The Josh Bolton Show
The Josh Bolton Show
Turning Life's Challenges into Financial Wisdom
Discover how an aspiring trauma surgeon, Adam Koch, turned a challenging life event into a thriving career as the president and founder of Libertas Wealth Management Group. Adam takes us through his unexpected journey from competitive Taekwondo to becoming a seasoned financial advisor, sharing how technical analysis and relative strength became the cornerstones of his investment strategy. His commitment to shielding clients from poor financial advice makes this episode a must-listen for anyone looking to enhance their financial acumen.
Unlock the secrets of effective trading strategies and risk management with Adam's insights into stock chart analysis. Explore how different trading timeframes—from ultra-short-term day trading to long-term investments—can be tailored to suit your financial goals, with a special focus on intermediate-term trading. Learn why having a disciplined approach is crucial for navigating market uncertainties, like election times, and how to avoid common pitfalls that lead to emotional decision-making.
Adam also shares his expertise on market trends and asset selection, emphasizing the potential of small-cap stocks and digital assets. He explains how trend-following models and relative strength calculations can guide investment decisions, helping investors to capitalize on emerging opportunities in both digital and traditional markets. From portfolio management strategies to understanding small-cap indexes and tax policies, this episode is packed with actionable insights that will help you confidently navigate the complexities of today's investment landscape.
if you enjoyed the show be sure to check out my info:
https://app.wingcard.io/ROB3SA64
Hello, hello everybody. So we have Adam. Adam is a professional money manager and a fiduciary. Me and him decided to just geek out over technicals, over trading and charts and how the market moves Me especially. I do a lot of futures contract trading on the side. It was fun talking with Adam. I got a lot of insights on how a fiduciary would look at the new market. So if you're looking at bettering yourself or improving your investing skills, definitely listen in. But also if you are an accredited investor, definitely give Adam a call. I'm sure he would just love to chat in general about the market. Let's begin. I'm sure he would just love to chat in general about the market. Let's begin. Welcome to the Josh Bolton Show, where we dive into interesting and inspiring conversations. And now your host, josh Bolton. All right, sure, adam, give us a quick introduction of yourself, who you are, and we'll get right into this.
Speaker 2:Sure, so my name is Adam Koch. I am the president, founder, senior financial advisor and portfolio manager at Libertas Wealth Management Group in Columbus, ohio, so the Buckeye City Been in the business for 23 years. I always say I haven't worked a day in my life, at least for 23 years anyway. Those part-time jobs were rough, though before then. I bet, I bet. But yeah, we're a financial planning firm first, investment management firm second. But probably what makes us really unique is, aside from the full-blown, comprehensive, all-inclusive financial planning, retirement planning, retirement income planning, tax planning, estate planning, you know, insurance planning, all that stuff and being a fiduciary, a true fee-only fiduciary. The other thing that I think that is probably going to be interesting to those listening or watching is the fact that our important portfolio management strategies are all built around technical analysis, relative strength and things of that nature, so the nerdy stuff that only certain audiences actually care about. So I'm really looking forward to this.
Speaker 1:Yeah, no, I enjoy this stuff, so what specifically did like inspired you to become this?
Speaker 2:To be a technical analyst or get into the financial advisory services. Both, both, all right. Cool, we'll do the long one first and then, well, I don't know, maybe they're both long. I went to school. I went to college to be a trauma surgeon. This was not my path, I know. There you go. Don't choke on your drink. There Is this audio, by the way. Yeah. Any video it can be, if you want.
Speaker 1:I can be if you want.
Speaker 2:Okay, it's up to you.
Speaker 2:I'm fine with it being a video. Okay, totally fine. So yeah, I was. I didn't drink in college at all. I DJed and I did plenty of you know, I had plenty of fun. But I was pretty clean because I competed for Ohio State in Taekwondo and I was really, really all about, you know, keeping my speed and fitness and all that stuff, and I always joke.
Speaker 2:That was about 60 pounds ago at this point, so things have changed since then. But I guess that's life in adulthood. But anyway, if I can make this story as short as possible, I basically did really well when in my sophomore and junior year and I had these big, huge aspirations of making it to the Pan Am Games and to make again long story short I broke up with a girlfriend I was showing off at the gym trying to do the splits on two chairs like Van Damme, and I tore my hamstring halfway off my pelvic bone and ended my fighting career. So basically I can look back. It's funny now, but I can look back and say that in retrospect I was absolutely depressed, not that I, you know, I kind of stopped caring about school, called my dad up one day walking down through campus and said, hey, I've decided I'm dropping out of the pre-med program. And he's like well, what are you going to do? And I'm like, I don't know. I've been thinking about it, I've got some ideas and we exchanged some ideas and then he goes well, why don't you become a financial advisor? I'm thinking financial advisor. I'm like dad, I took one econ class in college Like why in the world do you think I'd be good at that? And he's like well, you kind of I want to keep saying long story short and then make the story long. But I basically talked to his financial advisor.
