Introduction:
Jeff Reeves is the Editor at InvestorPlace.com. He’s the author of, “The Frugal Investor’s Guide to Finding Great Stocks.”
Reeves discusses why investors should love Google again. He also explains why blue chip brands like Amazon, Coke and Whole Foods make for bad investments. Reeves then shares which emerging markets and healthcare stocks are poised to take off.
Key Takeaways:
(1:32) Introducing Sarah, to help with the intro section
(4:01) A few thoughts on the paleo diet
(8:07) Sarah: tips for successful investing & working with your property manager
(15:14) Top markets at the moment
(19:44) Introducing Jeff Reeves to the show
(20:15) Jeff Reeves on the economy, Wall Street, interest rates, QE, etc.
(27:55) Some thoughts on Apple
(31:21) Closing comments
Links:
www.personaltrainerfood.com
Read Jeff Reeves’ work at www.InvestorPlace.com.
Bio:
Jeff Reeves is a financial journalist and editor of the investing website, InvestorPlace.com. As a former editor with the New York Times Co. his passion is looking beyond the headlines to find out what the news really means for individual investors and consumers. Jeff’s byline has appeared in numerous finance publications and websites, including The Wall Street Journal, Forbes, MarketWatch, Smart Money and 24/7 Wall Street.
Audio Transcription:
ANNOUNCER: Welcome to Creating Wealth with Jason Hartman! During this program Jason is going to tell you some really exciting things that you probably haven’t thought of before, and a new slant on investing: fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine, self-made multi-millionaire who not only talks the talk, but walks the walk. He’s been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason’s footsteps on the road to financial freedom. You really can do it! And now, here’s your host, Jason Hartman, with the complete solution for real estate investors.
JASON HARTMAN: Hey everybody, good day, and welcome to the Creating Wealth Show! This is Jason Hartman, your host, and thank you so much for joining me today. Our guest today will be Jeff Reeves; he’s editor at InvestorPlace.com, and author of The Frugal Investor’s Guide to Finding Great Stocks. Now, you know me. I’m not exactly any fan of stocks. I have these Wall Street guys on, because you know, they offer a lot of insight on the economy and the markets in general. So, we definitely would be remiss if we didn’t have them on the show. Even though, you know me, and what I say about Wall Street, right? It’s the modern version of organized crime. Jeff will be with us here in a few minutes to talk about that. But first, I’ve got Sarah back on the show. And Sarah, welcome! How are you?
Introducing Sarah, to help with the intro section
SARAH: Hey, great, thanks for having me.
JASON HARTMAN: Thanks for helping me with the intro. And let’s hope that in this intro today, we don’t shoot ourselves in the shoe.
SARAH: Oh boy. Okay. So, I’m never gonna live that one down, huh?
JASON HARTMAN: You’re not. Folks, in case you’re not—if you’re silly enough, people, to not be a regular listener to this show, you are really missing out, obviously. Okay? But, if you’re not, I’ll give you a little background. So, Sarah is one of our investment counselors. She does this funny thing. She takes old sayings, you know, that have—like, cliché sayings. Like, don’t shoot yourself in the foot. And she does like funny things to them, unintentionally, and it’s just kind of funny, you know, to tease her about it! Because she was on a show a while back, and she said, well, I just hope our investors don’t shoot themselves in the shoe.
SARAH: [LAUGHTER]
JASON HARTMAN: And I said, Sarah, it’s shoot themselves in the foot, okay? So…
SARAH: Well, wait. It’s kind of like the new paledo diet I’m gonna try, right?
JASON HARTMAN: Oh, God. And by the way, folks, that’s the paleo diet…
SARAH: So, is this a 10th show? Can we talk about the paleo diet?
