On today's Industry Focus: Financials, host Jason Moser and Fool.com contributor Matt Frankel, CFP, take a look back at the first nine months of 2020, and more importantly, discuss what they're watching for the rest of the year. Hear what stocks they've bought recently, what the election could mean for your portfolio, why third-quarter bank earnings could be the most important yet, and more. Plus, Frankel gives listeners a rundown of the new real estate stock investing service from The Motley Fool's sister company, Millionacres, and why now could be an especially great time to invest in this beaten-down sector.

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.

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This video was recorded on September 28, 2020.

Jason Moser: It's Monday, September 28th. I'm your host Jason Moser. On this week's Financial show, we're going to take a little bit of a different tack here. We're going to give you a Fall preview show this week, a little bit of a look at what has gone on thus for this year and what we're looking for as we get ready to start this final quarter of the year.

It's September 28th, that means October 1st is just around the corner here. We begin this final quarter of the year, and it's been an interesting [laughs] year thus far to say the least, but, you know, we want to take a look at what's going on here for the last three months of the year and talk about the things that we're looking for as we come into this Presidential election season and what is certainly likely to be an exciting conclusion to the year, if nothing else.

Joining me, as always, this week is my partner in crime, Certified Financial Planner Matt Frankel. Matt, how is everything?

Matt Frankel: Pretty good. This will be a fun discussion today, I think.

Moser: Yeah. I always like doing these shows. These preview shows are always -- you know, the market is forward-looking, and we want to make some shows [laughs] that are forward-looking too, right? Let's not talk about what's happened, let's talk about what we're looking to happen. And like I said, it's been an eventful year to this point, but we have a lot of stuff coming up here. We've got a holiday season coming up here, we've got an election that's getting ready to hit. It sounds like the Congress might be a little bit closer to putting together a relief package to help folks who are dealing with the challenges of this pandemic economy, as we hopefully begin to get a little bit closer at least to a vaccine and making things a little bit better, the conditions on the ground there.

But for right now, Matt, I wanted to start with just this idea of the September effect. And I don't know that everybody out there really knows about the September effect. I don't think it's anything that's really perfectly official, but it is something that exists. September, historically, is a tough month for the markets, and that's where the September effect came from here. And so far, September has been a tough month for the market as well. I mean, it wasn't as tough as March, don't get me wrong, but it's definitely had its challenges. Obviously, we don't invest based on that kind of a timeline, Matt.

But with the election just around the corner, COVID headlines continue to dominate the press, we've got a holiday season coming up, a lot of big questions there, we've got some events coming out at some point here in the next month. We should get an idea of Apple's new iPhones, which could be a big driver for the holiday season, but given everything that's going on, I've got two questions for you to get this started. First question is, what are you doing with your money? And then the second question is, what do you think investors need to be focused on here as we roll into this final quarter of the year?

Frankel: Well, I'm always optimistic about the banking and real estate sectors, which is why you have me on the show. [laughs] But having said that, right now some of these so-called reopening trades are looking pretty attractive, especially after -- as you just described -- the September effect, a lot of them are well off where they were a month ago. So, I've been adding to a few of my bank positions, Bank of America is one that I bought more of lately. I opened a new position Lemonade; we discussed that on the show not long ago. I am finally a Mercado Libre, MELI, shareholder. I am allowed to say that now, it's been enough time.

Moser: Better late than never, right?

Frankel: [laughs] Yeah, right. I added a little bit to my Simon Property Group, the big mall REIT, just because they are by far the best in the business. So, I've been making some moves, I've been saving some money in cash, but I'm investing. So, I see a lot of opportunities right here. I really feel like the market is discounting the pent-up demand. Sure, the pandemic has lasted longer than anyone thought. I mean, Jason, when they told us to go home from Fool HQ in February, did you think it would still be going on as we enter October?

Moser: Nope, and I don't think many of us did. [laughs]

Frankel: Right. So, the downside of that is that it's been a longer period of slow economic activity. The other side of that is, once it's over, the pent-up demand will be that much greater, because it's been so much more of a disruption than anyone thought. So, I like the pent-up demand angle of it. If we get a stimulus package, like you mentioned, which I think is more likely than the market does, you don't want to be shorting these stocks. And if a vaccine is approved, which that's looking likely by the end of the year, you don't want to be shorting these stocks. So, there's a lot of potential catalysts for the reopening trade. So, that's really where I'm putting most of my money.

I mean, I love a lot of the stay at home companies like Zoom, which we're using right now, it is a fantastic company. But I just see so much opportunity in the reopening trades, especially as we're getting into the latter innings of the pandemic.

