MarketFoolery Mailbag

In this episode of MarketFoolery, Chris Hill chats with senior Fool analyst Jason Moser about some market news. Ray Dalio made most of the headlines at Day One of the World Economic Forum with his cash-is-trash talk. Jason and Chris weigh in on some of the points Dalio raised, including his takes on bitcoin and gold.

Then some answers to listener questions. Jason shares what stocks he'd invest into if he were given $1,000 to invest. And, diversification aside, are there any industries he'd avoid altogether, and why?

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Jan. 21, 2020.

Chris Hill: It's Tuesday, Jan. 21. Welcome to MarketFoolery! I'm Chris Hill. With me in studio, Jason Moser. Happy Tuesday!

Jason Moser: Howdy.

Hill: Good weekend?

Moser: Yeah. I was talking to Andy earlier --

Hill: I don't need all the details. I just need the headline.

Moser: [laughs] It's just funny. You get to our age, and it's like, I'm trying to remember exactly what I did this weekend. Because those long weekends, it's like another day that you have to remember. Inevitably, it's just a bunch of shuttling the kids back and forth to places. It was a good weekend. You?

Hill: Same.

Moser: Good.

Hill: We're going to dip into the Fool mailbag. We're going to talk a little earnings season, because earnings season is going to start to heat up this week. But let's start over in Sweden, because the World Economic Forum kicked off in Davos. [laughs] This happens every year with the World Economic Forum, particularly Day One. Often, the president of the United States will speak. You have a lot of big-name CEOs over there. So my financial Twitter feed is just, "Here's what this CEO said!" And I looked at a lot of it this morning and just thought, I could have predicted that. Like, that's not noteworthy.

Moser: Water is wet, the sky is blue, oh, yeah.

Hill: Yeah. But Ray Dalio. Money manager Ray Dalio bringing the heat this morning. And to me, this was the most interesting thing so far on day one of the World Economic Forum, is Dalio basically coming out and saying, "If you have money in cash, start putting it to work in the market right now."

Moser: Well, I love the cash-is-trash mantra. I mean, I wonder if he was making the flight over there thinking, "God, I can't wait to unload this. This is so sweet. Cash is trash; it's going to stick." You know what? He's right! So far, that's what's sticking from the morning.

I think Ray Dalio is always worth listening to. I mean, I'm not saying I agree with everything he says, but he's clearly a very thoughtful, intelligent man who's had a lot of experience in the markets through the years. And I tend to agree with him when he says that. I feel like, we get the question all the time, "What do I do with this cash? I want to maximize the yield on this cash." There are all sorts of different ways to do that. But it's a lot more difficult now, because interest rates are virtually nil. So then, you've got to either figure, OK, I've got to put that money into some type of investment vehicle, or something else. And we always make the argument, at least I do, that having some cash, don't worry about that, because the liquidity is the yield. Being able to put it to work when that time comes, that's the yield there.

But generally speaking, we always talk about staying invested, because regardless of your feelings on the market's valuation -- we could sit here and talk about the market being overvalued all day long. Maybe it is. But the fact is that all of the businesses that make this market, they're running every day. They're doing business, they're making money every day. They're putting that money to work. And if you start dipping in and out of the market, trying to time it somewhat, you eliminate the value that compounding can offer to your portfolio, and that really is the key to longer-term success. So, I'm not a big fan of stock piles of cash to begin with. I did think it was interesting, his gold versus bitcoin.

Hill: Can we talk about that for a second?

Moser: Sure, yeah.

Hill: So Dalio comes out; he makes these comments. And look, we're fans of stocks. I think that's part of why we get a little excited about seeing something like this, where someone with Dalio's expertise, intelligence, and track record is pounding the table saying, "Get out of cash!" But as you indicated, he goes on to basically say, "You should absolutely have a position in gold, and I would stay away from bitcoin." I don't know enough about how Dalio and his team at Bridgewater are investing their money. My assumption is, if they're not shorting bitcoin, they're certainly staying away from it. I'm assuming he's walking the walk, and he's got some level of investment in gold. But that's one of those where I just think, I've never invested in gold, and it's hard for me to imagine that I would, just because it's not interesting to me.