A few thoughts on the paleo diet
JASON HARTMAN: No. Well, we can talk about the paleo diet just for a minute anyway. I know a few of our listeners are gonna hate this. That includes you, Christina, who’s probably listening, and gonna write something on my Facebook after listening to this. But I mentioned to Sarah before we started recording, that I just ate lunch, and listeners, I don’t make up a nickel, a penny, a dime, out of this. I make no money off this. But I want to give you a really cool recommendation. We all have a few things in common. Remember, I always talk about the three human needs, and we as investors provide one of them, and so, what are those three needs? Food, clothing, and shelter. We’ve already—we’re going to address all of them in the show, because the first thing we talked about is not shooting yourself in the shoe. That’s clothing, okay? And now we’re going to talk about food for a second. And then we’re going to talk about housing. Okay? Shelter. That hopefully, those people will rent from you.
And I’ve been bugging Sarah and a few of my other friends and associates about this thing I started in January, and I cannot believe how incredible it is. For any of you who know me, you obviously I’m sure would agree, that I do not need to lose weight. I need to gain weight. But I will tell you something. I had this executive health screening, right after Christmas, right before New Years, and I talked about that on the show a little bit, and they recommended the paleo diet, which is basically the diet that, you know, if we were living in caves, that’s how we would be eating. We would be eating, you know, we would eat meat, and we would eat vegetables. And fruit. And things that grow. We would not eat bread, or carbohydrates, or any of these man-made things like grains, and that kind of stuff. So, in January, I went on a very lightweight, not very strict version of this.
I still have a sweet tooth, I still like cereal, I cheat all the time. But I couldn’t believe it, with just a moderate amount of working out, how suddenly I had a six pack of abs. They’re not incredible; I’m not getting a job as an underwear model for Calvin Klein anytime soon, but it was surprising how easily the body fat just fell right off. Without even trying. So, I’ve been bugging Sarah—I said, you you, look. You have two kids, you’re busy, you’re busy being an investment counselor—make your life easier, and just go online to personaltrainerfood.com—I make zero money off this, they’re not a sponsor or anything—and order personal trainer food. And here’s how it works. I love this being a bachelor! This is like the answer to food for me. It’s great. And what they do is they send you a big giant box with dry ice, and you’ve got all your gluten free, paleo foods in there for 28 days. Breakfast, lunch, and dinner. And it’s dirt cheap, okay? It’s only like $4 a meal.
And the food is incredibly tasty. And it takes four minutes to prepare in the microwave, heating times may vary. And I just love it! It’s like I’m eating really healthy, according to the paleo diet, assuming you agree that that’s healthy, so, that’s up for debate. But I think it’s pretty good. I’m just eating this super healthy food, and it’s super convenient, and really one of the important things to do is eat regularly. And Sarah, I know when we were in an office together, you were guilty of not eating regularly, because you’d be busy calling clients and stuff like that, and I said, don’t do that! Because it really messes up your blood sugar. You gotta eat regular meals. And so, that—this allows me to do it. I love the personal trainer food. You can also order it on Amazon.com. You can’t customize your meals as much, but…even my massage therapist ordered it, and she loves it. Everybody I know, I’m telling them about it, so I just thought I’d tell you listeners, and, personal trainer food people, I hope you’ll become a sponsor of the show, and pay me a bunch of money, because I just really sent you a big fat gift right there.
SARAH: Well, we’ll have to forward them the podcast.
JASON HARTMAN: Yeah, that’s right. We really should. It’s really good. So, how did we get on that subject of the food? Anyway.
SARAH: You were just making fun of me, that’s all.
JASON HARTMAN: Oh yeah. I was making fun of you, and I just ate lunch, and I had great veggies—by the way! One thing that’s interesting, I read a book, I don’t know, about two months ago. I can’t remember the title of the book. And it was, you know, one of these famous doctor people who talks about nutrition and stuff. Anyway, one of the things he said that was odd, is he said that fresh vegetables are actually not as healthy as frozen vegetables. And he didn’t qualify that remark by saying, look it, if you’re growing fresh vegetables in your back yard, those are supremely great. If you’re buying them at the supermarket, not so great. If you’re buying them at a farmer’s market, those are great. But if you’re buying at the supermarket, because of the time it takes you to get there, and the way they have to pick the vegetables for them to be ripe at the market when the consumers buy them—it’s actually better to eat frozen vegetables, he said, because they flash freeze them much sooner after picking them, and it preserves a lot of the nutrients.