Speaker 2:I went to a seminar back down in Columbus. So I'm from Cleveland, but it went down to Columbus. So I went to a seminar for a national brokerage firm, decided to give a shot, fell in love, ended up getting two degrees, one in finance, one in psychology. So I always joke that I use the psychology degree more than I do the finance degree half the time. Um, but yeah and uh and yeah. So, uh, it's, uh, I, I did really well out of the gate at this national brokerage firm, even though I was 21,.
Speaker 2:Uh, it looked like I was 16 at the time. Um, I started 10 days before the world trade center went down and was trying to get, you know, people three times my age to trust me with their life savings. And it was not easy, as you could probably imagine. So but I still worked my butt off and, you know, pushed through the rough times and started this company November 4th of 2004.
Speaker 2:Libertas, that is, libertas Wealth Management Group and our website's libertaswealthcom, and basically I kind of at this point in my career, with it being 23 years in, what gets me really pumped up every day and kind of keeps me really excited and momentum going is saving people from bad advice and bad advisors. So that's kind of like my personal I don't I haven't been talking about that till maybe recently, but that's something I guess somebody asked me and so I'm making it a little bit more public but that's what I think about when I'm in the car, in the shower, is that's what really kind of gets me out of bed in the morning is saving people from. The unfortunate fact of the matter is that this industry there's too many bad apples, so anyway, so that's kind of how that started. I've got a couple other companies we can talk about, but maybe today we just kind of stick with the financial advisory portfolio management, that kind of stuff.
Speaker 1:I like that. Yeah, definitely. Might have to talk to you another time about those, though. So for the technical analysis, are you traditional analysis or you blend a couple of the more modern indicators too?
Speaker 2:I would say that first and foremost to make it easy and simple for those that are beginners and really don't know anything about this stuff. I'm not a fundamentalist, so that's kind of the opposite of a technician, so I don't really spend. The only fundamental indicators or metrics that I look at are occasionally I'll glance over at sales, and quarter over quarter, year over year sales increases is what I'm looking for or earnings I'll look at earnings too, but other than that, probably the most, the biggest things I'm looking at on a day-to-day basis are trend, so price trend, momentum and volume. So those four things are the biggest. And then if you put one big, all-encompassing thing above them, it'd be relative strength. So I always call it relative strength.
Speaker 2:People say relative strength. What is that? You know what's that even mean in the investing world? And it's like, well, if you imagine every investment you could possibly invest in was that all the teams in the NFL. It'd be like. Or now it's college football playoff season, right, so it's all hundreds and some odd teams in the NCAA. It would be like investing our money in the playoff teams and avoiding all the rest. So that's what investing in, that's what relative strength is.
Speaker 1:Okay, yeah, honestly, I guess I would be more of a hybrid, then I use, so are you familiar with.
Speaker 1:Ken Roberts for futures trading. No, he was a legend in the nineties so I found him through my mom essentially, and so he taught me essentially contrarian, but he does the. That's where I was saying. It's um, it's like a one, two, like one, top, two, bottom, three, mid, like the, the three point, okay, so he's that's where his is like if you see the those, and if it's a three high, it's going down, three low kind of thing. So that's mostly what I use. And then, yeah, the. I don't use it for the actual trade, but it's the parabolic SAR and the ATR to confirm that it's going down.
Speaker 2:Sure, yeah. Yeah, I don't use parabolic or any of the indicators that include the word parabolic, but strength of trend is hugely important. Things like ADX.
Speaker 1:Yeah, so that's where I use Penn's method to call the top and bottom and then I use those indicators to prove that was correct. But it doesn't matter really to me, because I always get in like three or four bars earlier than the actual indicator popping up.
Speaker 2:I mean, I think, at the end of the day, the great thing about technical analysis is that it's huge and robust. And there's about, you know, when they say there's a couple ways, there's a few ways to skin a cat. In technical analysis, there's probably 200 ways to skin the cat, and the bad thing, the terrible thing about technical analysis is there's 200 ways to skin the cat. I mean, so it's the great thing, is the same as the worst thing about it. I mean, you can kind of go down the rabbit hole. I'm sure you see these charts on Twitter, or X as they call it now, where you know somebody puts a chart up there. Then they have, you know, three moving averages. Then they've got diagonal trend lines, then they've got horizontal lines of support and resistance, then they've got a cloud on top of it, they've got volume bars on the side, they've got five indicators below it and it's like that's not going to help you at all. I mean, that's not going to do anything for you.
