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The Volatile Stock Market and a New Approach to Teaching Students to Invest

By Matthew Frankel, CFP® – Dec 12, 2018 at 12:37PM

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When will the stock market volatility end, and what do investors need to know about it?

In the latest edition of the Industry Focus: Financials Between Two Fools interview series, Wofford Finance Professor Philip Swicegood discusses his unique approach to teaching college students about investing. And host Jason Moser and contributor Matt Frankel, CFP, discuss the recent stock market volatility, what it means for long-term investors, and what stocks in particular they have their eyes on right now. You'll hear all this and more in this week's episode.

A full transcript follows the video.

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This video was recorded on Dec. 10, 2018.

Jason Moser: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market each day. It's Monday, December 10th. I'm your host, Jason Moser. On today's show, we're going to try to make sense of all of this market selling that's going on. Of course, we'll tap into Twitter and give you One to Watch.

We're beginning this week with another installment of Between Two Fools. Dr. Philip Swicegood is a professor of finance of Wofford College and chairs the Department of Accounting, Business and Finance. He's also part of the James Atkins Fund, a student-run fund that provides Wofford students with real-life investment experience by managing a diversified investment portfolio. On this week's Between Two Fools, Philip and I talked about the James Atkins Fund and the unique way they're using the fund's gains to help people in less fortunate parts of the world pursue their entrepreneurial goals.


Moser: Philip, give us an idea of who you are and how you ultimately got to Wofford. I know you got to Wofford in 2005, but you have a very interesting work history. Tell us a little bit about it.

Philip Swicegood: Sure. This is my 14th year that I've been here at Wofford College. I teach finance here and I chair the Department of Accounting and Finance. I get to work with a bunch of great colleagues and some really bright, motivated students here. Before coming here, I taught some before at other institutions. I'd also done a PhD at Florida State, done some graduate work, MBA University of Texas, and also worked for a while in the banking industry as a banking regulator with the U.S. Treasury Department for a while. It's been a fun journey getting here, but I'm right now doing what I love best, which is hanging out with students, helping them learn the nuances, the art and science of finance, and getting to do some cool things with them as they learn that process and start to learn to put it in practice.

Moser: Whenever you're doing something that you enjoy, it really doesn't feel like work. I came to that realization when I started here at The Fool back in 2010. It was certainly plain to see when I was down there visiting a few weeks ago that you have a very highly engaged class there. It was a lot of fun to see. 

I wanted to go a little bit more in depth here with the James Fund. This, to me, is a really interesting facet of what you all are doing down there at Wofford. It didn't exist when I was there. I graduated in '95 as an economics major. It looks like the inaugural meeting was held in September of 2008. Tell us a little bit about the James Atkins Fund. 

Swicegood: A little over 10 years ago, one of our alum, Mike James, he and I had had some conversations. He called a vision of, just like in chemistry, you learn best chemistry by actually doing it. I mean, you need the theory, you need the formulas, but you actually learn it best by going into the lab and adding the heat and mixing in the elements and the compounds and getting your hands dirty with it. 

Moser: Every once in a while, blow something up.

Swicegood: [laughs] Yes, blow stuff up. We blow up portfolios occasionally.

Moser: Yeah, we all have.

Swicegood: I just had that vision, we needed something like that here for our students who really wanted to learn about investing, to actually learn it by practice and start putting theory into action, and test it out, see what works, what doesn't work. Experience is one of the best reinforcers of knowledge.

We talked to Mike James. He caught that vision, and said, "Hey, I'm willing to donate $100,000 for you guys to launch this fund. Let's get it up and running." So, we did that about 10 and a half years ago. Ironically, it was right in the midst of markets melting down in our last recession.

Moser: Perfect timing.

Swicegood: Oh, yes. September of '08. If you remember, March of '09, about five months later, was the bottom of the market.

Moser: I remember well.