Moser: I agree. It's not interesting to me, either, and I don't own any gold. I don't have any gold exposure. I do understand the logic behind it being a hedge. And there is some value there. I appreciate what he said about bitcoin, because, again, I tend to agree. I'm sure there is a future where there is a place for bitcoin. I think that given what we know today, anybody that gets out there and tells you they know the future of bitcoin and the role that it's going to play in our economy and our global financial system is straight up lying, because nobody knows. I mean, they're just making a guess. That's what everybody else would be doing at this point. So I think that when it comes to bitcoin and digital currency, cryptocurrency, that is a very difficult one to nail. And so, for me, it's easier to say, you know what, I'm going to take a pass. Because as he rightly observed, you're looking at currency essentially as a medium of exchange or a store of value. I'm not convinced -- and it doesn't sound like he is, either -- that bitcoin hits on either one of those. Gold clearly does, to a degree.

And I think the other big question that everybody's starting to kick around now is, it's 2020. It's an election year. How should I invest? We talk all the time about don't let that tail wag the dog, so to speak. I pulled up some really neat data from my partner in crime on Monday's Industry Focus shows, Matt Frankel. He had a recent article that he published out on fool.com, it was an Ask A Fool about investing in election years. Just some interesting data to keep in mind here, in how this election season could play out and what effect it could have on stocks. In the average election year since 1900, the S&P 500 500 has gained 9.5%. That happens to be in line with the overall long-term average, so no big waves there. Since 1928, Republicans have won 11 presidential elections. In those election years, the S&P has averaged a total return of 15.3%. Democrats have won 12 times with an average total return of 7.6% in those election years.

And then finally, when we talk about election years, it's not always just the president; we're also talking about the House and we're talking about the Senate and whatnot. But it's also worth noting, in the year after an election, the president's first full year in office, the average S&P 500 return is just 3.4%. So those are some numbers to chew on at least as we get closer to this election cycle. I'm not sitting here making any predictions one way or the other. I can guarantee you that I'm going to be as invested in November as I am right now, if not more. But that's just some interesting data.

Hill: Let's get to some stocks. Our email address is [email protected]. Question from Matt, who writes, "I'm 16 years old and I listen to your podcast every day. I track the stock market every day. I even scheduled my advisory block for 9 a.m. so I could watch the stock market open." Let's just pause right there for a second. [laughs]

Moser: Wait, what? Advisory block? I'm uncertain what that is. Is he advising people at 16 years old?! Or just getting advice?

Hill: No, I don't think Matt has hung out a shingle yet, although maybe that's his goal at some point. No. In high school, you've got a little bit of flexibility in terms of how you schedule your day, so Matt basically has, what was back in our day, it was a free period. It's not a free period; it's an advisory block. You can do any number of things with it. And Matt is choosing to watch the market open.

Moser: So Matt, I had that growing up in high school. I was a senior, I had gotten almost all of my hours out of the way, so I had this free period during my senior year. And so I worked in the attendance office. And I knew the ladies in the attendance office --

Hill: You were a cop? [laughs]

Moser: No, I was a paper pusher, really. Because back then, it really was paper. There were no computers. But the nice part about it was, these ladies were kind of my buddies. One of them went to our local church, and I knew them. So yes, technically, I was working the attendance office, but man, oh, man, I'm not going to lie. Every once in a while, I'd duck out there, go grab a snack or something to eat, something to drink there. It was a really nice free period. I can't say at 16 I was paying attention to the market like this young man. So hats off to you.

Hill: [laughs] So, Matt's question is, "If someone were to give you $1,000 and tell you to invest it into the stock market, what stocks would you buy? If it were me, I would invest in Alibaba, PayPal, and Micron Technology." Nice diversification there both in terms of the number of stocks and the industries that Matt would invest into. And as we've been saying for a while now, with zero trading commissions, your dollar goes further when you're investing a small amount of money. I think if it were me, I wouldn't go with those three. I already own PayPal. But I would aim for somewhere in the neighborhood of three to five stocks, try and get a little diversification right out of the gate, and possibly spread it into a basket.

