A Chat With CNBC’s Gary Kaminsky, co-host of “The Strategy Session”
Gary Kaminsky talks about his new book, “Smarter Than The Street: Invest and Make Money in Any Market,” and shares his views regarding the dangers and opportunities facing investors over the next six to twelve months.
John Nyaradi: Our special guest today is Gary Kaminsky, co-host of CNBC’s “The Strategy Session.” He has been a regular guest on CNBC over the years, appearing more than 200 times on well-known shows like Squawk Box, The Closing Bell, and Fast Money, and he’s author of “Smarter than the Street: Invest and Make Money in Any Market,” recently published by McGraw Hill. Gary, welcome to our program today.
Gary Kaminsky: Thanks so much for having me.
John Nyaradi: What I’d like to do today is talk about your book, “Smarter than the Street: Invest and Make Money in Any Market,” and then discuss your views on the market and the current economic and geopolitical conditions.
Gary Kaminsky: Sure.
John Nyaradi: People say that writing a book is like just opening a vein and sitting there and letting it bleed, so can you talk about why you wrote it, and if there’s just one thing you want people to get out of “Smarter Than the Street,” what would that be?
Gary Kaminsky: Yeah, well, again, the way you described it is perfect, which is that I never set out to write a book. I was approached by my co-writer, Jeffrey Krantz, many years ago when I think Jeffrey knew of who I was through CNBC, and he’s been involved with a number of business books. He was the head of business publishing at Penguin for some time, and Jeffrey had approached me specifically in his capacity as a viewer of CNBC and having personally experienced, as an investor, a lot of these file box, closet indexing type strategies, saw a lot of people make money, lose money during the internet bubble, get re-invested again, lose a significant amount of money, and he approached me a number of times over this period of 2001 to 2007 about trying to put a book together, what are some investing strategies to basically not have to think about the stock market, but just to try to identify which type of the companies should do well for investors in any environment.
That was the premise of the idea. So when I Ieft Neuberger Berman in 2008, we decided at that time, especially given the significant amount of wealth destruction that took place after 2008, that this was the right time and right place for a book. There were a lot of books that were set out for how to make money if markets go directionally down. There are tons of books that talk about the Dow 36,000, but there have been very few books that talked about trying to invest some equities when that stock market goes nowhere…which is, I’m sure you’re aware, over the 10 year period, 2000 to 2010, we have S&P returns of 0%.
John Nyaradi: Yeah.
Gary Kaminsky: And so that was the premise. The premise was to identify a strategy for making money in equities when the S&P or the stock market goes nowhere.
John Nyaradi: You refer to that in your book as the lost decade. But you also discussed the lost generation of investor. What’s your concept about there?
Gary Kaminsky: You know, it’s interesting. Even despite what’s happened with the equity markets in the last 9 months….you know, we’ve been in this one directional move, but when you look at the lost generation, you had a significant amount of people lose a significant amount of wealth between 2000 and 2010, and as a result of it, in my opinion, you have a certain generation that is so disgusted by equities, I don’t think they’ll be back for the next generation. There is the fact that retail investors may be coming back to the stock market now but that’s a subset. That’s a percentage of certain investors. I know I read it in the Generalist this weekend that retail investors who sold at the bottom in 2008 are coming back. They sold at the end of 2008 rolling into 2009, and re-invest again, acquiesce again. That’s a small percentage.
But a great bulk of investors have no interest in equities. They‘re not interested in the volatility that equities created for them, for their parents, for their friends, their neighbors, and their relatives in the last decade.
John Nyaradi: That leads us into really, I think, one of your main points and that is that we’re facing a zero growth decade ahead, that is not going to be any better going forward.
Gary Kaminsky: What I see for various reasons, and we do spend a great deal of time in the book going back to Japan because it’s really the only relevant comparison we can make because of the quantitative using experience there in terms of, you know, what the ultimate outcome is. We don’t know how this is going to end. Bernanke doesn’t know how it’s going to end.
John Nyaradi: Right.
Gary Kaminsky: I think every day that goes on, even those that are enthusiastically embracing it have become more and more concerned about the exit strategy. As you pointed out, you watched today’s show. We tried to make the point in today’s show that if one was to look at the U.S. dollar, for example, the dollar is a nonconforming indicator right now because there’s no reason why the dollar, with interest rates going up, with corporate profits going up, with the U.S. economy theoretically, as Warren Buffet has told you, is the place that you want to be right now, that the U.S. dollar would not have a bid.
But we’ve got this massive pension liability problem that’s going to hit this country and you just have to pick up what’s going on in Wisconsin and see that this is going to be a negative detractor for every valuation over the next decade.
John Nyaradi: You don’t believe in buy and hold, but we’ve all been told you can’t beat the market. Could you expound on how you think the little guy can beat the market?
Gary Kaminsky: Yeah, well again, I don’t believe in trading but I believe that there’re two types of equities. When you invest in stocks, there are one-decision stocks and there are two-decision stocks.
John Nyaradi: Right.
Gary Kaminsky: One-decision stocks, we try to identify some of them, are companies that can grow organically for multiple, multiple years, and if they can’t grow organically, they’ve got an acquisition strategy that’s well defined and well proven.
John Nyaradi: Right.
Gary Kaminsky: And that’s because when you focus on companies that are able to either grow organically, return cash in the form of dividends and distributions, or they can be in the one of ten that knows how to do deals and grow their businesses by doing disciplined acquisitions. Those are the type of companies you want to own, so you don’t have to worry about the market lifting equity evaluations because you’ll have it yourselves regardless of what happens to the stock market.
