December 28, 2020-In today’s episode, we welcome special guests Robert Di Iorio, VP and Portfolio Manager, and Jeffrey Lynn, Associate Advisor, from Di Iorio Wealth Management of RBC Securities. We talk about:

  • their background in investing and how he landed a position at RBC
  • how technology is changing their roles as advisors and their main value-add as wealth managers
  • aspects of growth investing that resonates most with their clients and common investor mistakes
  • their view on Tesla stock and their best investment opportunities for the next 10 years

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Transcript:

Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate financial technologies. Accelerate, because performance matters. Find out more at www.Accelerateshares.Com.

Julian Klymochko: So, we have Rob and Jeff on the podcast today. Thank you, gentlemen, for coming on The Absolute Return Podcast. Really happy to have you on the show today to talk about growth, investing, hedging, wealth management, and all that entails in 2020, which was certainly a very interesting year now to start things off. Why don’t you tell our listeners a bit about your background and how you initially got interested in investing?

Rob: Sure, first of all, thanks to him for inviting Jeff and I. We’re really excited to be here. And so, yeah, I mean, I’ve been in this industry since I graduated from undergrad. I’m very sad to say that I have not worked for any other company or industry in my life. I was recruited out of University; I was one of the lucky ones. This was back in like 1999 when everything was booming. And you know, I’m also from a family of misguided entrepreneurs who’ve made many mistakes in my life, so I was always interested on investing and planning and that sort of stuff. So yeah, so I’ve been in this for that long, so it’s been over 20 years now. 

Jeff: Similar to Rob actually, I started straight out of university. It was a little bit more recently for me. I started in 2014, so I’m a little more junior in the industry I worked for Rob and the team, you know, the entire time, my entire experience in the industry has been with him and here. I kind of started the first few years going after a little bit more, let’s say, higher education did an MBA, did the CFA got all kinds of that formal schooling out of the way, that was a bit of a grind working, studying full-time for three years. But yeah, once I was done with, you know, I’m glad to say that’s behind me. I’d say what first got me kind of interested in investing. My first experience with investing was I think, I would have been just 18 years old. It just opened my first like, you know, direct investing account. At that time, Blackberry was very, you know, very prominent in the world. They were reporting earnings that night. And I said, you know what, the last few times this has been really good. So, I just blindly put in like a thousand dollars or something into Blackberry and it was down 30% the next day. 

Julian Klymochko: [Laughing] oh, no. 

Jeff: So yeah, that was a bit of a shock. And I think it kind of got me hooked because, you know, I wanted to understand, you know, well one, how I could’ve made that mistake, but then you also what makes stocks tick and that kind of thing. So that got me started on the path and I’ve always kind of been interested ever since. 

Michael Kesslering: Jeff, actually, I was just going to say that was actually my first investment, as well was Blackberry. And that very same thing that had happened to you. I believe there was about a month lag time in my case, but the exact same experience with Blackberry. So, we share that in common. 

Jeff: We weren’t wrong. We were just early. It was up 50% yesterday I think at one point I thought. We were just 12 years early, that’s all. 

Julian Klymochko: Yeah, absolutely. 

Michael Kesslering: Yeah, just 12 years. In terms of portfolio construction. How do you think about that in the context of your investing?