Moser: Yeah, it really does feel like -- I was reading an article earlier this morning regarding Major League Baseball, and you know the playoffs are getting ready to start for Major League Baseball and it was an abbreviated season, no fans in the stands and whatnot. They talked about -- I think they took something to the effect of a 40% hit in revenue they would normally have gotten from being able to have fans in the stands and whatnot. And they were already talking about come April when you start getting back into a new baseball season. We obviously don't know what things are going to look like then, but they are already talking about figuring out ways to get fans in the stands, even if it's just some. And I mean, we're seeing football pulling this off to a degree.

I mean, certainly, Major League Baseball had a couple of early issues that they had to tighten up in regards to testing and the spread. The NFL has been, based on the statistics I've seen, the NFL has just done a tremendous job. And it's nice to see some of these games with some fans. So, it just kind of makes me think, like, you get back out there, yeah, but people going places and attending events and whatnot, even if it's just a little bit, right? Something that starts that process backup, that could really unlock a lot of enthusiasm and a lot of value creation there.

What do you think investors need to be focused on right now? Particularly in the financials area, whether it's real estate -- I mean, we talk a lot about commercial real estate and this potential for the bottom falling out in commercial real estate, if we do really go to this full-time remote workforce. And you were talking about banks earlier too. I mean, banks kind of look like they could be in for a long stretch of tough earnings power, but maybe that is the time to be looking at buying these banks, when they're on the cheap, right?

Frankel: Yeah, from the bank point-of-view, the stimulus is obviously something to look at. Like I said, especially with the enhanced unemployment benefits, because that really could make the difference between people being able to pay their bills and not being able to pay their bills, which at the end of the day is what banks rely on, people being able to pay back their loans. And the election is an obvious area of focus for investors. I don't really see it to be a mark -- unless we get a giant surprise in November, meaning that one side or the other sweeps all three, you know, the House, Senate, and the White House. Unless we get a big surprise, I don't see it being a giant market-moving event. There's some regulatory risk when it comes to the Democrats either winning the White House or the Senate, or whatever. Right now, it's a pretty regulatory friendly environment for business, especially in the financial sector.

And don't forget that the banks were probably the industry that benefited the most from the tax cuts. You know, they pay pretty much the full corporate tax rate on all their earnings. And Biden is already talking about rolling that back. But on the other hand, I have to believe that a Biden victory is at least somewhat priced into the market at this point, just based on the polls, I'm not saying politically one way or the other, but just based on the poll numbers, I'd have to say that that's at least kind of priced in at this point. So, as an investor, I'm not that worried about what the effects of a democratic presidency would do to the banks, just because that's probably already reflected in these prices you're seeing.

Moser: Yeah. To a degree. And it's also worth mentioning, if you look back over time, the track record of a Democrat or a Republican President, you see wins and losses in both. I mean, the market goes up, [laughs] the market goes down in all sorts of administrations. But it reminds me a little bit of -- you know, I got a question on Twitter earlier, a gentleman, Matt Agee, directly messaged me actually asking about the same kind of idea here. Like, what do you do in situations like this? And it got me thinking, you know, the one thing to me that really -- it came back to me as, you know, it's understandable if you don't feel like there are a lot of great ideas or great valuations out there right now. And so, you don't necessarily need to be out there buying stocks.

But the key really is to stay invested, right? We don't trade in and out of positions based on what we think might happen in any type of political climate. I mean, the idea is, the investment that you have, the investments that you like, you want to make sure you stay invested. And if you don't find a lot of opportunities out there right now screaming at you, then, hey, listen, start building up some cash, that's OK too, right? It's understandable, if you're not feeling like there's really a lot of opportunity to buy something. So, yeah, hey, listen, just start building up some cash. But I think the real key is to just continue staying invested, because that really is a major part of the calculus [laughs] there in achieving those awesome long-term returns that we continue to see the longer that we keep doing what we're doing.

Frankel: Yeah. And I mean, as an investor, kind of the key, when it comes to political stuff, is to anticipate, not to react to it. In other words, buy companies that'll do well no matter who's in charge. You know, if you think that there is going to be a shift in power and bank stocks might be under pressure, maybe shift some assets into another sector. But I mean, don't react and hit the panic button and sell. If let's say, just for example, that Democrats take the House, and the Senate, and the White House, don't hit the panic button and sell your bank stocks. Because, I mean, if they're well-run companies, they'll do fine over time no matter who's in-charge, and that's kind of one of the keys to keep in mind.

Moser: Yeah, maybe we just say an election is not an investment thesis, and we just move on from there. [laughs] Well, let's take a look here too at some other ideas as far as what we're expecting here. We're having a little fun here with this preview share, but I want you to give me a business prediction, this can be anything ranging from something you think may happen with a company, something you think may happen with a CEO or an industry, I mean, it could really be anything. Give us a business prediction in the financial space that you feel like could come true here over the next few months.