Speaker 2:Yeah, Unless you understand the, the structure of what the chart means, all that is just a bunch of distracting overlays it is, it might look sexy, but to the, to the um amateur eye, but to anybody who knows what they're doing there is there is a such thing as, um you know, a lot being too much.
Speaker 1:Anybody who knows what they're doing there is there is a such thing as um, you know a lot being too much so for you um, especially doing this 23 years and also being a fiduciary. What um are some of the strategies like? Especially with the last few months with the election fears, how do you choose to get in and out, especially with this uncertainty in the market right now?
Speaker 2:Yeah, I think that that's a great question. I think it's important that, before I answer it, to define well, to make the point that everybody needs to have their own timeframe. So you know, what I'm going to share is my timeframe, and but to define all of them. Not all of them, but most of them, the main ones anyway, first. The first is you know ultra short-term, like day trading. You know these are where people literally go to cash every day at the close. That would be one time frame.
Speaker 2:Another time frame is called swing trading. You know swing trading. You're owning positions for maybe a few days, up to three weeks. You know, one of the best swing traders in the country, in my opinion, has been my friend, brian Shannon over alpha trendsnet. He's amazing. So if you're looking for help with with swing trading, go check him out. Um, subscribe to his service, but, um, I don't get anything for it, by the way. I'm just. This is just selfless acts of kindness here.
Speaker 2:Um, the next timeframe would be short term, which is, um, you know, I'd say a month. You know, month to two months, call it month to three months. The next would be intermediate term, which is like six to 12 months, and the last is long-term, which is, you know, one to three years. I'm in that intermediate timeframe, so I'm I'm kind of trading over a six to 12 month, uh, horizon, if you will. And so, when the election was coming up, you know my trends that I'm following are a little bit slower, say some, than a swing trader might use, or even a short term trader. So, and the reason I sit where I sit is because I've tested several strategies. The great news is they all work if you follow your rules, I mean.
Speaker 2:So it's again, this goes back to the whole 200 ways to skin a cat, but, but the bad news is is that when you're in the business of managing money for other people, I think there are optics you have to worry about, and what I mean by that is the number one reason why clients or individuals, couples, whatever investors financial plans fail is because they abandoned their plan. And the number one reason why people abandon their plans is because the portfolio wasn't allocated correctly, it was too risky, the volatility was too high, and so, right along those lines, if you have a timeframe that is too short, you can get a lot of trading, and then, when you get a lot of trading and you're making money, nobody cares. But inevitably the market's not always going to go up and you're not always going to make money, and that seems obvious to you and I not always going to go up and you're not always going to make money and that seems obvious to you and I.
Speaker 2:but but I mean the second. You start losing money and you're placing a lot of trades. You get that brain trash where the human beings are just terrible investors and they start going what are you doing? You're placing all these trades. It doesn't even cost them anything we pay for the trading costs but they're going. What are you doing? What's going on? I'm losing money. You're placing all these trades. You're just losing money. And it's like well, nobody goes into a trade and goes God, I hope this goes down so I can sell it and make a loss. Nobody does that. But there is a such thing as a good loss and that is having risk management in place, knowing what your exit strategy is and, when you hit that exit strategy, hitting the button and walking away.
Speaker 2:So my timeframe as the election was coming up, we didn't change a whole lot. I mean, oftentimes the market tells you or or or. Well, yeah, the market tells you what to do, not the other way around. So I think that what, what we were going to see with the election is, we were going to see um, in my opinion, the market was still going to go up. It didn't matter who got elected. Who got elected. I just think the question was really where was that relative strength? Who are the playoff teams going to be, you know, depending on the president who won? So I think we're already starting to see. You know, small caps are starting to gain traction. That makes a lot of sense, for instance. That's just one example.
Speaker 1:Right yeah, for me. I was thinking the same thing. It doesn't matter who gets in. The only one I was thinking like with Kamala Harris was really going to tax the unrealized capital gains. I'm like that's going to be tricky. How do you plan for?
Speaker 2:that kind of thing. That wasn't going to happen. I mean, that was one of the reasons she lost the election. But any advisor to her that has half a brain once she won would be like look, you can't do that. That was great, that was a great talking point. You know to get people uh, you know thinking let's go after the rich and take their money and pay off some of this debt. But if you, if you taxed unrealized cap gains, um, investment in this country would just absolutely sink like a rock. That would. That would be a terrible idea.
Speaker 1:No, and that's kind of what I was thinking too. I'm like I think it was just a bunch of lip service to get everyone else really all excited, like oh yeah, robin Hood cake from the rich. I'm like it's not going to happen. The powers that be would be like yeah, no, you're not doing that Exactly. Or it's like are you going to give us a really nice loophole if you are?
Speaker 2:Yeah Well, yeah, that's even worse. Just more complication for the CPAs Right.