Rob: So, look, I mean, portfolio construction for us, it’s all about principles and methodology. We really were academic about this. We don’t want any emotions to get into the way. So, you know, for us we’re growth investors. So, we try and focus primarily on college generational companies as the core of our portfolio. And so, you know, in order to do that, you know, you have to also have rules. And, and so, we actually did a blog a while back, actually earlier this year called the DM Five, which are five core kind of like our methodology for how we do things and you know, the bottom of the list and probably the most important is, you know, I talk about this a lot is having core beliefs. So, you have to have a belief in what you’re doing. And so, for us, if we’re going to, you know, for growth and we want to grow our assets, we believe in compound interest, then we have to have a clear why. So, what’s the why? Is, you know, we want to invest in stuff we believe in. So that’s were that generational kind of focus at the core of the portfolio. And of course, you know, the other four rules are, you know, a pre-established game plan. So, I think that’s integral because we all know that you can make decisions when you have a clear mind, but when there’s a fire in the theatre, things that people don’t always leave the theatre in an orderly fashion, then of course you have to document everything. That’s our second rule especially the mistakes. And, so we tend not only to learn from our mistakes, but we want to make sure that we don’t repeat them. And then third is the good habits rule. So as a portfolio manager, you better have a ton of good habits and very few bad ones. And then lastly is aprocedural, we call it the procedural trust rule. We’re essentially trying to be procedural on everything. So, when it comes to sizing our positions, you know what we use to get our idea generation, I mean, we can write a whole thesis on this. I don’t know Jeff, if you want to add to this, but that’s kind of how we think of portfolio management. It’s got to be very, very structural. 

Jeff: Yeah, I think it all kind of comes down to thinking emotion and taking, let’s say on the fly decision-making out of the equation as much as possible, right. So, have pre-established plans and rules and rules kind of in place. I think especially, you know, when it comes to processes that you can do. And there’s always, you know, a certain amount of needing to monitor what’s going on and adapting to what’s going on. But when it comes to things like, for example clients who add a new money or who transferred cash over, who opened a new account, you know, what’s the plan for getting their money invested? You know, you’ve started questioning and saying, well, now is not the right time, you know, things have been moving up for a while now, maybe we should wait if you end up either waiting too long or are you come kind of paralyzed by you know, by whatever’s going on at that given time. So, having rules in place and we have kind of a whole system for, let’s say, new capital deployment that we’ve developed in terms of time-based rules, that’ll say, you know, put X amount to work at these time intervals, regardless of what’s going on. So, you never sitting on your hands for too long, not doing anything, but also, you know, allows us to give us a little bit of flexibility. We have some marketing vegetables, you know, indices are 10% off the highs and it’s an automatic buy of X percent of capital. If it’s 15, if it’s 20, we have different rules in place, as much as we can to take emotion out of the equation.

Julian Klymochko: Yeah, and that’s certainly an important characteristic being systematic with respect to your investment process, having rules and procedures in place, such that Q1 2020 specifically March happens the quickest bear market of all time. You know, you don’t have people panic selling, and you’re trying to perhaps you know, be somewhat counter-cyclical and capitalizing on the situation with built-in rules, such that, you know, the human brain isn’t necessarily built to be an investor because it always wants to do the bad thing, buy high, sell low. Right. So, having an unbiased and an unemotional approach certainly makes sense. Now, Rob, you indicated you’re focused on growth investing, generational growth type opportunities. What do you personally find appealing about growth investing and what aspects of it really resonates with clients?

Rob: Yeah, so this goes back a long way. And I talked about, you know, Jeff talked about his experience with Blackberry. I think of, you know, my experience as a teenager analysing. My mom worked for Bell Canada. She was an executive there and she had a stock purchase plan, obviously, and she didn’t understand much about it. So, what did she do? She spoke to us about it. And of course, my brother being in the medical field didn’t really care too much about it, but I instantly was interested. So, I, you know, took the time to understand it. Then as a teenager, I analysed it. And then the first thing that occurred to me was compound interest is the most powerful force in the universe. And so, for me, it’s been ingrained that you got to reinvest dividends because I saw what that can do with this stock plan. And I was shocked. I was absolutely shocked at the results, right? And so was my mother, by the way. And then it goes back to kind of the first book I read in the industry, it was not yours Julian, yours was very good.

Julian Klymochko: Thank you. 

Rob: It was One Up On Wall Street by Peter Lynch, which I’m sure you are very familiar with. 

Julian Klymochko: Classic, yep. Oh, for sure.  

Rob: It is an absolute classic. 

Julian Klymochko: Definitely recommended. 