Frankel: Sure. The big thing I think will come true is that we'll see a lot more consolidation in the brokerage space. If you remember, Schwab just acquired TD Ameritrade, but there are still a ton of independent brokerages, and all these fintechs are now starting their own little brokerage arms. You've got Square rolling out its investment arm, you have Robinhood, you have SoFi rolling out a brokerage arm. You know, all these fintechs rolling out brokerages. And you know, they can't charge commissions right now, that's just not part of the business model anymore. So, the way you make your money in a low margin environment -- which they're making money off, you know, deal flow and things like that -- but the way you make your money is efficiency. And the way to build your efficiency is the scale. So, I could see a lot more consolidation in the brokerage space. And I'll give you my bold prediction in the brokerage space, and that's that Square is going to acquire a brokerage, like a Robinhood or one of the fintech-y ones. But that's my bold prediction ...

Moser: That could be very interesting, yeah. That's a bold prediction, I mean, but there's a lot out there to look at, right? I mean, there's this new brokerage, there's this new app, I think it's called Public, they let you buy fractional shares. It seems kind of like a Venmo-type of platform. And that is community-based investing, right? You can see what people are buying and selling and you can get a better idea of what people are bullish and bearish on, and ...

Frankel: Remember that Square, their brokerage is part of the Cash App; if Square acquires Robinhood, their Cash App users go from 30 million to 40 million really quick. So, maybe that could make sense as a business move in general.

Moser: Well, I guess we'll just have to wait and see. I like that though; that's a bold prediction indeed. What about one stock that you feel like needs to be on a short leash right now? A stock in the financial space where you feel like investors need to be keeping an eye on this one, and not necessarily for good reasons, right? [laughs]

Frankel: One that I think is kind of, not that it's a bad investment, [laughs] but definitely one to keep an eye on, is Wells Fargo. I mean, we all know the fake account scandal and the 35 other scandals or however many there were that came out. I mean, I was an attempted victim [laughs] of one of their scandals, I guess you could say. When they were improperly charging their auto loan customers for auto insurance, I got one of the notices in the mail. And if you didn't fight it, like, right away, you got charged on your account. Fortunately, I'm in front of my computer all day, so I could dispute it really quick when I saw it.

So, Wells Fargo is still trying to move on from that. Right now, it's not a great environment to just be a savings and loan -- Wells Fargo has some investment banking operations, but not really a substantial amount. Those types of banking operations make money when the market is going crazy. I mean, the second quarter was when -- I think it was their second-best ever, the second quarter, when the sky was falling in the market. And because of their trading revenue, because of underwriting, because of advisory revenue, things like that, Wells Fargo doesn't have that side of the business to, kind of, fall back on if things go poorly in the economy. So, between that and that they're still very much a turnaround story, I mean, Buffett is trimming his stake heavily, he's got to see a lot of risk there too. But like I said, it might not be a bad investment long-term, but it's definitely one that needs to be kept an eye on right now.

Moser: Yeah, I definitely agree. We'll probably be talking about that one still good ways into 2021. Okay. well, the opposite side of the coin there. Give us one stock that you're more bullish on today in the financial space than you were at the beginning of the year?

Frankel: If I had to name one in the financial sector, it would probably be Goldman. And I'll tell you why. We all know that their 2019 consumer banking growth was pretty impressive, right? The Apple Card, they said, was the most successful credit card launch of all time. The Marcus platform keeps growing at a crazy rate. And even after the pandemic, their consumer banking growth is continuing. In the past couple of months, they just signed partnership agreements with both Walmart and Amazon to provide small business loans to their customers or to their merchants. And if you want to break into the e-commerce business lending section, those are pretty much the two names that you can corner the market with right there, Walmart and Amazon.

And just recently, Goldman finally, quietly, is launching its main street investment planning, like a robo-advisory type platform. I'm interviewing the head of that next week to get some more details. Right now, it's just kind of a soft rollout it sounds like.

But they're really expanding in consumer banking. And unlike these other banks that might start struggling, Goldman, one, has their giant investment banking business to fall back on, and two, they don't have that legacy branch infrastructure dragging their cost structure down. So, it's a really exciting time to be building a consumer bank that does not have branches and has that kind of a brand name and franchise to build on. So, that's one that I'm even more bullish on than I was at the beginning of the year, and I've been a Goldman fan.