John Nyaradi: And to do that, obviously, you need some information. You know, news is key, and the book, you mentioned some of the obvious sites, you know, Wall Street Journal, New York Times, CNBC, and of course, Yahoo.
Gary Kaminsky: Well, you know, the good thing for me is that having had close to 20 years of access to anybody’s research and access to anybody’s modeling, it was good exercise for me in preparation for writing a book to see what it was like when all of a sudden, I didn’t have that access to that information.
John Nyaradi: Right.
Gary Kaminsky: So it was not only, you know, proof to myself, but proof to the reader in the book that if you do want to access the various resources that are available to you today through the company’s websites, through the screening mechanisms that in many cases, whether it’s the ft.com or the wallstreetjournal.com, you can identify and keep track of a handful of stocks that as I demonstrated in the book, you know, have these characteristics that you try to look for.
Remember, I do not believe statistically that there’s any reason you should ever own more than 30 securities in a portfolio. There are a lot of people who disagree. They think you should have 120 securities. We endorse a portfolio of 25 to 30 names, and you should be able to keep track of those companies and what’s happening specifically with them with about an hour of work a day just to stay on top of things once the investment portfolio is created.
John Nyaradi: You mentioned a couple of sources that stood out for me. One was the Financial Times.
Gary Kaminsky: Well, I’m one of these wackos who doesn’t sleep and so I like the ft.com because when I go online at 4:30 a.m. East Coast time, Europe is already open and I get a midday report of what’s happening.
John Nyaradi: Another one of your picks was Ewallstreeter.com I know you mentioned that website in your book. Maybe give us a little insight into how you use ewallstreeter.com
Gary Kaminsky: The editor who puts that together, Mitch Brown, is a former Wall Street professional. He worked at Goldman Sachs as well as First Boston so he’s got a – I’m not sure what the secret sauce is in terms of how he goes through the thousands of things that he potentially can look at everyday, but I do find that he’s got a little bit of a secret sauce for how he can filter down to 12 to 15 value-added readable items that he puts together. Ewallstreeter.com is sort of a Huffington Post of the financial markets.
John Nyaradi: It’s the last day of February, and let’s talk about your up to the minute view of things. What’s your macro outlook for the U.S. market, the U.S. economy? What do you see in the next 6 months to 12 months’ time frame?
Gary Kaminsky: I think that the next 6 months, as the economic data continues to be promising, whether that’s corporate profits, whether it’s improving labor market, and I emphasize the word improving labor market, not a growth of the labor market, but the more positive signs we get, I personally think that the equity markets will be more and more focused daily with the ultimate exit strategy by the Fed and whether it will be successful.
Several weeks ago, I brought back a chart of what Japan looked like with their equity move up during quantitative easing, and then the eventual attempt to pull out from government-stimulated support, and what eventually ensued was a collapse of the financial markets. So I think that unless – I think that one who is an equity investor must pay very, very specific attention to the telegraphing of the exit strategy and whether or not the economy can continue at this pace without this government intervention which has really been around for the last 2 years in one form or another.
John Nyaradi: Right.
Gary Kaminsky: What does the economy look like? I think that the other two issues that I say would be the major focus for the rest of this year. One I alluded to, why is the U.S. dollar not confirming this rally in equities? Why does the U.S. dollar not believe in the economic growth here and higher interest rates? And number two, we talked about it this afternoon ourselves in preparation as we try to do everyday for the show. You know, the next big crisis out there, it’s not just the public unions and as far as retirement benefits and pensions. Really, the pension assumptions of almost all the S&P 500 companies over the last 10 years, as a result of the equity markets, you’ve got massive under funded pension liabilities, and if these pension liabilities are going to be filled by companies issuing equity issued to their shareholders, that may be the next big sort of problem out there. It’s going to hurt multiples in the equity values.
John Nyaradi: What do you see as opportunities in the next 6 to 12 months? Where do you see, you know, bright spots that people could consider?
Gary Kaminsky: Yeah, well I think there are two areas of opportunities. One’s had a really significant move up from January. If we had this chat late last year, I would have told you that the sell off in the municipal bond market, which we touched upon many times on the show, created great opportunities late December all the way to January to buy municipal bonds. I continue to think that’s true for individuals who are looking for after-tax return at a low volatility. I believe that the states are going to be able to get their budgets in order. It’s going to be painful, but I think, ultimately that municipal bonds offer a very attractive risk adjusted actual returns.
I think that as the high yield market will correct itself this year….it will give investors who don’t want to hold stocks an opportunity to buy high-yield junk credits again later this year. As far as equity, again, if you’ve allocated a certain amount of your assets to equity, you’re not concerned about trying to figure out if the market is going to go up or down, you’re always going to have opportunities for growth companies no matter what is happening in the equity market. That won’t change. The book will give you a couple of pointers on how you try to identify those companies.
John Nyaradi: That’s great. Okay, thanks so much. It’s been really a wonderful session, and we’ve been talking with Gary Kaminsky, the author of “Smarter Than the Street: Invest and Make Money in any Market,” and co-host of the CNBC’s the Strategy Session. You can get Gary’s book by clicking on the link at the bottom of this interview that will take you straight to Gary’s page at Amazon.com. Gary, thanks so much for joining us. I appreciate it very much. It was great talking with you here today.
Gary Kaminsky: Likewise, and thanks very much. I appreciate it. Have a great day.