Rob: Yeah, and it’s you know, it was the power of compounding, power of these generational companies and looking around you and having your eyes open to see what your kids are buying, what your wife interested in, and then realizing, you know, what’s the Tam of that and how big could this opportunity become. And so, that to me, and you asked me, you know, what do I find appealing about growth investing? It’s the beauty of compounding and not just compounding dividends, we’re talking about 5X, 10X, it’s that 10X, that feeling of doing your first 10X and Jeff and I would tell you, that’s an awesome feeling. That’s what really gets us going. And you know, and it’s also aligned with our beliefs. So, it’s really a nice thing to do. 

Jeff: Yeah. So, I think I like Rob mentioned what kind of always made me drawn towards it was really the whole process of looking at companies, especially, let’s say, you know, more junior companies and not necessarily small cap, but let’s say mid cap or emerging spaces or emerging trends or developments and kind of in the world and how we live. Looking at companies that are kind of addressing them, trying to like reverse engineer what’s total addressable market. What’s a reasonable percentage of that, that this company could capture in and then just work backwards and figure out, well, wait too long? Like, you know, with, with reasonable multiples in terms of what their market value could be and then what their market cap could be, and then, you know, work backwards and what’s their market cap today and allocate capital that way. It’s almost the simplicity to a certain sense. Not that it’s a simple process it’s, you know, almost the simplicity of the idea behind it, or the structure of trying to find things that have the potential to grow and through multiple magnitudes larger than they are today, down the line that almost connect, that kind of what always drew me towards it.

Julian Klymochko: Yeah, Charlie Munger always said simple, but not easy because then everyone would do it and it certainly is not easy. And you touched on Peter Lynch’s book, One Up On Wall Street. I always liked Lynch’s idea of by what you know, you know, he’d look at certain consumer products that were catching on still early stage and have this long growth runway and one company that obviously is a massive hit with consumers and the stock market is Tesla, Elon Musk, a, you know, an absolute Rockstar. I think the second wealthiest in the world at this point just given his Tesla stock is worth over a hundred billion or something crazy like that. And it was just a new company call it, you know, 10-12 years ago and certainly super successful, great products. You know, I don’t own one personally, but you see them out on the street and they do look pretty phenomenal with great reviews. And it’s really somewhat of a battleground stock. I’m on Twitter and there’s a ton of Tesla bears on there. You know short sellers, things of that nature. And then on the flip side of the coin, you know, a few bulls on the stock, which obviously have been richly rewarded this year, I believe it’s up over 500% in 2020, which is absolutely bonkers. So, shooting the lights out in the midst of a pandemic and worth pretty much more than the entire rest of the industry combined, nearly. So, you have certain thoughts on Tesla. What do you think this story presents to investors? You know, it’s a, been a big winner for you, do you continue to like stock?

Rob: Yeah, so Elan has a place in our hearts for sure. He’s helped us compound some of that generational wealth. But again, you know, we talked about generational companies. So, when you think of generational companies of the past, do you think of you know, companies like Apple or Microsoft who are still relevant today, but obviously the one of today that most people think of is Tesla. And so, when you think of Elon, he gets on stage. You know, when he unveils a model wine, we talk about car manufacturers, but really, we all know it’s not really a car manufacturer. And so, what Elon does really well is he articulates what he’s excited about, and he’s not excited about the model. He’s excited about the move towards sustainable transport. And so, he starts off and as bad as a presenter, he is, cause he’s terrible. He starts off every, you know, unveiling with that. And so, for me, you know, when you talk about having a clear why I don’t see a company that’s more laser-focused on this clear why than Tesla. And so, we don’t know if it’ll continue to outperform our target, you know, I think two or three years ago was a half a trillion in market cap. Well guess what? We got there way earlier than we thought, but you know, it has all the characteristics of a generational company. So, it stays in our portfolio and it stays as a modest, I don’t think it be irresponsible of us as portfolio managers to let it get out of hand. But for sure, it’s going to be a core holding for us. 