Swicegood: So, we're learning this trial by fire. But it was fine. It was a great learning experience. We got it up and running a few years ago. Another one of our alum loved what we were doing and said, "Hey, I want to help you guys scale this up." So, Robbie Atkins gave another $100,000 to help bolster this a bit.

The way we run it here is, we model it somewhat like the way the college's endowment is run, which is a mixed asset class portfolio. A lot equity, some fixed income, a little bit of alternative and real estate and those kinds of things. When we set it up, we decided to do mostly our asset allocation based on the way the trustees had set up the college's endowment. We have a similar long-range time frame, moderate amount on the risk, good strategy on diversification.

Taking that as a given, I have 20 students who are part of this. This is extracurricular. They're not getting a grade for it, but it is highly competitive. We have about 10 new students a year rolling into the program, as about 10 graduate each year. We'll often have 30, 35 applications for those 10 slots. It's pretty competitive to get into, which means we get really motivated students who are serious about wanting to learn the skill sets of actually investing here.

Moser: I didn't realize it was in that high demand. That's phenomenal. I was reading, you don't have to be a finance or econ major. The fund is open for any of the students to apply, right?

Swicegood: Absolutely. We've had biology major, history majors, government majors. That's part of the Wofford ethos. We think that kind of good, broad-based liberal arts education helps. Especially, we have a biology major, somebody is premed tracked, and we started looking at one of the drug companies who's working on a pipeline of drugs, and we're trying to do due diligence in that kind of company, and when they've got a little bit of a biology background, that gives us some insight on, how serious are they if they're, say, Phase II or Phase III of the FDA trials? What's their probability of success? And helping our research team figure out, how big is this market potentially? Those kinds of things. I love having students from multiple disciplines and backgrounds.

Most of them, obviously, are accounting, finance, or econ-oriented, but certainly it's not limited to those by any means. I'm just primarily looking for students who have a passion for wanting to learn it and are willing to work hard. If they can do that, I can work with them.

Moser: Assuming you have the program filled, throughout the course of a year, the team is putting some investment ideas through the wringer or whatever -- do you find yourself stepping out into different majors, different classes at the school to get some sort of boots-on-the-ground opinion there for people with more expertise in the space? Do you ever bring students in who, perhaps they aren't really members of the fund, but they could come in there and shed some more light on something like a drug company or that particular market?

Swicegood: The 20 students, we break them into four research teams, and they each have areas where they're primarily focusing on. We have monthly group meetings where formally, we do our presentations and voting and that. But leading up to that, I ask them to bring their single best idea. Each team is supposed to do that. As they're homing in on that single best idea they're going to pitch to us, certainly, they're fanning out across the campus. And, even, sometimes, we're calling alum or anybody else that we've got connections with. I've found, through the grapevine, some student's parent is working somewhere doing something. There's been times where we've given them a call and said, "Hey, what do you know about this company? What do they do. What's their competitive advantage? What's their customer service like? What 's their growth potential in the market?" Those kinds of questions, yes. We'll dig anywhere and everywhere. 

And that's exactly what I want. I want students to learn how to do that kind of messy research. Some stuff, yes, you can get on Bloomberg in crunching the numbers, but at times, you've got to do some more messy, quantitative as well as qualitative research. Sometimes, you've got to be creative in how and where you get that information. Realistically, as far as the key numbers, we're not going to find out anything more than what everybody else knows that you can see in the 10-Ks and 10-Qs. We do that at minimum. But there's also some soft data, figuring out, is this really a great company or not? 

Moser: Right. Information flows so quickly now, you can't really keep anything a secret. It's not like back in the day, when Warren Buffett was down at the library at S&P or Moody's or whatever, doing that research that no one else wanted to do.

Swicegood: Yes, absolutely.

Moser: When I was down there, you guys were talking to me a lot about the fund. You went into something that you all are doing with the returns that you generate from the fund, which I found absolutely fascinating. It's not every school that has a fund like this. I've seen a few of them that do. I think it's just a terrific idea. But what you guys are doing with these returns is something I'd never heard of, and I know our listeners would love to learn more about this. Tell us what you actually do with the returns that you generate from that fund year in and year out. 