SARAH: Yeah, that makes sense.
JASON HARTMAN: Interesting. Kind of counterintuitive, really.
SARAH: Well, healthy eating is definitely important for the real estate investor. We want all of our clients to be happy and healthy, and I really think that eating healthy changes your mood, and puts you in the right mindset, and we want all of our clients to be in the right mindset for real estate investing.
JASON HARTMAN: It does. So this is the segue. We’re not really going to make this a food show then?
SARAH: That was the segue. I’m moving you along.
JASON HARTMAN: Alright. You know, I do need to be moved along. You know? All the time. So, our guest—we’ll get to that in a moment. But first I wanted to ask Sarah about some tips for successfully investing and working with your property manager, and all that kind of stuff. So, Sarah? Take it away.
Sarah: tips for successful investing & working with your property manager
SARAH: The one concern I always get, and the one piece of this equation that is so important, is having a good property manager, and not just having a good property manager, but managing your property manager. And we’ve talked about that before, but I just wanted to give a few tips for listeners. One would be on the repairs side. Just be sure to get a few quotes on your repairs. Any time you’ve got a maintenance item that comes up, if it’s not an emergency situation, you really should get two to three quotes. Not only does that help you save on expenses, but it really shows your manager that you’re paying attention, and that you’re not just gonna let them take advantage of you. You know, another tip that kind of goes along with that is, when you’re signing your property management agreements, you always allow the property managers to have up to a dollar amount where they can use their discretion on repairs, and most of them like to put in $250-$400.
JASON HARTMAN: Yeah, and that’s too high.
SARAH: It’s too high.
JASON HARTMAN: Yeah, it is. It is. You should make that $100, and I would make it—you know, remember, there’s two things here, investors. There’s per incident, or item, and there’s per month. And I would make it per month, okay? So, I would limit that to $100 per month, not per incident, because in one month, you could have two incidents, or three incidents, right? Let me just kind of qualify what Sarah’s saying. It’s great advice that she’s giving you. When you’re in real estate the way we do it, you are a direct investor. So, you are really in control of your investment. And unlike traded assets like Wall Street type assets, or partnership deals, or investing in someone else’s deal where you don’t have control—you know, there’s lots of padding, I’ll say, in expenses in all those kind of things, where they’re skimming a lot of that profit away from you. As the investor. And here, even if you have a property manager who really overcharges you—like, say you get a bad apple that’s just a bad property manager, and occasionally we run into those. It’s not common, but it happens occasionally.
The damage they can do is much lower than the kind of damage some executive at a company in which you invest, or you know, the financial services cartel, or any of these entities and people out there. So, you know, anybody running some big LLC that you invested in can skim all sorts of profits off the top, and all sorts of benefits off the top, and there are so many ways in which they can do this, and so many ways they can hide it from you. So, this is minor stuff, okay? So, I first want to qualify it that way. But just because it’s minor, doesn’t mean you shouldn’t be a careful, prudent, attentive investor. And that’s what Sarah’s talking about. So on her first point, when she talked about the repairs, and getting multiple estimates—look it. Sarah, I’m sure you’ll agree. If this is a $50 item, you don’t have to get three quotes, okay? It’s a $50 item, it’s pretty simple. And the other thing you can do, is you can just check online to see what parts cost, and a lot of this stuff is really quantifiable. So, if a property needs, for example, a new garbage disposal, you can go to HomeDepot.com, or Lowes.com, and price a garbage disposal. And then just extrapolate a reasonable amount of labor. Is it one hour of labor? What does an hour cost? Is it $40 an hour, to pay that contractor to put that in? So, there you go. $150 for the garbage disposal, $40 for labor, it’s 190 bucks, okay? Just an example. You can get a cheaper garbage disposal. I’m just giving you an example.