Moser: Yeah, I agree with that. I'd try to buy at least two, if not three, because right now, there are no trading commissions. I recently got this question on Twitter. Someone had asked me about some of the companies that I own, and all things being equal, were there companies in there that I'd want to add to. And there were, but priority-wise, it got me thinking. Rather than adding to those positions, there are really a couple of other companies that I want to get into my portfolio as soon as I can. I'm really kind of just waiting for trading guidelines to allow me to do it. One is Adobe. I've talked a lot about Adobe before on this show and Motley Fool Money. Adobe is ultimately a digital media company, but just a tremendous subscription model. I'm really excited about what they've got with Adobe Arrow in the interactive and AR space, immersive technology. Just a lot of different reasons to really like what they're doing. I don't know if you call margins dreamy --

Hill: No.

Moser: -- [laughs] but if you can, Adobe's got some dreamy margins. Like, 85%, 90% gross margins. Those are an investor's best friend. So Adobe is one. And the other one that would balance, I think, this out. I've got a little bit of a lower-risk holding in Adobe.

And another one, maybe a little bit of a higher risk, valuation-wise, at least, would be Zoom Communications. Zoom Video Communications. May have to remove the video at some point or another, because I know they're beyond video at this point. I think Zoom is another company that, I love what they're doing on the tech side. It really does work well. I think that we're only going to see virtual meetings grow as time goes on. I've always been a bit surprised at the lack of investment in Skype on Microsoft's part. It's not to say Skype is bad. Skype is good. I use it. But man, I tell you, Zoom is really clever. It's a great solution for a lot of small and medium-sized businesses out there as well. We use it here, and I think a lot of us do like it. So those are the two that I would buy, would the Adobe and Zoom.

Hill: Like you, I would look to invest in something new. I wouldn't look to my portfolio and think, "Well, what can I buy shares of that I already own?" I would look to get into something like housing, which, I don't really have any housing exposure in my portfolio.

Moser: Other than the one you live in.

Hill: Other than the one I live in.

Moser: And that's enough, by the way. For most people, that's plenty.

Hill: Absolutely. I don't want to dwell on this, but, no, I've never heard margins described as dreamy. I've heard them described as attractive.

Moser: Juicy.

Hill: Juicy, and also fat.

Moser: Fat.

Hill: "I love that company. It's got some fat margins."

Moser: Phat? No, just regular fat. Fat margins.

Hill: Question from Gwen in Oklahoma, who writes, "I know diversification is important, but are there any industries that you avoid completely? If so, which ones and why?"

Great question. One of them -- Ron Gross has made this point, and I'm right there with him, which is big banks. I just don't feel like I have any kind of edge with big banks, and that's why I don't invest in them, even though, to go back to Davos for a second, we saw a couple of big bank CEOs. And I'm going to tangent for just a second here. But unlike when Barker is sitting here, this is actually an investing-related tangent. I find that I am completely with and I understand CEOs talking up their business, particularly when they're doing live television, and they're saying, "Well, this is what we're trying to do, and this is where we're going to go," whether they're being aspirational or whatever. I'm all for CEOs defending their companies.

The one line that I draw is, I really don't like it when CEOs talk about their own stock as being cheap. I just don't like hearing that come out of a CEO's mouth, because now it feels like you're trying to sell me on buying your stocks. Use all the euphemisms around that you want, but to sit there and just be like, "I think our stock's really cheap right now!" Like, dude, don't say that! Talk about how you think it's undervalued. Just don't cross that line.

Moser: I think you make a really good point there, because I agree --

Hill: And yes, it was a big bank CEO who said that this morning.

Moser: And it could very well just be semantics. I do think that using the word "cheap," there is a salesy sort of feeling that comes along with that. But if that CEO says, "We think that our stock represents a very good value," maybe that's a better way to frame it. I totally understand where you're coming from. I don't like to hear that either, because, frankly, that doesn't have anything to do with anything.