Swicegood: For the 10 years we've been in operation, we've earned a little over 10% per year. That's our average return for the fund.

Moser: You've beaten the market.

Swicegood: Yes! This is with a bunch of students, which is phenomenal. It cracks me up. One, it shows you what you can do with good, hard research. I don't know whether it's by fortune or by design, but, anyway, we've had a wonderful track record so far.

Every other student-managed fund that I know in the U.S. with undergrad or graduate programs, they just take all that profit and they reinvest it and grow the portfolio. Which is fine. But we started talking fairly early on soon after the fund was born, is there something we want to do creative with it? Again, this is part of the Wofford ethos, not just to do well, but maybe also do good. Since my days at University of Texas in the MBA program, I came across the idea of micro lending back them. A guy named Muhammad Yunus started the Grameen Bank. He's since won a Nobel Prize for it and that model has spread throughout the world in developing economies around the world. Several years ago, I started kicking the idea around, "Would you guys be interested in maybe us treating this like an endowment? Maybe we take 4-5% per year of the profits and see about maybe the possibility of us doing microloans somewhere in a developing economy?" And the students just absolutely loved the idea.

So, I spent some time following some connections with Ron Robinson, one of our chaplains here. He had some friends of his over in Charlotte, some bankers who were separately running the same idea. They had just started doing some micro loans down in northern Haiti, an area called Cap-Haïtien, which the second largest city in Haiti. So, I tagged along with him and saw what they were doing, watched them try to figure out best practices, what I liked about what they were doing, and maybe any things we might be doing differently. And obviously, this is the first time I'd been down to Haiti back then. This was nine years ago now. Just seeing the poverty there, but at same time, seeing so much potential. These are people who have strong work ethic, but they're so restricted in the physical environment, the policy and regulations that they're in, the lack of infrastructure. 

But the real impediment for a lot of them is just a lack of capital. That's the No. 1 thing that holds them back. And it doesn't take much. For the typical families that we're working with down there, average family income for them for a year is between $1,000-$1,200 for an entire year. It's mind-boggling to me, that anybody can survive off that. But they're figuring out ways to do it. Mostly, they're cobbling together these little businesses, a lot of them are things that they run out of their house. They're doing anything and everything they can to survive. I got to see that firsthand, and it affirmed to me, my goodness, even if we take just a few thousand dollars out of our student-managed fund and take it down there, loans of even a couple of hundred bucks can be completely life-transformative for people in third-world like Haiti. 

So, we decided to take the plunge and at least experiment, see how it went. That first year, we took down, I believe it was $6,000. I took some students down with me. We've got some connections. There's a couple of NGOs down there who do a lot of medical work, a group called New Hope for Haiti who had an affiliation with some friends of mine over in Charlotte. And we partnered with them, because for the doctors that work with New Hope for Haiti, they're often doing these free rural medical clinics, and they're the only doctor a lot of people in northern Haiti have. But, through that connection, it introduced us to a lot of communities of desperate poverty, but also, these are people that some of the doctors knew over time and they helped us figure out who's hard-working, who's reliable. And we took that inside, local knowledge and used the Grameen model. 

What we do is, obviously, we're loaning in an international country. These people are poor, they don't have collateral, so we've got to be creative in how we structure the loans. So, we use the Grameen model, which basically says, we make loans in groups of five people each. They form their own kind of alliance of who's going to be in their lending group. What we have them do is, they have to cross-guarantee each other. We make a loan of $300 to each of them for running and financing their little businesses. But they have to guarantee each other. If any one of them fails to pay back, then we don't make loans to any of the other four. So, they put peer pressure on each other to make sure they come through. 

And amazingly, our experience now in loaning to them, as we're starting our eighth year down there, we've had almost 99% repayment rate. Of the hundreds of loans that I've made, I've only had so far six of them that's gone into default.