If it’s an expensive item, you need two quotes. If it’s a really expensive item, you need three quotes. I want you to get the quotes on the actual quote document—and I would say, paper or estimate. But a lot of it is by computer nowadays, obviously—from the actual contractor who’s going to do the work. Not on the property manager’s letterhead, that says ABC Property Management, this is the quote. They’re not the one doing the work. They’re contracting, they’re subbing that out to someone who’s doing the work, and to keep the possibility of any graft and corruption down, you need to see it right on their document. So it should say, ABC Plumbing, or ABC Garbage Disposal, or ABC Handyman. That’s who the quote comes from. Not the property manager. It may come through the property manager, but the quote has ABC Plumbing on it, for example. And it should have their phone number, and their address, and maybe the domain name for their website, or you could just, in one second, Google them, see what their Yelp ratings are, and their reviews, see that they’re a legit company. You can shoot them an email and ask them a question, or call them up. All these types of things. This stuff takes like no time. It’s really easy to do. Sarah, thoughts?
SARAH: I agree. I mean, I remember years ago I did the same thing, and I got a few quotes, and literally about an hour of my time making phone calls to contractors and exchanging emails and so forth, saved me like $1300. So, you know, just pay attention, use a little bit of common sense, and don’t just always go along with what your property manager is advising you to do. Usually they give good advice, but you know, sometimes you find ways to save money.
JASON HARTMAN: Yeah.
SARAH: So, just a little research.
JASON HARTMAN: And one of the points you made, Sarah, that I think is so important—what you’re doing when you do this kind of thing, is you’re letting your property manager know that you are paying attention. And once they see that, oh, this is not a pushover. It’s not an investor who’s just gonna, you know, go with the system—this is someone who’s attentive, and they’re prudent, and they want the best deal. Once you kind of set that standard, then usually for years and years of the relationship—I mean, some of my property managers, I’ve had them for 10 years, okay? Once you set that standard, then they kind of know, you know? And you sort of put them on notice. And they’re much more likely to take good care of you throughout the years.
SARAH: Either that, or they get sick of hearing from you, and they just do their best to get you a good deal so they don’t have to deal with you again.
JASON HARTMAN: Right. One or the other. Either will work. Any other tips on that?
SARAH: No, that was it. And then, you know, just check your statements. It goes along with it. But just review your statements, make sure you’re not getting any surprise charges, or you know, you’re not missing rent. It’s really easy to just, especially when you’re getting a direct deposit—I’m guilty of this, not checking my statements. You’d be surprised at issues that, you know, might come up. I’m like, well, didn’t you catch this right away? And they said oh, well, I don’t look at my statements.
JASON HARTMAN: You’ve gotta look at your statements. Folks, this is just like your bank statement. You’ve gotta look at that. You’ve gotta look at your credit card statement to make sure there aren’t any fraudulent charges on there. And this is the same thing. And all this stuff—it becomes very easy, if you just get into a habit of it, and a system for it, and you know, highly recommend that you use the software we recommend to make all of this stuff much, much easier for you. So, that’s a great thing too. Well, that’s good. Sarah, any other thoughts before we go to our guest?
Top markets at the moment
SARAH: Just wanted to mention a few of our top markets right now.
JASON HARTMAN: Oh, yeah, yeah.
SARAH: Yeah. We’re really excited about the Little Rock tour coming up, right around the corner. We’re gonna have some great properties for that tour. And then of course Memphis is great for a cash flow market, and if you’re interested in seeing any pro formas on these properties, you can just email us through the website. I also just wanted to mention real quickly, we do have some existing homes, meaning, not brand new construction, properties in Houston and Dallas right now. There aren’t a lot, so if you’re interested in that market, we’ve got some real nice looking properties that pencil out real nicely on paper as well.