Speaker 2:Right, and you do that too correct powers of attorney, charitable planning, taxes, tax planning. But we're not. We don't write wills, you know. We don't write trusts, we don't do anybody's taxes. We have a client, like once every few years, that'll say, hey, can't you, could you hire a CPA and I'd love to have everything done at your office. And you know, twice in the last 23 years I've surveyed our clients to say you know, would you be interested in that? And the glaring kind of overall message is no, stay in your lane, so we just stay in our lane. At least they're honest with you. True story yeah, no, it's good. Best way to get better is to ask the people who hire you, right.
Speaker 1:Exactly. So what are some of your strategies? When there's a lot of fear? Let me wait. Let me rephrase that when what is your, your stop point? Where it's like at 2% loss or whatever indicator I'm pulling out Cause it's like I can't afford to take more than this.
Speaker 2:Sure, yeah, and our trend following models. So we have 18 portfolio models we manage and eight of them are trend following models. The others don't have stop losses. I would say that they have ranking stops. So it's all relative strength based. So what that means is going back to that playoff team analogy. If a team has a few losses and they have a losing streak going on so they're not performing well, a couple losses, even three losses, that's not a trend yet. But if the win-loss record starts to get to a point where it doesn't make sense, where that team's not going to make the playoffs this year, we want to eject it and buy whatever's at the top of the ranking system. So the strategic models are not meant to go to cash. The tactical models are. So they use that same relative strength, stay invested with the playoff teams but avoid the rest strategy.
Speaker 2:But there's also a trend following filter for every position in the portfolio for each of those eight models, and the one that I use is the 40 week moving average. So whenever there's a close below the 40 week moving average on Friday, I'll typically give it to the European close on Monday, so 11 o'clock on Monday morning Eastern, and if it can't reclaim that line in the sand, then we're out, 11 o'clock on Monday morning Eastern. And if it can't reclaim that line in the sand, then we're out and again. So what you got there is, and a strategic portfolio would hold on to that position, but you own essentially the cleanest dirty laundry. Right, it might be outperforming the market, but on an absolute basis it's still dropping in value, which the whole purpose of tactical technical analysis driven portfolios is to. You know, look at risk not as volatility or just standard deviation, but to look at risk more along the lines as loss of principle drawdowns, right. So for in all those models, it's very simple 40 week moving average close on Friday. Again, we give it some time the next week to see if it can reclaim that line in the sand. If it can't, it's out. If it reclaims that line in the sand a few days later and it closes above it on Friday and it's still in the ranking system at the top, then we trade up, we buy it again.
Speaker 2:That's where you have to be nimble, follow your rules. You can't be mad because, oh, it went up. If I just would have held it, I wouldn't have made more money if I held it, but I've got this crystal ball in my conference room that somebody bought me. A client bought it for us as a joke gift. It doesn't work and anybody that can tell you they're a trend predictor is lying right. I always say we're trend followers, not trend predictors, so anyway, so yeah, that's essentially our most common line in the sand, which, again, every stock, every commodity, every crypto, digital asset, bonds they all have their own metaphorical line in the sand. It's not like there's a switch that goes off in the market and then you sell everything in your portfolio. You treat every individual investment as its own.
Speaker 1:Speaking on crypto. Is it a more aggressive strategy or a similar one modified, for crypto?
Speaker 2:No, Well, no, actually it's funny. You asked that question because I'm in the process of potentially building a couple model portfolios aimed at only crypto, because, in my opinion, I think that the crypto asset class is just that it's going to be a new asset class. To this point in the industry, there have only been six asset classes there's US stocks, international stocks, currencies, commodities, fixed income and cash, but now I think there's the seventh asset class. I think people are starting to realize that crypto is probably here to stay. So, as that happens, I think that the way to do it, in my opinion, is to, first and foremost, do a relative strength calculation that ensures that you're buying the right I'll call it the top ranked or the digital asset with the most momentum. So if, first of all, you have to look at the relationship between them let's just say Bitcoin and Ethereum, so you want to own the highest relative strength position between the two, let's just say, and then throw a trend following filter on it, like the 40 week moving average.
Speaker 2:Now, some people might want to go faster than that and, honestly, I don't think there's any problem with that. Like, for instance, if you want to use the 10-week moving average instead and, by the way, the 40-week moving average is very similar to the 200-day mathematically, and so the 10-week is the same as the 50, like the 50-day, so you could use a faster moving average, which, and what's going to happen is two things. One, you're going to get in sooner and out sooner. However, and this is the most important lesson here, there are going to be way more whipsaws where you get out soon, so to speak, but as it comes back, you're going to have to pay a trade up at higher prices, because it was just a whipsaw, it wasn't an actual trend change, it was just call it a severe pullback or mild correction.