Moser: I'm reading through the report here that you sent me. This is dated back to March of this year, so it's six months old or so now. But even then, looking at the total number of loans made in Haiti, 180 retail loans for a value of $42,600; 460 agricultural loans at $56,800. Then you go down to the Dominican Republic, where you made 60 retail loans at $28,000, and you have a 99% repayment rate. It sounds like you've structured that incentive program out quite nicely. It sounds like it's working. 

Swicegood: It has. We've been really fortunate. We try to go slow, ask a lot of questions, do due diligence. So much of good lending is about character and hard work and opportunity. We only make loans to people who, again, currently have a small business or a farm or something that they're running. Doing that solidarity group model where they have to cross-guarantee each other, that really incentivizes them. They figure out, this may be their one and only shot out of poverty, if somebody is willing to come in and partner with them. And we're not giving them a handout at all. This is a loan. They have to make it work, and if they can make it work, pay us back. Then they've got an opportunity to get it renewed, maybe even scale it up after a couple of cycles. Again, we want to be careful we don't get them stuck in some kind of debt trap. My long-term goal, it might take a decade, but I'd love for them to be able to build their own businesses, so they don't need me anymore. That's my long-term goal with most of these borrowers.

It's also fun to see. Quite a few of our borrowers are females. I've heard story after story where, I'm asking upfront for some of these potential borrowers, when we're interviewing them, and I ask, "What do you want to do with the money?" And they tell me about their business model. And then I say, "Why are you doing this?" And they tell me things like, "I've got four kids, and right now, I can only send the oldest to school. Three of my kids can't go to school." So, they tell me, "The profits I make from this, I want to be able to send off all of my kids to school." There's this leveraging effect. Not only are we helping them grow their business, but now we're hearing stories of dozens and dozens of kids being able to go to school. And school down there only costs about $70 a year to go to school. But many of the parents didn't even have $70 to send some of their kids to school. So, when you do things like this, you get that leveraging effect of helping them get dignity and growing and developing a business, kids are starting to go to school now, food's on the table, they don't have to worry about the next meal. I mean, it's still tight. It's still hard. We're not the end-all, be-all. But we are helping them incrementally take that one more step up out of poverty. As we can, as we grow the fund here in the States on campus, that allows us to grow what we have in our loan pool down there.

Moser: I love that. It sounds like y'all are doing some really good things with the fund there. I tell you, when I was down there, I was so impressed by the students, by you all the staff. An amazing thing you're doing here with the fund. I'm glad you've had a chance to tell our listeners about it today. Philip Swicegood, thank you so much for taking the time out of your day to join us this week!

Swicegood: Glad to do it!


Moser: Joining me in the studio this week as always via Skype is certified financial planner, Matt Frankel. Matt, I know it's getting cold where you are. It's cold where we are. Did you have a good weekend?

Matt Frankel: It is. Fortunately, I don't have to leave the house. Sorry for you guys. It was a good weekend, just cold and rainy the entire time. It's a pain to schlep the kids around when it's 35 and rainy. 

Moser: Yeah, you have to carry them around. I tell you, when they hit that age where they can start getting in and out of the car on their own, and you don't have to change as many diapers, life gets a little bit easier.

Frankel: Hopefully none, eventually. 

Moser: That's the goal. Matt, leading into this week, the end of last week, this has been a tremendous past few days for the market, not in a good way. It seems like there has been an awful lot of selling, a lot of people running for the exits here for whatever reason. It seems like we could probably pinpoint a few different headlines to this behavior. Regardless, it's a very good lesson for all investors. Investing is never a straight line up. We talk about this, and the reasons why we believe that long-term investing works. Generally speaking, the numbers bear that out, but it doesn't come without its lumps in the short run. We've certainly seen and taken a few of those lumps here the past few days. 

What stands out to you in regard to this market selling? What should we as investors be doing about it?