Jeff: Yeah, I mean, we’ve owned it for a long time. I think we owned it since it was $250 dollars the first time. And I was like, you know, three splits. Kind of got back there very briefly this year. And now it’s back, I think about 500 again, but it’s been a battleground is definitely the right word for it. In terms of the opinions, let’s say online, it’s doesn’t seem to be many people that will kind of walk the neutral stance on Tesla. I don’t see very many like, you know, market weight or sector perform ratings on it, right? It’s interesting. I mean, you know, some people would have had you believe it’s been on the verbiage collapsed essentially since it was incorporated, since it went public and other people would believe, you know, have you believed that it got plenty of runway left to run. So, I mean, for us, my current outlook on it is kind of, I’m positive. I’ve seen the whole comparison chart. So, you see the picture with Tesla’s market cap on one side, and then you see all the other auto manufacturers together, all like in their own little squares together being smaller than this giant Tesla square on the left. It’s definitely something that, you know, what people are under-appreciating to an extent as may be the non-automobile manufacturing side of the company. So, let’s say energy storage you know, battery production and that whole side of things. Elon Musk’s has come out and said, his is stated goal is eventually that will be 50% of revenues. It’s not even close. I think it’s around 8% right now compared to auto revenues. So, there’s obviously, if he’s right and you know, he is not necessarily always right on time, but so far, he’s been right over time. If that happens, there’s obviously a big market that they can continue to grow in there. It’s growing around 50% year over year. I think the revenue is on that side of things. You know, you see all these utility projects that they’re doing in Australia and France. I think even in Canada I saw Alberta as was buying like 50 megapacks or whatever their Tesla product is. Alberta seems to be the last place almost that would seem interested in that let’s say from on the surface level, but, you know, they’re obviously getting involved in certain other projects, then there’s the whole self-driving side. Are they going to eventually maybe be a manufacturer of batteries and supply other EV companies with their batteries and just make, you know, not necessarily making cars, but still making profit on other cars, essentially, you know, other manufacturers?  There are other areas and I think, looking at it just solely as an auto factor, it’s hard to justify a much more upside, but if you start to think of these other areas and other verticals that they can get into it, starts to become more interesting. But like Rob said, you know, managing new way, managing the exposure is key.

Julian Klymochko: Jeff, you’re probably talking to one of the only guys who’s neutral on the stock. I understand, you know, the barricades, we talked about valuation and things of that nature, accounting, but then on the bull case, obviously tremendous product, iconic CEO, who’s accomplished a ton and really innovated. And one of the interesting aspects, you talk about the future growth runway above and beyond just auto manufacturing to all these different verticals. One example that I caution the bears on is you take Amazon for example, 10 years ago, they’re just pretty much internet retailer. Now a giant portion of their valuation is the cloud Amazon web services, which, you know, grew out of nothing. And that was really the product of an exceptional CEO. Now could Elan, you know, pull off something like that, ultimately, who knows, but, you know, it’s tough to bet against because he does have the market on his side. And that theory of reflexivity one by George Soros comes into play where it’s not the fundamentals affecting the stock, but the stock influencing the fundamentals, such that the stock price has a great valuation is easy access to capital. And that can just boost the company’s progress. Now with that in mind obviously you guys are continuing to hold Tesla. You like its growth prospects and outlook. What other areas of the market are you excited about? Could be sectors, could be specific names?

Rob: Yeah, I think we can talk specific names. I mean you know, I keep on saying we have generational holes in our portfolio, so those are companies that we like the overweight and kind of think of as the core of what’s going to drive. So, you know, clearly you mentioned Amazon, that’s another name of comfortable talking about that we’ve owned for a long time. But more, you know, I guess more on the you know, and of course companies like Facebook, we’re still very constructive on very good valuation. Google of course, and Apple have been holdings for us for years, but on the newer front, it’s not that new for us, but more people are getting familiar with Teladoc, on the healthcare side. Teladoc and the recent merger with Livongo is going to be a force in the connected health side.