Moser: Yeah. And we've obviously had folks from Goldman on the show before. And all throughout the year we've been following their investments in Marcus and the things that they've been building. And it is really exciting to watch that, because it feels to me like it would be more difficult to focus on -- like, the way Goldman is going about it and building out -- you know, they've always had this investment side of the business -- and adopting technology to build out more consumer solutions seems like it would be a little bit easier to do as opposed to having to build out the investment side of the business, right? I mean, the investment side of the business, that takes a lot of capital, a lot of experience and a lot of time, really, not only to build out, but to have the track record, the trust, the success. Technology has really brought barriers down for all sorts of ways of doing things, and so, to see them making those investments, it's exciting, I certainly understand that.

Well, before we wrap things up this week, Matt, we did want to give you a chance to take a few minutes. Listeners may know that you are a member of a team of one of our services here at The Motley Fool, you work on our real estate team here with our services in Millionacres and with Mogul. And it sounds like you all over there, in Millionacres and Mogul, have a new service getting ready to open up. I wanted to give you a chance to talk a little bit about it and tell us what the service is going to focus on.

Frankel: Yeah, the service actually went live last week; I can announce officially now.

Moser: Well, congratulations.

Frankel: Thank you. It's called Real Estate Winners; pretty simple, to the point, winning real estate stocks. We went through a few different possible names, that was one that we settled on.

Moser: That was real quick; I don't mean to interrupt. But given that you're partnered up with Matt Argersinger there, Maddie is a big Boston sports guy. I mean, I kind of feel like maybe this should have been called Real Estate Winnahs, right? Winnahs, like, A-H-S, right? [laughs]

Frankel: Yeah, I could see Maddie saying that. [laughs]

Moser: I'm kidding, I'm kidding. Go on; I'm sorry. [laughs]

Frankel: [laughs] But anyway. So, basically what the service does is it starts you off with a recommended portfolio of 10 of the best real estate investment opportunities we could find. I mean, if you don't know, this is why I'm so excited about this. Real estate was probably the worst hit sector during the pandemic. When you think about it, real estate is something that usually relies on people's ability and willingness to go somewhere. So, for that reason, real estate stocks got beaten down, a lot of them are still trading way under where they were at the start of the year. And if you know how to pick the winning companies, there's such a great long-term opportunity right now in real estate. And we are so happy we get to start this from scratch right now. And people on the ground floor are going to get some really good long-term opportunities.

So, how it works is, we have what's called our top 10, which right now, we just launched, so we have 10 recommendations that we make. Each month we deliver one or more new investment ideas to members. And every quarter we refresh the top 10. Out of our universe of recommendations we pick our 10 favorites to put money in right now. And the goal is, obviously, to beat the market over time and to do so without a lot of volatility. Real estate over the past 100 years has actually beat the stock market. Real estate investments have achieved an average of about 11% annualized return for the past century and have done it with about half the volatility of the stock market.

So, it's a great -- I wouldn't say low-risk, but it's definitely a way to mitigate your volatility, diversify your portfolio and still achieve great long-term returns. And I can give a link, if that's all right, for people to ...

Moser: Yeah, I was going to ask. I mean, I don't know if it's just, can people go to Millionacres.com and find out more about this or is there a place where they can go to learn more about Real Estate Winners and all the great stuff that you guys are doing with the real estate side of our business?

Frankel: Well, you can on Millionacres, if you want to go directly to it, and this link will give you -- it's I think $50 less than the normal rate to buy it, it's Real.Fool.com.

Moser: Very nice. So, listeners out there interested in real estate, check these guys out because they really know what they're doing. I've been working with Maddie for as long as I've been here at The Fool, been working with Matt Frankel here for the past couple of years with the show, and I can vouch for their real estate prowess. So, Matt, congratulations on that launch there, I'm sure you guys will do great things even in the face of a difficult real estate market.

Frankel: [laughs] Well, thank you so much. I'm really excited to see where this goes.

Moser: Yep. Well, we'll be following it, and we'll definitely catch up and see how things are going. But I think that is going to do it for us this week, folks. Matt, thanks so much for taking the time to join. As always, I appreciate you giving us your thoughts here on the Fall preview show for Industry Focus: Financials this year.

Frankel: Of course. Glad to be here, and it's always fun to talk about the future with you, like, we have crystal balls here.

Moser: For sure.

Frankel: I think I see one on the piano behind you over there.

Moser: [laughs] It's possible. I can neither confirm nor deny.

Remember, folks, you can always reach out to us on Twitter @MFIndustryFocus or you can drop us an email at [email protected]. We always love hearing from our listeners, so make sure and drop us a line and let us know what's going on in your world of investing. If you have ideas for the show, stocks you want to know more about, that's what we're here for.

But as always, people on the program may have interests 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.

Thanks, as always, to Tim Sparks for putting the show together. And you know, hey listen, thanks, Tim, for keeping our audio levels in check too, because I know that's not an easy thing to do. For Matt Frankel, I'm Jason Moser, thanks for listening, and we'll see you next week.