Frankel: There's a couple of main root causes that we could pinpoint. The trade war/ skirmish/ whatever you want to call it is an obvious one. Not necessarily that it's going to be bad in the long run. If you haven't been following the news, the U.S. and China agreed to a 90-day period starting December 1st to continue their trade talks, to try to find a deal, and the U.S. backed off on some of its tariffs. Most experts think a deal will eventually happen. Nobody wants 25% tariffs. But certain things need to happen. China has been acting unfairly for some time. This isn't a long-term negative, but it's very uncertain in the meantime, and the market hates uncertainty, which is why every time a headline, good or bad, involving trade pops up, you see the market go crazy one way or the other. That's definitely one factor that seems to be making the market a little more volatile than usual.

The other thing, interest rates. People are uncertain about how the economy is slowing down, if at all. The latest talk is that the Fed might have to pump the brakes when it comes to raising interest rates. If you haven't been reading up on the Fed's reports, after the latest Fed meeting, the general consensus was that they're going to raise rates in December and another three times in 2019. That's a pretty aggressive plan. But the latest indication is that that might not happen at all. They might raise in December and then call it quits for the time being. They might not go in December at all, is the latest rumor.

Moser: What's the value in all this prognosticating? I don't mean to interrupt you there, but it seems like every day, this narrative changes a little bit. I'm sure that investors get frustrated by it. Where's the value in that prognostication? Should it even be something that's practiced?

Frankel: I mean, projections are always useful. I tend to look at the Fed's projections more than the experts on CNBC or any of the headlines I read. If the Fed says the economy is good enough to raise rates in December, and they're the ones who are actually going to make the decision, it makes sense to me that they're the ones who I'm going to listen to.

Moser: Makes sense.

Frankel: Having said that, there's a lot of noise out there. Investors are emotional beings and tend to overreact to things. If one whisper says the economy might be slowing down, someone else is going to find a reason why that might be true, and then another reason, and before you know it... this is the most pessimistic I've ever seen it when unemployment was below 4%, wages are growing. So, yes, there's some value in it, but don't confuse good projections with noise. That's a good way to put it.

Moser: Yeah, I think that makes sense. We talked about this all week last week, and over the weekend leading into today. The one thing that stands out to me, that we've seen a lot of talk about, is in regard to the yield curve, this flattening and inversion of the yield curve. I'll let you explain that in just a second. But, I think ultimately, what I've taken away from this is, even the talk about it, there are these big trading platforms, these institutional investors that rely a lot today on algorithms and programmatic trading to buy and sell at given points in time. This flattening of the yield curve seems to be one of those rules that dictates those algorithms. So, it's almost like it's beyond human control. It's just, if this happens, then this happens, then boom, the computer says, "Sell." Then you see this flood of selling, and there's nothing that can be done to stop it. 

Talk a little bit about this yield curve -- what it is and why it matters or shouldn't matter for investors.

Frankel: The yield curve basically refers to the different durations of interest-bearing investments, bonds specifically. In a healthy market, the longer maturity a bond is, the higher an interest rate's going to pay. For example, a 10-year bond should pay more than a comparable five-year bond, which should pay more than a two-year bond, and so on and so on. In a healthy market, you might see a 2% yield on the two-year, a 3% yield on the five-year, a 4% on the 10-year, something like that. A flat yield curve means that the rates are getting very similar, which is where we're at right now. Other than the 30-year, pretty much all of the yields from Treasury bonds are between 2.5-3%. That's a pretty flat yield curve historically speaking.

What an inversion means is, the longer-maturity bonds actually pay out lower rates than some of the shorter-maturity bonds. We have what I call a partial inversion right now. As we're talking, glancing over at my notes, the two-year Treasury yields slightly more than the five-year. A textbook curve inversion would be the two-year and the 10-year flip-flopping. As you mentioned, algorithmic trading tends to take its cues from things like this. If we see the two-year and 10-year yield invert -- right now, they're about 14 basis points apart, so there's a little breathing room -- it could be look-out-below when it comes to algorithmic selling.