Speaker 1:Yeah, I want to say, especially with all the gas fees, if you're trading trading the straight currency, not the futures contracts that's going to be you could be losing more on the gas than the actual uh currency itself. Yeah, sure, so that that was going to be the next thing I was going to ask are you going to do the actual like because they have a couple bitcoin uh etfs futures contracts? Are you going to or would actual like because they have a couple bitcoin uh etfs futures contracts? Are you going to or would you consider trading the actual coin itself?
Speaker 2:um, because of the the fact that I live and work in the most highly regulated industry in the entire world, um, and because I can't even imagine how I would go about setting up an institutional investing company that had a custodian, that was a digital wallet, that I somehow discretionarily managed digital assets for clients. I don't even know how you would do that. I don't even know if it exists, to be honest, but I'll tell you right now, I don't think there is something for that?
Speaker 2:I don't think so, and if there was, I would want to do it anyway. So there's, as you mentioned, there's ETFs. You know, gbtc Grayscale Bitcoin ETF was the first big one that kind of came out. It's got the most history, but it doesn't track really well with the actual underlying, you know, digital asset. And then BITO came out, b-i-t-o came out. I'm trying to think when did it start? Let's see here I'll just pull it up. So yeah, it launched on in October of 2021. So it's been around for, you know, three years at this point. But there's another one that just launched earlier this year, actually on the I think it was the second week of the year. It's called the ARK 21 shares Bitcoin ETF. It's, the symbol is ARKB, and what's really cool about it is A it tracks the underlying Bitcoin asset pretty well better than the others, I think. And then B it's super inexpensive. So, like GBTC, bido, they're pretty expensive ETFs. This is 21 basis points.
Speaker 1:Okay, so then the other one is BITO, BITO, GBTC and ARKB.
Speaker 2:Okay so then the other one is BITO, bito, gbtc and ARKB Okay, but yeah, I think that our strategies are completely, you know, exchange traded. We're using ETFs, we're on the broad market. You know, we're not gonna we're not gonna buy a digital asset for a client. That's. That's a mess that I'd even have a hard time explaining.
Speaker 1:I was going to say just the regulations for your industry to explain to the powers of the government, like why are you doing this? It's like they asked me to and Yep exactly. So is there any particular sector other than like Bitcoin and stuff like that you're looking into? Right now for investing, yeah.
Speaker 2:I mean at the moment we're. I like small caps a lot. Small caps have been underperforming for a long time. I mean they showed kind of a glimmer of hope in, you know, early 24. And but when you look at a chart, if you pull up a chart like of IWM, for instance, and but when you look at a chart, if you pull up a chart like of IWM, for instance, you know the iShares Russell 2000 ETF, it was underwater. I mean. I mean you could say, I mean you could say it peaked out in like November of 2021, but it was. I mean we're talking it was like a one or two week breakout and then it failed. So I mean you can go all the way back to say I don't know early 2021. So I mean that's we're talking three and a half years ago. It's been underwater until literally just a couple of weeks ago.
Speaker 2:So you, literally, if you invested in in in small caps back in early 2021, you were, you were a loser still just a few weeks ago. And that's as compared to, like the NASDAQ or the S&P. You know where. You know S&P broke out a long time ago. I mean S&P broke out almost a year ago at this point. So you were profitable a whole year ahead of time and I think a lot of that's had every well, not everything, but a lot of it's had to do with interest rates being high. When interest rates are high, small businesses struggle. I think the election helped out a lot and is going to help out a lot. I think I think that the current administration is going to be very small business friendly. I think rates are going to continue going down at the Fed, so I think that's all going to help small caps and we might see some outperformance there.
Speaker 2:So, in other words, there might be an opportunity to outperform if you have, you know, an allocation to, if not an overweight, in the small cap space. So I'd say that's a big place. We've been Some others. I mean we've been invested for quite a while now in you know, industrials, technology, ai, things like that. Some individual stocks we've owned for a really long time would be like NVIDIA I don't even know how long ago I bought that thing, it's been a while but NVIDIA, meta, broadcom, netflix, intuitive, surgical, costco. So those are some of the stocks we own right now and I guess I already disclosed it, so I wanted to make sure I disclose hey, if I'm talking about this, we own it. So yes, we own it.
Speaker 1:And this is not financial advice.
Speaker 2:That's right. It's not financial advice. Talk to you, talk to a qualified financial advisor, ideally fiduciary, before making any decisions about your portfolio.
Speaker 1:Anyway, yeah, throw that in there, that's right. Yeah, that's interesting. Yeah, I actually bought an Exxon and Costco. I knew they were making money, so I just bought a couple shares for the fun of it, and that's where I watched it go 100% and I'm like, oh dang.
