The C-Suite is a vast audience of leaders who all have a little extra insight into their industry and the current business world. I sit down with these leaders to give them the opportunity to share that insight and give a glimpse to their personal stories as a business leader.
I recently had the opportunity to interview Adam Johnson, Founder and Author of Bullseye Brief, an investment newsletter which presents thematic and actionable ideas for business leaders.
Election night brought a lot of ups and down in the market. Pre-market went down immediately after Donald Trump was declared the winner and then bounced back up and has been going north ever since. Why do you think this happened and do you think this will continue under a Trump Presidency?
Donald Trump is a pro-growth, pro-capital and is bringing people into his cabinet who reflect issues for growth, efficiency, trade, jobs and I think the market is looking at that. Trump wants businessmen, he wants doers not academics. The new Secretary of Treasury, Steven Mnuchin, is an example of the kinds of people coming into the administration who know how to manage risk wisely. It’s all about growth-making money. It sounds a little mercenary, but the markets absolutely love that as they should.
One of the top issues C-Suite leaders are concerned about is the uncertainty of policy coming from Washington. Do you think Trump’s cabinet along with a more favorable Congress will create a more favorable pro-business world?
Certainty is the oil that greases the engine. Certainty allows businesses to be offensive and it allows them to deploy capital. Over the past 4 years companies have spent less capital and invested less in themselves because of uncertainty. CAPEX expenditures have been down about 8 percent over the last 24 months. Decreased CAPEX spending takes a lot of dollars out of the economy due to the “multiplier effect,” which means every dollar spent in the economy recirculates eight times.
If the administration can give us concrete views about what will happen with interest rates, tax reform, trade policy etc. this gives business the opportunity to make 2-3 year decisions about deploying capital and to be far more productive.
Trump talks strongly about making capital expenditures for the infrastructure of the country and has his own “multiplier effect.” What does this resurgence in the economy mean for inflation?
That is the flip side. There is $2.4 trillion sitting overseas because businesses didn’t want to bring it back for tax reasons If you lift all of those owner-risk tax burdens then yes, you are laying the groundwork for more inflation.
The good news is that inflation is very low right now running at about 1.2%. You actually want prices to go up a little bit every year as it suggests a healthy demand and growth in the economy. The GDP is historically quite low at 2.9%. The sweet spot is between 3.2-3.7% so we have time before inflation is something to fear. Maybe in 2 years, but not now.
Let’s talk about portfolios and investments and how people make their decisions regarding these. You talk a lot about dividends. What opportunities are available to build wealth?
Hopefully everyone has a 401(k) or an IRA. A 401(k) is a wonderful opportunity to build wealth for yourself with the government’s money. You put money in, pre-tax, all those dividends are paid and you don’t have to pay tax. You could reinvest them so you’re reinvesting pre-tax, buying more stock, and then that additional stock gives more dividends and you reinvest those.
In other words, you’re compounding without paying tax. This is Uncle Sam’s gift to us.
Everyone wants to find the next Google, something that trades $2 one day and is worth $200 the next day. That would be great but there are plain old good American companies that we know better than the S&P 500 group whose businesses steadily grow 3-5%, paying dividends. If you do it in your 401 (k) plan where its pre-tax money that gets reinvested without paying taxes, you could double the return of the S&P over a 25-year period.
In 2008 there was a lot of conversation regarding 401(k) shrink and how people that were retiring were going to have to live on less income. Is that because their investment strategy was riskier and they were trying to make those big kills instead of focusing on the steady growth your are suggesting?
Yes, that was part of it. Another part is the panic-sold. It never feels like it at the time, but if you remember the crash of ‘87 and then further along in ‘08, ‘09 you realize that was the opportunity to get involved. Warren Buffett always says, “you buy when there’s war in the streets.”
There is a difference between putting money in a 401 (k) and just investing without reinvesting the dividends versus putting money in where you are actually capturing all the money that is yours for the taking because the government is not taking its slice.
Would you recommend people get into a fund that’s S&P oriented rather than trying to manage individual investments?
For the bulk of the money that you want to have in the retirement, yes do exactly that. While the maximum you can put in every changes because many companies match, up to 2-1, it’s important to invest as much as you can afford.
When you get those dividends, make sure they are reinvested back in the stock and you will produce exceptional returns.
If you had put in $18,000 every year and reinvested the dividends since 1990 you would have almost 2.1 million today.
Your wisdom is impeccable Adam, thank you. In closing I must ask, who is the most interesting person you interviewed on Bloomberg?
I was so privileged to interview many people, from Tony Blair to Bill Clinton to Jack Welch but the one that really stands out is Mark Price, the CFO of Jet Blue.
Mark talked about how Hurricane Sandy, which destroyed much of the east coast, affected Jet Blue. They had to ground all of their planes since they are based out of JFK. Mark talked about shutting down the airline, figuring out how to get $5,000 cash into the account of every single employee and then sending them a note that said:
“Just go take care of your families. Do what you have to do. Don’t worry about us. For those of you who are able-bodied and have time, if you could please help us distribute all the food that is sitting in the tucks on the tarmac at JFK, go distribute it to all the neighborhoods where people are devastated.”
He talked about that process in the human side of JetBlue in a way that just blew my mind, that’s the one time that really just resonated.