Moser: Yeah, and there's nothing we can do about that. I know they've tried to place some stop-gaps in there. If the market falls, what is it, 10% in any given day, trading immediately halts so that everybody can catch a breath and try to make sure that the world isn't actually coming to an end. 

What I'm gathering from what you're saying is, for investors like us, business-focused investors, when we're looking at companies that we want to own, this yield curve doesn't really matter all that much in the grand scheme of things. Amazon is still going to be Amazon regardless of what this yield curve is doing, right?

Frankel: Right. If anything, this creates some good buying opportunities for long-minded investors. There's nothing interest rates are doing that's going to affect anything 20 years from now. If you're investing for the long haul, the market's going on sale, especially in some sectors. 

Inverted yield curves also tend to be recession predictors. They're not perfectly reliable. A recession usually happens a year or two after you get an inverted yield curve. The financial industry is really heavily affected. This is the Financials show. That's why bank stocks are one of the hardest-hit parts of the market over the past few days when interest rates have been going crazy. This is creating a lot of little pockets of the market that are trading at really steep discounts. In the short-term, it could be for a reason. Lower long-term yields, we've discussed in previous episodes, tend to weigh on bank profits. Banks could see profits shrink in the short-term over this. But over the long-term, Bank of America (BAC 1.06%) is still Bank of America. Wells Fargo (WFC) is still Wells Fargo. Goldman Sachs is still Goldman Sachs, one of the biggest investment banks in the world. The yield curve is doing nothing to the underlying business health of most of these businesses, for the time being, anyway. It could go in an extreme direction. If we have an extreme inversion, that could really hurt some of these bank profits to the point where it could affect their business. But I don't see that happening anytime soon. The bottom line is, from a long-term perspective, you can go bargain hunting at these prices. 

Moser: That's good information to know. I'm sure our listeners appreciate it. 

Speaking of listeners, I'd like to tap into Twitter here really quick and read a couple of tweets that came out over the week. First up here, we have Daniel @djisdj. Daniel writes, "Value matters, of course, but I'm always interested in a company whose product I use and enjoy every single day." Daniel, couldn't agree more. That was in response to a tweet I'd fired out over this impending Slack IPO. It struck me with the Slack IPO that they're seeking this $10 billion valuation, which seems pretty high, but then I also noted that Slack is a first-screen app on my phone that I use a lot every day, seven days a week. Yeah, I definitely like investing in those kinds of companies, or at least getting them on my watchlist. Right, Matt?

Frankel: Out of the corner of my left eye, I can see Slack. It's pulled up on my screen right now, actually. So, I hear you. A product that I use every day.

But there's a difference between usage and valuation. Snapchat is a first-age app for a lot of people. I wouldn't exactly call that worth what it was trading for at its IPO.

Moser: Very good point.

Frankel: "Price is what you pay, value is what you get," is one of my all-time favorite Warren Buffett quotes that applies there. 

Moser: Yep. If anything piques your interest, dig a little bit more into the financials, but certainly understand how the company makes money before you jump the gun there. Maria @mstpc writes, "That's right. I love Industry Focus and listen to them almost every morning while doing my makeup #Spotify Wrapped2018." Maria, thanks so much! We're very thrilled that we can be part of your morning routine. I hope that we can change that "almost" to every morning. Let's just be part of your routine. Five mornings a week. That would be pretty sweet.

Frankel: Every Monday at least, I hope.

Moser: Every Monday, no question. If you're not listening to Financials, you're missing out. It's money. Everybody loves money. Seriously, though, Maria, thank you for the kind words! We're glad to know that we can play a role in your daily routine. 

Matt, speaking of routines, before we get into our One to Watch this week, you write a column for USA Today every week, the Ask A Fool column for USA Today. You had a great idea to bring more answers and ideas to our listeners. Tell us about it. 