And I’m really excited about Uber. I know this is controversial, but I think Uber has all the characters and I’m not talking financials. I don’t want to talk about, you know earnings or anything like that. I just want to talk about the potential to be a generational company. So, you know, Tesla, for me, resembles Apple and Apple, the stages of Apple’s growth went from denial to hate to, you know, this product is inferior to the whole world accepting and the ecosystem being established as the only ecosystem you want to use, right? I mean, it’s debatable because of Google and other things, but an Android, but let’s face it. Apple is the number one, you know, a service company in the world right now. So, and that’s what Tesla feels like. So, Uber to me feels like they’re going to, have the potential, and we’re not sure, to accomplish that.

You know, in their space and that’s really this, another service area let’s call it, you know Uber everything, it’s a verb really. It’s not really you know, oh, you know, I’m just going to Uber, Uber food, I’m going to Uber a ride. You know, Uber anything. I mean, I think that is something we really need to keep an eye on. So, it has a place for us in the portfolio. We just don’t know how big that can be. Maybe Jeff, you want to talk about some of your ideas on stuff that we’re kind of bullish on.

Jeff: Yeah, sure. I’ll give a name as well. I mean, I think a trend, first of all, that is pretty interesting to me is the move say that you’ve had the whole transition to cloud and digitization of enterprise, but now, as you know, all of this data is being centralized on the cloud. There’s, more problems in terms of, let’s say, lately you have seen about like the actual computing that needs to occur, let’s say at the end user. So, I call it the edge computing sector, right? So, the actual computing that’s being done on the device side not central cloud, but let’s say, you know, in front of the end user. So, you know, there’s latency, there’s all these problems. And if you’re thinking about things like self-driving cars and you are not necessarily going to have the ability for these cars to go and pull data from the cloud to make their decisions on what’s going to happen you know, if you’re in a life-or-death situation or something like that, Right? So, you know, there’s a company that we’ve been, you know, kind of investing in and getting more and more constructive on over time is Fastly. It’s a big performer this year as well. It’s up a lot a year to date, but I mean, we’ve bought it, I’d say mid 2019 or early 2019, probably we started our position in it. And so that’s why, you know, we find that they’re very related to the whole edge computing side of things. They have ties to cybersecurity and things like that too. So, they’re operating in a few niches. But, you know, I think that it’s a name that’s in a very interesting space and it’s had it, you know, fair share of headlines as well.

It was involved with the TikTok as being its largest client. TikTok was going through a whole situation about being able to be permitted, to be used in the US and things like that. So that seems to be moving behind it, but I believe that they did lose them pretty much as a client at some point, so there has been a correction in the shares, but, you know, we’re pretty constructive on it long-term as having a long runway, even if they’re losing a large client like that. I think the runway for growth is more than going to offset that over time. So that’s another name we’re interested in. 

Michael Kesslering: And when you’re looking at that sort of growth, it really becomes a necessity to take such a long-term approach. Number one to actually let the business model play out. But as well as you both have mentioned, the really focused on the compounding aspect of an investment throughout the horizon, that’s how real wealth is made. Especially within, you know, very high growth investing where, you know, there will be volatility in these names. How do you think about, you’d mentioned your Tesla positioning, where it’s more of a modest position now, relative to historically, perhaps, how do you think about position sizing where you’re taking emotion out of investing, do you have systematic rules or anything of that nature?

Rob: Yeah, we do. So, I’ll let Jeff talk about the, kind of the rules and how they work and how you apply them. But I’ll just talk about you know, one we pay for a few third-party AI services, okay. We need that for idea generation, and we need that also for metrics that helps us manage. But we have our own proprietary scoring system that Jeff runs. And so, based on, you know, there’s multiple criteria and stocks get scored proportionally too criteria we think are most important. Some could be based on fundamentals, some on technical, some on other things. so, I’ll let Jeff talk a little bit about that, but more importantly, Mike, when you run a portfolio, because I love this question, it sounds like we’re taking outside risk. It sounds like we’re investing in, we don’t care about multiples. That’s actually false. We do care. We’re aware of them. And so, you have to have an overlay or a hedging capability when it comes to being a growth investor. So, you have to be able to put on the brakes, when things get a little out of hand, you have to be able to reel things in. And so, the rebalancing process has to be unemotional. We talk about, you know, humans being flawed. Julian didn’t use that term, but I use it often. Humans are flawed. They make emotional decisions. They make very quick decisions, not based on criteria. So, we don’t want to be the, you know, we want to have the pre-established game plan. So, we do have the ability to hedge all of our portfolios.