For me, there are two markets that stand out immediately when it comes to this. One is energy, primarily oil and natural gas. It's not that I don't invest in that stuff because I'm anti-fossil fuels. I mean, we've got to make the world turn. I understand oil and gas' role in that. And as we evolve and our energy systems get better, we'll have more options. But for me, it just became abundantly clear through the years that I got really sick of trying to time the energy cycle to get in and out of those investments. Because really, buying these oil companies and gas companies, it's very difficult to buy them and just hold them blindly, because they are fairly volatile, they do ebb and flow, and energy prices are very dependent on a lot of things, geopolitical crisis being one of them. And it feels like we have a new geopolitical crisis every day now. So I tend to stay away from that space because of those reasons.

Another space is cybersecurity. The main reason is because I know what I don't know. I straight up don't know how that stuff works. I don't know what makes one better than another. I do know that we're going to have to have cybersecurity in some way, shape, or form for the rest of our lives. But I don't know what makes one necessarily better than another. I have no edge in that space. And frankly, I have no desire to learn about it. And so that's another line where I said, you know what? I'm not going to mess with that space. If I was ever required to have cybersecurity exposure, I would just do it via ETF. But I would do that under protest as well, because I just don't know enough about it, and I and I don't really want to learn about it.

Hill: What's interesting to me is, you just laid out two very different industries, for very different reasons. And in the case of cybersecurity, I think we both believe strongly that cybersecurity will continue to grow and become important. But yeah, to your point, it's like, I don't know. If I had to invest in cybersecurity, I think I would walk straight up to the fifth floor of this building, talk to our tech team, and be like, "What do we use at this company, and why do we use it? Walk me through the payment system of the company that we're using, and are they publicly traded?" That kind of thing. Because, like you, I'm wallowing in ignorance when it comes to cybersecurity.

Moser: And I think that's a great resource that you just brought up there, is when you don't know about something, man, consult some of the people in your life, people you work with, or people in your family, because I'm certain that you can find resources that can at least give you a better big picture view. And if you're on the fence, maybe that big-picture view can help make that decision for you. All I know is, when I read through this cybersecurity stuff, just the language alone, it's esoteric. And I know investing language is esoteric, and a lot of the stuff that we do is, but it's just to the point where I just don't understand it. I can't get a grip on it to be comfortable enough with it to ever want to invest in it, even though I know that the future, there's going to be more cyber. There's going to be a lot more cyber. Cyber has huge tailwinds.

Hill: And hopefully security.

Moser: And security is going to be a part of that. I'm just not going to be investing in it.

Hill: Real quick before we wrap up. Earnings season started last week. Really starts to heat up this week and the next few weeks. What is something you're going to be watching? Whether it's an industry, a trend, a company, a CEO on a conference call?

Moser: I mean, everything is revolving around augmented reality, virtual reality, immersive technology. A couple of things that I'm watching. One is a company that just recently spun out from Nuance Communications. I've mentioned it before. It's called Cerence. Cerence builds automotive cognitive assistance solutions. They're basically building this cool tech for your cars. Again, as I mentioned, it was a spinoff from Nuance in October, bringing AR and AI into automobiles, whether it's for information, entertainment, safety, or convenience features. Recently, we had a couple of Fools, Rex and Sam, who went out to the Consumer Electronics Show. And they were able to stop by the Cerence booth, and were very impressed with what they saw there. So Cerence is a company, I'm excited to see their report and get a better idea of the business going forward.

And then, on the other side of that, I know all the news has been around big tech and trillion-dollar market caps. I'm really paying attention to these big tech companies to see about the progress they're making on the hardware side for this immersive technology. You've got Facebook with Oculus in the headlines a lot here recently. Microsoft has HoloLens 2 getting ready to drop. Google working on Glass for enterprise solutions. Amazon has an investment in a company called North that is augmented reality glasses that actually look like real glasses, Chris. And Apple is coming out with something. We don't know what it is. But Tim Cook is big on the merits and future of AR and MR and whatnot. So I'll be searching all of those calls for all of that immersive technology language to see where they stand what we have coming in 2020.

Hill: Thanks for being here!

Moser: Thank you!

Hill: 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. That'll do it for this edition of MarketFoolery. The show's mixed by Dan Boyd. I'm Chris Hill. Thanks for listening! We'll see you tomorrow.