Frankel: Jason, I love getting your questions about bank stocks, fintech, the war on cash, things like that. This is basically, think of it like a Dear Abby for the investing world, where you can ask general investing questions and have them answered in the paper. We're putting out an open call for any of your investing questions. Could be simple, could be complex. Maybe we could even answer some on the show if they don't make it into the USA Today edition. I'd love to hear those. Reach out to our Twitter or my Twitter personally. My handle is @TMFMathGuy. Looking forward to hearing some of your questions and hopefully helping some people out. 

Moser: Absolutely. And this isn't limited to just financials, you're talking about general investing questions, things that span that entire investing universe. I love that idea. I'm glad you brought that up. As Matt said, you can reach out to him on twitter @TMFMathGuy. Of course, you can reach out to us on Twitter @MFIndustryFocus. And, as always, you can email us, [email protected]. Maybe Matt'll make you famous. Can't know if you don't try, folks. Get those questions in. 

Alright, Matt, let's wrap this week up here with One to Watch. What stock has piqued your interest for this coming week?

Frankel: It's really tough to pick just one bank stock because they've been beaten down so much. I wish I could own them all. I've recommended an ETF that owns them all before. One in particular I'm curious about right now is Bank of America, ticker BAC. It's the bank stock I've owned the longest in my portfolio. It's one of my biggest investments. It's been crushed lately, especially with this interest rate saga. Bank of America is one of the more sensitive banks to long-term interest rates. They have a very disproportional level of non-interest-bearing deposits. With those deposits, when they loan them out, whatever interest rate they get is pure profit. If the long end of the curve is overblown and it's downtrend, if the economy is a little better than people seem to give it credit for right now, and if the Fed keeps going with their interest rate hikes, Bank of America could be a pretty big beneficiary. Plus, right now, it's actually trading for just below its book value for the first time since before tax reform pushed its profits higher. So, it's looking like a great bargain right now. 

Moser: And what's the ticker for Bank of America?

Frankel: That is BAC.

Moser: Good stuff. I'm taking a page from your book here and going with a bank. I'm going with Wells Fargo this week, ticker WFC. It's not been a good year for Wells Fargo, the stock down 20% -- over 20% now, when you consider today's selling. They continue to try to put a number of scandals behind them. Over the summer, Wells was required to submit a plan to regulators for improving their compliance and operational risk management. Ultimately that plan failed to win Fed approval. Not good. That means they have to go back to the drawing board. They're firing around three dozen district managers in connection with the sales practices that got them in this trouble. They continue to operate under that asset cap that you've mentioned before, meaning they essentially can't grow until they have the permission to do so.

To me, this all boils down to, should Tim Sloan, the CEO of the company, be leading this company going forward? I never really was a big fan of his taking that CEO role. He was the CFO before. He'd been with the company for a while, so a lot of this stuff was happening under his watch already. 

With all of that said, Wells Fargo is a huge bank with a tremendous presence in our mortgage market. It's not a bank that can just disappear. Everybody has to determine their own line, but I can't help but wonder if maybe there isn't an opportunity brewing here for folks looking to get that exposure to Wells Fargo. Generally speaking, it still has a lot going for it, snafus aside. Worth keeping our eyes on in the coming weeks, to see if they can't get their house in order. 

Matt, thanks so much for joining us this week! It's always great talking with you! Stay warm there in South Carolina this week, alright?

Frankel: Same to you up there!

Moser: Thanks, buddy! As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. This show is produced by Austin Morgan. For Matt Frankel and Philip Swicegood, I'm Jason Moser. Thanks for listening! And we'll see you next week!

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jason Moser owns shares of Amazon and Twitter. Matthew Frankel, CFP owns shares of Bank of America. The Motley Fool owns shares of and recommends Amazon and Twitter. The Motley Fool owns shares of Moody's. The Motley Fool has a disclosure policy.

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