand is so incredibly weak right now that it has created this whopping excess. It’s another example of the unexpected effects brought on by an unprecedented viral calamity.

One trader, writing in Forbes Magazine blamed the sharp drop on an exchange-traded fund with the symbol USO that holds oil futures in its portfolio. His reasoning had to do with an anomaly in the way the monthly contracts traded.

So, oil has become incredibly volatile, just like the stock market. In early March, oil prices had fallen 75% since the beginning of the year, and as I just mentioned, even went negative for a brief period of time.

Last Thursday though, oil rebounded by 20%, but it did little to erase the losses since the beginning of the year. The two most important issues going forward will be the reduction in production in an attempt to balance the supply with demand, and also to see demand rise to meet supply. Both are very far apart right now, and it will take dramatic cuts in production to bring them in line. There is movement, however, because according to some reports, we are starting to see major cutbacks in production right now. Let’s keep an eye on this one.

Re-Thinking Dividends

Another theme I want to examine today is the question of dividends. Dividends are a very important source of income for investors and also represent a good percentage of the stock market’s historic rate of return. As companies experience significantly lower profits though, the portion of those profits that come to us as dividends may be affected.

It makes sense that companies losing billions of dollars are going to drastically reduce, suspend, or eliminate their dividends. And that’s exactly what is happening in some industries.

Some companies that have already suspended dividend payments are Ford, Delta, Carnival Cruise Lines, Las Vegas Sands, Marriott, Macy’s, just to name just a few.

According to Goldman Sachs, the money paid to shareholders as dividends will likely be reduced by 25% in 2020—and that’s an average of the S&P 500.

So which industries do you think will cut their dividends?

1. Energy, for one, based on oil at $20/ barrel.
2. Entertainment—which, with the exception of streaming, has basically disappeared.
3. Travel—there is none.
4. Restaurants—all closed.
5. Retailers with stores—I don’t have to explain that.
Choosing those were pretty obvious. We can see that all around us.

But what about bank stocks with the possibility of tons of bad loans? What about real estate with people deferring their rent or working from home? Will they ever go back to offices? Nursing home stocks with coronavirus protection issues? Will each of these challenged entities pass through their suffering by lowering their dividends to shareholders?

Well, the answer lies in the details, my dear. Some will and some won’t. The key will be to figure out which companies within those industries are in good financial shape and which are not!
Goldman’s report lists about 40 stocks from 10 industry sectors they believe will be able to maintain their dividends. Out of the 40, 13 are financial companies, 7 are industrials, 5 utilities, 3 from real estate, 3 from health care, and 3 from info technology, 2 from consumer staples, and 1 from communication services.
Let’s take a look at one of companies on Goldman’s list. It’s a major money center bank of the “too big to fail” variety. It was down 41% year-to-date as of March 30TH and still has not come back all that much. It has $11 of assets to every $100 of liability, which doesn’t sound like much but in the banking business, a 1 to 10 ratio is considered to be sound banking. It pays 47% of its earnings as a dividend and if their earnings get walloped by 33%, the payout ratio would jump from 41% to 71%—still leaving ample room for more negative surprises.

Here’s the interesting kicker. Current annual dividend yield is around 7%.

Now generally, it’s not a good idea to be sniffing around companies just because they have a high-dividend rate. Often it is a sign that the steep reduction in the share price is predicting some invisible problem, so comparing that low price to a dividend that was paid out over the last 12 months could be a big mistake. It could mean the market thinks there is a dividend cut coming.
Maybe the market thinks this is so with this big bank but after Goldman ran its numbers, it doesn’t think so. Of course, Goldman can be and is often wrong in its predictions, so caveat emptor, please. However, it makes for an interesting situation and a possible opportunity.

A Close Assessment Is the Best Defense

So, the key to this list of Goldman’s or any list you might devise yourself will be your ability to take a close look at the company you want to buy and treat your decision seriously—as seriously as if your life depended on it.

You’ll want to look at things like:

1. Does it have enough cash on hand to weather this storm?
2. Does it have a good rating so it can borrow money at decent rates if things continue to degrade?
3. Are its operations efficient?
4. Does it have stable cash flow?
5. Will their cash flow still cover the dividend in a worst-case scenario?

Hey, this is the fun part of investing—learning what makes a business tick and learning how to value a business so you pick the price you want to pay.

But it also takes plenty of knowledge, both cerebral and emotional. So, if you’re up to it, great! If not, consider some exchange-traded funds that have created their own list of criteria for buying excellent companies with higher than average dividends. There are plenty of those funds out there. Or if you want to be even more careful, talk to an advisor.

Either way, you may be able to find companies paying north of 4% which is so much more than fixed-income investments. And maybe as an added bonus, you may also enjoy dividend increases when this crisis is finally over.

Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. There are no investment strategies that guarantee a profit or protect against loss. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however, their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by the radio show.

Listen To The Full Show