Speaker 2:Yeah, Costco was definitely a winner there. But you know, with energy, energy is really struggling. It's been struggling.
Speaker 1:Yeah, that's kind of where I bought in Gosh. I think I bought in right around the same time with Buffett and I didn't even know it, okay. So I rode Exx, even know it, okay. So I I wrote x on with him but, um, I got out because it was showing a lot of weakness. It was like 90 and it's dropping to 80 profits and I'm like, yeah, it's probably gonna go down, so I'll just cut it, take the money I'm looking at it right now, trading at 111.95 overnight, and it is literally trading at the exact same spot.
Speaker 2:it was in October of 2022. So two years ago nobody's made any money, yeah.
Speaker 1:Yeah, and that's where I I like I said I got in at that point I wrote it up like 90% cut it and cause I'm like, yeah, it's just showing a lot of weakness now. Yeah, but are there any other sectors like real estate you're looking into or stuff like that?
Speaker 2:No, I'm not really looking at real estate a whole lot. I mean, real estate kind of looks like small caps did to me maybe a year ago where, again, if you look at real estate on a chart, the peak in real estate was literally the last week of the year in 2021. And, as of right, and that was, by the way, that was at $115, $116 a share on the IYR, so on the iShares real estate ETF and it's traded at 97 right now. So I mean it's down, you know, somewhere in the ballpark of you know we'll call it 20%, maybe 15, 20% off. It's still off its highs and you know, I think real estate's also in my book, a relatively defensive sector. So I think it depends on what happens with the market.
Speaker 2:Interest rates, again, are going to be a part of that discussion. But I think when you're in this kind of environment where rates are falling and could help real estate, I think that you also have to look at all the other options that are out there. It's actually it's why I believe so strongly in relative strength and so strongly in concentration to a certain extent, as opposed to diversification, because if you just buy some, you know some real estate and food and beverage, and some cyclicals and some industrials and utilities, and you just buy a little bit of everything. So maybe some commodities, maybe large caps, maybe small caps. Eventually you've just built yourself an index. You just own the S&P 500 at a certain point, I mean.
Speaker 2:So I think that it's important to concentrate your holdings in the best asset classes. Or, if I were to say it another way, you want to concentrate your holdings in the best stocks. If you own stocks within the best sectors and industry groups, within the best asset classes, and stay invested in that way, and then just stick with the momentum, stay with strength and then, when things just things don't you know start to fail and roll over, understand that if you sell the top, you got lucky, that's it. That's all it was was luck. Nobody sells the top, nobody buys the bottom.
Speaker 1:So just when it starts to fail on you. Stick to your rules. Whatever your rules are for exit strategies, walk away. And you know's relevant strength and the trend of it. Okay, are there other than the 40-day moving average? What are the indicators for you? Is it like the 14-day moving 20 to confirm or give signal to the trend going up or down?
Speaker 2:Sure, I mean for, like you know, having a just looking at a moving average alone, it's important to understand what direction it's going. Like, what direction is it sloping? You know there is such a thing, by the way, as trendless. You know it doesn't always have to be an uptrend or a downtrend, it can be trendless. You know it can be choppy. So that would be one.
Speaker 2:I look at RSI, you know so, primarily like everybody who looks at RSI usually looks at RSI 14. So 14 period RSI, I look at that quite a bit for look for divergences. You know I'm looking for, for instance, when the market's going up well in any all the time with investments we own, with the market as a whole. When it's doing well, I'm looking for reasons it's going to turn over. I'm looking for problems constantly, and when the market's going down, I'm constantly looking for positive evidence. So I think one of the biggest mistakes that investors make if they're managing their own portfolios is when things are going well they get so euphoric they don't spend as much time Like they're enjoying it too much when, if you're going to manage money, you can't enjoy it. It can't be something that's fun. Fun is like going to manage money you can't enjoy it. It can't be something that's fun. Fun is like going to Vegas. Managing your money has to be a very, very serious undertaking. So, like I said, when the market's going up, like the stock market's been going up now for two years, I am always trying to find reasons that there would be positive evidence or, I'm sorry, negative evidence on the horizon. Positive evidence or, I'm sorry, negative evidence on the horizon. So like a negative divergence in RSI would look like higher highs in the S&P but then lower highs in RSI. Another example might be if I'm looking at something really, really short term so I'm looking for a short term entry or exit I would look at RSI 5. You know it's much faster, it gives you, you know, quicker information. But you got to understand you're looking at a much, much shorter time frame. Then I look at it's similar to RSI, but MACD. You know whether you're looking at the highs and lows for a divergence there, or if you're looking at the histogram, that's another. You know the histogram is obviously the difference between the signal line and the moving average, and so you can use that for divergences as well, which will give you a hint of either good things to come if the market's going down or the stock's going down, or bad things to come if it's going up and you see a negative divergence there.