We did use that earlier this year. We were one of the lucky ones that had it on during the I guess the beginnings of the pandemic. That’s just the criteria we decide based on where volatility is and based on where the cost is for that. So that’s an extra layer that I just wanted to highlight, because I think if you’re going to be a growth investor, you better have the tools to protect yourself. And you better have the ability to choose a good manager, like what Julian does, you know, in his products and how he’s, you know, how they’re looking at, you know, in the vault space creating just the right mix of vaults, which have a different standard deviation from the rest of the portfolio. I think that is key. You know, having that in the portfolio is key. I don’t know, Jeff, if you want to elaborate on how we kept it sizing modest.

Jeff: Yeah, So, I mean, we have liquid at the end of the day, you have to develop a system and you can make it as complex or as simple as you want, but I mean, we’ve come up with, you know, sizes of different, like different, you know, let’s say starting sizes, obviously things move constantly. So, you know, your position’s never the exact same size as when you’re initiated within a day, right? But, you know, so we have ranges and we have sizes that it will allow things to fluctuate within. And in terms of, you know, you can call them rating systems, essentially one, two and three, basically. And, you know, these categorizations of whether something’s a one or two or three are based on different factors. So, we’ll look at, you know, we’ll give things a numerical score related to, you know, what we feel about like technical. So, if there’s certain you know, moving averages and things that will follow if it checks a lot of the boxes there, you know, it’ll get a point for technical as if it has, you know, we’ll obviously follow the street to a certain extent. So, we’ll look at as much as we can access in terms of analyst information, we’ll try and pour over what you know, people who are following the stock are saying, trying to get to a balanced view of what the positives and the negatives are. And if, you know, if it checks, if we feel more compelled by the bull case, then, you know, we’ll get a point for, let’s say coverage. And then we’ll maybe another point for we’ll kind of look at the moat that they have, how hard is it for competitor centre in the industry and disrupt them if it gets a point there.

As you accumulate these points, basically the number of points or you’re receiving different ranges of the total will correspond to different ratings. And then those ratings will then correspond to sizing in our portfolio and sizing will vary. Obviously, if you’re talking about a balanced investor versus a, you know, someone who’s all equity, you know, the actual absolute value of the position sizes will change. But I mean, in theory, they’ll change proportionately to one another, and that’s how we kind of overweight or underweight stocks that were, you know, they’ve already kind of made it through our screening process to be names that we’re interested in owning or that we own. That’s how we’ll then kind of address the sizing based on you know, based on our, you know, trying to as much as possible to be on unemotional and score them and come up with a rating.

Julian Klymochko: That sounds like a very systematic process. That’s based on all the tools that you have access to, which in the market these days, I mean, there’s a significant amount of tools and technology that wealth managers can utilize certainly Rob over your 20 plus years in the business. I’m sure things have changed dramatically at RBC on the wealth management side knowing that and looking kind of gazing into your crystal ball, what structural shifts do you see coming up for the wealth management industry?

Rob: Yeah, I love this topic and you know what, I love talking about it. And I’ve actually been on a few panels this year on this exact topic, some nationwide panels. Like for us, the investment side to a certain extent has been commoditized, right? So, you know, you have access to ETFs and we all know the facts, you know, 90% of managers over a significant period of time have trouble beating the index. So, in many cases you want to use you know, ETFs, if you don’t have access to world-class management process or managers. Obviously, we like to create alpha. So, our job is to beat those indexes with a lot less risk. So, we have our mandate, but that I think is secondary.