JASON HARTMAN: Yeah. And I recently toured the Dallas properties there, and
they’re mostly in pretty nice neighborhoods. I mean—by the way, I should mention to our listeners, that we have three types of properties. You know, we have kind of the tier I, the tier II, and the tier III, or the ABC, you can call them whatever you want. The top tier, these are brand new homes, or very new homes, and that’s one type of property. Then the B tier is, maybe it was built in 1990, 1985, that type of thing. And then the C tier is the lower end of the spectrum. And remember, it always works this way, folks. When you go down lower, your cash flow numbers look better. And your rent-to-value ratio is better. But you tend to—and this is not always, but it’s a general stereotype rule—you tend to get, of course, a lower quality tenant, at the lower end of the spectrum, in the C class types of properties. And so, in order to earn that better rent-to-value ratio, you’re gonna deal with some more problems. It’s likely, okay, you’re gonna have maybe evictions, collection issues, things like that. But still, even with all of this stuff, I mean, just look at any of the pro formas, like Sarah mentioned, at JasonHartman.com/properties. Projected returns with assumptions in there for repairs and vacancies and, you know, at least some of these issues. They could be worse, of course. I always say, if it only works out half as well as projected—well hey, you’re gonna make 17% annually, 20% annually, 22% annually. And if it works out as well, or better than expected—well, you’re probably above 35, 40% annually in your overall return on investment. So, it’s tough to beat that.
SARAH: I’d just like to comment; you can make money on both types of properties, or all three types of properties.
JASON HARTMAN: Oh, absolutely.
SARAH: But you know, I would recommend, for someone that’s a little bit newer to investing, maybe to start with a tier I or a tier II property. Because it takes a little bit of the risk out of it, and for your first property, you really want to gain the experience, and go into investing with the right mindset. And sometimes new investors get really attracted by the higher returns on the more risky type properties, and when one thing doesn’t go as planned, they get a little nervous about it. So, I can’t tell you how glad I am that when I started—and I started with something a little bit newer, and it was more like, a passive investment. And then when I got into my next deal a couple years later, a few things came up, and it was no big deal, because I had already been through the process.
JASON HARTMAN: Right.
SARAH: So, whatever your time horizon is, whether you’re doing a property a year, or you’re doing 10 properties at once—everybody’s at a different level. It’s important you talk to us about what your risk tolerance is in all of this, and what your experience is, so we can help you make good decisions.
JASON HARTMAN: That’s what we do. We’ll help you evaluate your risk tolerance, your time horizon, your investment goals, and really make a—help you build a nationwide portfolio that works, so you’re properly diversified, and you’re not overdiversified. One of the mistakes that I have freely, many times, admitted to, that I’ve made—overdiversifying. But you should be diversified for sure, just don’t overdo it. There’s some great tips there, and Sarah, thank you for sharing those. So, Little Rock, Dallas, and Houston, and Memphis, you sort of grouped Dallas and Houston together; actually, they’re not the same place. But—
SARAH: They’re not, but they’re Texas, and we love Texas, and it’s tough to get good inventory in those markets. So. Get them while you can.
JASON HARTMAN: Every hedge fund and private equity group has gone into those markets. And it is tough to get good inventory there, no question about it. So, when we have it, take advantage of it. And join us for the Little Rock tour; if you haven’t signed up already, it’s only a few weeks away. I will look forward to seeing everybody there that has already registered. So Sarah, thanks for joining us, and let’s get to our guest, Jeff Reeves! We’ll be with him in just a moment.
[MUSIC]
Introducing Jeff Reeves to the show
JASON HARTMAN: It’s my pleasure to welcome Jeff Reeves to the show! He is editor at InvestorPlace.com and author of The Frugal Investor’s Guide to Finding Great Stocks. Jeff, welcome. How are you?
JEFF REEVES: I’m doing great, Jason. How bout you?
JASON HARTMAN: Good! Let me give our listeners a sense of geography—where you located?
JEFF REEVES: We are right outside Washington, D.C., in the wonderful suburb of Rockville, Maryland.
JASON HARTMAN: Fantastic. Washington, D.C., the new bailout capital of Planet Earth. Or at least it was, a few years ago, that’s for sure. What’s going on in the economy, and with the different markets as well nowadays? Lots of people think Wall Street’s overvalued. It sounds like you don’t think it’s too overvalued, at least. You’re still kind of bullish, a little bit. I think cautiously, maybe. But you can speak for yourself on that. The economy, QE’s gonna be tapering off, and what’s that gonna do to interest rates, real estate, everything?