Speaker 2:When I look at the market overall, I like looking at breadth indicators. So, percentage of stocks above the 200-day, percentage of stocks above the 50-day, new six-month lows, new six week six month highs, new 12 month highs, new 12 month lows, and I'm looking for, um, you know, signs of weakness, or strength for that matter, when the market's going down, weakness when it's going up. So, because most people don't know this and I'm a person who taught me, unfortunately passed away I'm looking at a picture of him on the wall over here. Uh, um, um, oh, my god, I'm gonna stroke out here. Come on, adam, I am stroking out, hold on okay, I call it like the runway train.
Speaker 2:We're gonna have to, we're gonna have to cut this and go back. Um, okay, it's been a long day. I started at seven with the 7 30, with an interview with a potential employee and then here it is. It's almost 730 right now. Former president of Lowry Research, paul Desmond. I didn't have to wait for it to find it to pop up, I just knew it was Paul. Anyway, paul Desmond.
Speaker 2:So if I start over and we cut in here, one of my mentors over the years was Paul Desmond, who was the former president of Lowry Research. He's since passed and Paul was the person who taught me early on that the way markets crash is like this small caps crash first. So what you have is the big smart money selling the small caps and trading up into mid and large caps and mega caps. So then they sell their mid caps and they'll start to head downward and you do selling pressure. Then they they sell their mid caps and they'll start to head downward and do selling pressure. Then they start selling their large caps.
Speaker 2:And the reason markets crash this way and the reason it's it's such a on or such a call a secret in the business is because most people don't know that all the major market indices that people watch every day, that see on TV, on the radio, are cap weighted. So the Dow is 30 large cap stocks. There's no small caps in it. So if small caps and mid caps start to go down, you won't see it, because there's no small caps in the index.
Speaker 2:If you're looking at the S&P, which is what probably most people look at the S&P 500, it's 502, 503 stocks and it's cap weighted, which means when Microsoft has a big day or when Apple has a big day, the S&P has a big day. So when you start to see small caps failing, they have such a low representation on the S&P 500, it won't even put a dent in the index. Same thing with mid caps. Then when the smart money says all right, that's it, I'm done, and they start selling their large caps, or stop buying large caps, for that matter. Now you see the market start to roll over and that's exactly what happened between 2021 and 2022 is small caps started to fail in February, then mid caps and then you had, you know, kind of like the hairpin on the top of the pile that caused the avalanche you know which started in November, december.
Speaker 1:Would the VIX and the value line gauge geometric also be able to help gauge that too, or I think the value line is interesting.
Speaker 2:I look at it um at least once, a quarter Um. I don't use it as a main tool of my in my trading decisions, but the value line is good for knowing kind of what the average stock is doing. Um and the VIX I think it's good to know if the VIX is trending down. That's obviously a good thing I do. There's a good friend of mine, andrew Thrasher, has won a couple awards at the Chartered Market Technicians the Dow Award for Technical Analysis on VIX studies specifically.
Speaker 2:And I think when you start to get long periods of weakness which is good, right in the VIX, you're that much closer to a VIX spike which obviously would cause a pullback or a correction. So I think that I probably use the VIX a whole lot more when the market's in chaos rather than when the market's doing well. And I use Andrew's volatility risk trigger, the VRT, as just kind of like to see when that's going to happen, because I think it gives a sign that you might see a volatility spike, say in the next one to three weeks or so. But yeah, I definitely look at the VIX.
Speaker 1:Okay, yeah, for me, kind of like you, it is not the heaviest weight in my analysis of everything, but it's kind of like more of a pulse. It's like, ah, everyone's really greedy right now, so better wait on buying stuff, kind of thing. Yeah, that makes sense, yeah, cool. So you keep mentioning the small caps. Is there a specific index that you look at, like the Russell 2000 or something?
Speaker 2:Yep, it'd be the Russell 2000. I mean, I'd be looking at for somebody who wants to get a pure play on the small caps. It would be, you know, iwm. If you're looking for something a little bit more diversified that gives you exposure but keeps you in some large caps, then I would look at like RSP, which is the equal weighted S&P 500. Piece of cap weighted index and that you know there's, the small caps get no representation. The RSP is the equal weighted index. So instead of, um, you know, having all the large caps get the weight, every stock in the index then gets an equal weight. So it's equal representation.
Speaker 1:Okay, that's a good one. I didn't know that, so I'll definitely look that one up, yeah.
Speaker 2:The good analogy is uh, we're talking about politics, right? When you look at Congress across the country, every state has a different number of congressmen or congresswomen depending on the size of the state, right? That's like the S&P cap-weighted index or the NASDAQ. The equal weight is like the Senate Every state gets two. That's it.