I think the primary thing now is, you know, it’s not just about, oh, this is what I have. This is what my investments doing, and I’ll see you next year. And we just had a review and, oh, that’s good. You’re meeting your goals. It’s I like to call it; you need to provide live planning now. So, it has to be interactive. It has to be aspirational. So, we’re, you know, one of the things we’ve been doing for quite some while is we’ve been building these live plans for clients. So virtual plants that can be accessed through portals. And so, it’s like having a live snapshot of where you are, you know, and based on your goals and where you need to be. And it’s very inspirational. And so, we’re not only about the investments, but we’re also talking about, you know, the things you want to accomplish and your legacy and so family education, like that sort of thing, you know, how do we want our family to, you know, what kind of governance do you want if you set up a trust.

So, these are I think the things that technology will enable. We’re already doing it as a team, I think the industry is slowly going there, but the ones that forget, you know, are not inclined to put those, and I’m not just talking about having online access and having tools that is the commodity. I’m talking about adding the value that the end client needs. So, it’s connecting the dots. It’s helping them see the big picture and removing that emotion, you know, so that is where really tech needs to be used. 

Jeff: I think coaching is a very key aspect as well, right? You know, left to their own devices. Let’s say, we’ve already talked about how emotion plays a role. So, you know, if you can try and be the coach of clients to try and get them through, let’s say the more difficult periods that will arise as you’re being an investor in the more, let’s say the more difficult to live through periods or the more emotional periods, that’s a huge value add, but also, you know, further to what Rob was saying, the financial planning process is kind of outdated in that. And this is an analogy Rob likes to use often is, you know, you get a plan that’s put down on paper, you know, you sit down with a planner, you build your whole, you know, your structure and you lay out everything about your whole financial situation. They create a snapshot with projections and recommendations, but then, you know, a year from now, there could have been a change to values, there could have been a change on circumstances, and, you know, that plan is kind of static, right? So, if you can try and be like Rob said, ‘live’, I guess, or we try and always, you know, always keep the plan or the roadmap, if you will in place and up-to-date, and you know, and relevant to where the client is at any particular time. I think that kind of a lot of value. And we’re not just talking about projections, you’re talking about, you know, circumstances and things like that, but also updating, possibly updating the projections based on, you know, better than expected performance versus expected performance. Always making sure that the client has a, you know, a picture of where they are going to end up down the road.

Julian Klymochko: Right. And, you know, it’s really interesting observing the development of the wealth management industry over the past 5, 10, 20 years. It’s really changed so much where you mentioned that, you know, the investment side of the business, you know, it’s highly commoditized, you’ve got index ETFs, this proliferation of various ETF strategies, asset allocation, a robo-advisor, you know, all these different buckets that have you know, have really made investment process, simple, automated, and somewhat consistent in terms of expectations. So, your role has really grown, you know, far past just the investing side, you mentioned you know, weighting heavily on the planning side, how has you know, your role changed over time and what do you think the main value add of a wealth manager is for say a high net worth client these days?

Rob: Yeah, so I think I kind of touched upon it you know, that AI makes today, and obviously, you know, it makes everything, the small things, like kind of easy. But I think the big picture stuff is where, you know, we need to kind of make an impact, right? So, it’s the decisions to get people to think about the harder issues, you know? I’m not sure the technology is going to help in that. I think I’m sure it will, when it comes to client-facing tools and what the client can see, we have so many ways to, like, our business has changed dramatically, like writing an investment piece or a blog, you know, 10 years ago it was a big deal. Today we can, we blog constantly, we’re constantly on social media. We’re doing a podcast with you. We do webcast all the time. We’ve done three this year. You know, it’s a given, right? So, I think the big pictures of connecting the dots you know, is where our industry’s really going to have to you know, sharpen the knife, I guess and focus on that. How you deliver that? It’s going to require expertise, understanding of what these people believe in and want and need. I talked about procedural trust. The procedural trust is key. You need to have procedures in place. So, these people know, they don’t have to think about, you know, what’s coming next, this quarter, next month, next year, you know, what have we accomplished together? What are we going to do next? You know, how the kids are going to get educated? Next generation going to get educated? Like all these things require procedures. Now I talk about methodology and procedures in portfolio management, but it could be easily applied to the wealth management side. And that’s what we’re really, really focused hard on our side.