Speaker 1:Okay. So yeah, like if you're I don't know some microchip company has like eight or ten percent of the weight, it would just make it like everyone gets like a one percent representation kind of thing, correct, yep, perfect, no, that would make more sense. Yeah, if you have winners that can move the whole index, they can also drop the whole index, kind of thing. Yep, you got that right. Nice, yeah, I'll definitely look that up. Is there anything in particular I might have glanced over or missed that you want to talk about?
Speaker 2:Maybe it's just a final note. I'll just say it's and it's not going to be all that. I'm going to warn you it's not gonna be a lot exciting. But I think that one of the biggest mistakes people can make is that if they're investing and it's really exciting they're probably doing it wrong.
Speaker 2:But with that being said, all this stuff's great, it's fun, it's interesting, right, technical analysis I love it. I mean, I live and breathe charts all the time, but at the end of the day, none of it matters if you don't have a plan. So I think it's above all, this investing stuff that we talk about, and how much fun it might be, how interesting it might be, if you don't have a full blown, comprehensive financial plan in place that tells you how much you need to be saving and what types of accounts to get you to retirement on time so that you can make work optional someday, then you're essentially driving, you know, through a cornfield in reverse at night, looking at the rear view mirror, trying to figure out what your path is, and that's probably not exactly the best, best plan in the world. So so my, my best advice is obviously, honestly, not all that technical. I mean, I could talk about technical analysis and charts and trend following and relative strength all day long. I love this stuff, but it doesn't mean anything without a path there. It's like an engine without wheels. You got an engine going, but you need wheels to get you to where you're going.
Speaker 2:And, of course, if somebody says hey, josh, I want to go on the best vacation of my life, it's my 40th birthday and I want it to be huge and I want you to help me get there. What's the best way to get there? Where should I stay? You know how should I fly there? You know what's the? What are the best places to eat, things to do? And you're like all right, well, cool, you know I'm down. Where do you want to go? And you're like well, I'm not gonna tell you that. So how in the world am I supposed to help me find my favorite best vacation in the world if I'm not going to tell you where I even want to go? It's maybe like going to the doctor's office and saying I'm, I need, I'm, I am in the worst pain of my life and I'm, I'm fearing for my life right now. And he's like well, where's it hurt? And you're like I'm not going to tell you.
Speaker 2:They'll be like um well you came here to tell us Right, I want you to diagnose me blind, so you got to have a plan. Bottom line, you got to have a roadmap.
Speaker 1:Yeah, 100%. No, it's true, Like the biggest one when I was studying my analysis of the market and stuff. They all just get there like it's a cliche, but got to have a plan or a goal. And I like every single book and I'm like but actually doing it, like yeah, it makes sense, like I want to make a thousand this week off the market. When am I gonna have to wake up? When am I gonna go in and out what? What stops I'm gonna have to put in, kind of thing. So it's like, yeah, it's not the easy money. The reason I laughed earlier when you said, uh, if you're having fun like investing and doing, uh, trading, it's exciting, it's exciting and stuff like that, you're doing it wrong. My father is like he just keeps hitting buttons and he's like this is so great. I'm like you have no clue what you're doing, do you?
Speaker 2:it's great today.
Speaker 1:It might be great today yeah, and then usually like three weeks to a month later he's like why is it going down? The guy on reddit says it's only gonna go up.
Speaker 2:There's this uh, one of the people I really respect in the business. His name's Walter Deamer. He's a legendary trader in the business, and the I mean all this is his quotes, and the book is titled when the time comes to buy, you won't want to it's it's. That's just one of the many quotes in this book. So, um, here's another one, peter Brandt, who is a wonderful person. I have the pleasure of knowing him, but he said, when a trader starts to feel real smart, he or she is headed for a huge drawdown. And isn't that the truth?
Speaker 1:It really is. Is there any place anyone like you want people to contact you or check out your stuff?
Speaker 2:Yeah, sure, if you're interested in getting a hold of me, linkedin is the first and best place to go to get a hold of me personally. Yeah, sure, if you're interested in getting a hold of me, linkedin is the first and best place to go to get a hold of me personally. Connect with me there. The second would be libertaswealthcom. That's our financial advisory firm's website. So Libertas sounds exactly like it's spelled L-I-B-E-R-T-A-S, like liberty, but it's Latin. It stands for or it means liberty, freedom and independence in Latin. So, libertaswealthcom, you can find me there if you want to shoot us a message or you know anything. I always say you don't have to be a client to ask a question.
Speaker 1:That's awesome, though, yeah, just the fact that people can reach out and be like hey, I saw you on the show. Yeah for sure, man. Thank you again for your time. No, you're so welcome. Have a wonderful day.