Julian Klymochko: Great. Now, before I wrap things up on the podcast today, Robin and Jeff, I’m going to put you both on the spot and I’m going to ask if you could hold one investment for the next 10 years, what would it be? It could be a stock, could be a sector. It could be a strategy. What are your thoughts?

Rob: I don’t know. I guess I’ll take it and I’ll let Jeff wrap it up. But you know, the easy way out would be to say smaller, mid-cap growth. I think that’s an easy one because, you know, you have the kind of companies that have the potential to be added to the index or added to NASDAQ or added to, you know, that have the ability to grow 10X. If I had to just pick a sector, I’d say that small to mid-cap growth will definitely be my pick, but then if we have to talk individual companies, we mentioned many of them on this podcast. You know I mentioned Uber, but I think Jeff would probably agree and he brought this to my attention. You’re going to go with the best company or the one that you think is the best you know, best return over time would be Amazon for sure. Jeff would you agree with that? 

Jeff: Yeah, I’d say Amazon, if I had to take a single company, I’d probably say Amazon, just because, you know, you can talk about, let’s say potential for some of these more small to mid-cap names to grow. But I think, you know, if you’re going to really not be restricted from buying or selling or if the story changes, or if an industry evolves away from a company, you know, there’s always that kind of risk. So, I have a hard time saying buy one of those and then don’t look at it for 10 years. But Amazon, you know, I think at this point they’ve reached a point to where if ever they do see opportunities or you know, they’ve already kind of proven, like we talked about earlier, their ability to somewhat be nimble and to adapt the business model and to open new avenues for growth and, you know, with their current size, I think if you’re talking about something that has to be a single company, just to allow wealth to compound over the next 10 years, I would say Amazon, but in terms of, just to further with what Rob said about small mid cap growth, I would say even rather than just the style, go with a, you know, a manager or a thematic ETF in some kind of theme whether it’s, you know technology or maybe more actively managed in that space because I think small cap and mid cap, especially is, you know, it’s easier for managers, good managers to add value in let’s say those areas. So, you know, it’s a lot easier for a company that’s a $2 billion dollar market cap today to become a 10 billion. Amazon had 2 trillion to become 10 trillion, probably just because of the law of large numbers at a certain point. 

Rob: I think it’s noteworthy to mention that Amazon, a 10X on Amazon, it becomes a $20 trillion company. That’s unheard of, but then again, anything’s possible, right?

Julian Klymochko: Yeah, perhaps that will be normal in that 20 years or so. Who knows where things are going to go, but truly appreciate your insights on wealth management and growth investing today before I let you go, where can investors find out more about you guys, what you guys do at Diiorio Group?

Rob: Sure. So, you can look us up at diioriowealthmanagement.com, that’s D, I, I O, R, I, O wealthmanagement.com. That’s two I’s. We’re also on social media. You can connect or follow. Rob Di Iorio, Jeffrey Lynn and you know, we post pretty much everything we post for the public is on LinkedIn or Facebook as well.

Julian Klymochko: Okay, great. Well, thanks so much for being on the podcast. I’m sure our listeners will enjoy it very much, so wish you all the best and we’ll chat with you soon. 

Rob: Thank you so much.

Jeff: Thanks for having us. 

Julian Klymochko: Bye, everybody.

Thanks for tuning in to the Absolute Return Podcast. This episode was brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.AccelerateShares.com. The views expressed in this podcast to the personal views of the participants and do not reflect the views of Accelerate. No aspect of this podcast constitutes investment legal or tax advice. Opinions expressed in this podcast should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information and opinions in this podcast are based on current market conditions and may fluctuate and change in the future. No representation or warranty expressed or implied is made on behalf of Accelerate as to the accuracy or completeness of the information contained in this podcast. Accelerate does not accept any liability for any direct indirect or consequential loss or damage suffered by any person as a result relying on all or any part of this podcast and any liability is expressly disclaimed.

 

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