Jeff Reeves on the economy, Wall Street, interest rates, QE, etc.
JEFF REEVES: The bottom line is that bigger picture for the economy is slowly getting better. It’s certainly not great yet, but it’s better than it was a year ago, and it’s better than it was a year before that, and I think this kind of slow and steady pace in the recovery has been frustrating to many of us, but that’s where we’re at. And I do think that between the sluggish nature of the economy, which is moving in the right direction, and then central bank policies, and just demographics generally, I really don’t think there is any other place to be than stocks right now. That’s why I’m not too concerned with valuations. I think they are a little more expensive than some people like; historically they’re not too far outside the norm; I think the S&P is right now about 17, slightly about historical norms of like 15, 16ish, but it’s not overly so, and I think the biggest reason that the price to earnings ratio is gonna become so high, is that people are willing to pay a premium for growth, because frankly, there isn’t really a great place to park their cash otherwise, right? I mean, you’re gonna get it in a CD, a 1% rate of return in that? Are you gonna get bonds with a 2-3% rate of return? Most Americans want a little more than that, so they’ve been gravitating either to dividend stocks if they’re conservative, or just outright equity, even international equities if they’re a slightly more aggressive trader. I don’t think valuations are too far outside historical norms, and the bottom line is, I don’t think there’s any good alternatives to US stocks right now, so I’m not gonna fight it, I’m just gonna ride it.
JASON HARTMAN: So that’s the TINA concept—there is no alternative, right?
JEFF REEVES: Right.
JASON HARTMAN: The thing is though, when you talk about those historical norms, Jeff, those are historical norms, and we’re not too far outside of them, in terms of that PE ratio. But aren’t those based, you know, in really better economies? I mean, we just are maybe, depending on who you talk to, coming out of the worst economy in seven decades. This is not the roaring 80s. It’s not the roaring 90s. It’s not the dot com era. Does that matter?
JEFF REEVES: Now we’re getting into the realm of philosophy, about historical data metrics. I’m a big believer in the fact that it hasn’t really happened since, basically 1978. I don’t really care too much about it. I mean, there’s a lot of data from Wall Street back in the 1920s, but, back then it was all coal and railroad stocks, and now we live in the age of cloud computing and 3D printers. It is a fair point to say that while there is historical precedence for a lot of this stuff, in many respects we are kind of living this for the first time. I think that’s a fair argument, and it’s worth keeping perspective on. The more that I dig down into it, it is a market of stocks, as the cliché goes, and there are stocks out there like Amazon that have a crazy PE that’s skewed higher. A lot of IPOs that we’ve had from companies with literally no profit. I would say that there are corners of the market like that that get you very, kind of nervous? But again, I don’t think that you can kind of paint everything with a broad brush and think it’s just because—there are some pockets that are overvalued, I do believe that, and I do believe that in the wake of the Great Recession, we’re still feeling a lot of pain in many industries. There’s also problems in retail, right, simply because of ecommerce, and the unprofitability of brick and mortar in the age of Amazon.com and buying everything on the Internet. So, there are these kind of trends out there, but not to use another platitude, that’s why some people tend to call this a stockpicker’s market; you have to find the opportunities within that; find the pockets where there are value, find pockets of opportunity, and kind of leave the rest behind. It’s a little more challenging that way, but frankly, that’s kind of the way the market always is. The 30% upside we saw for everything in 2013, that’s kind of an abberation. I think this kind of choppy, up and down, some sectors are good some sectors are bad, is probably a more faithful representation of things, right? Because there’s always some areas of the economy that are doing well, and some that are not. Whether it’s good times or bad.
JASON HARTMAN: Some of the greatest companies in the world have been launched during very tough economic times. They solved a problem, and they had to be more lean and innovative, and that’s why they succeeded. We talked about the TINA concept, the there is no alternative concept. You mentioned bank CDs, you mentioned bonds, and I completely agree with you on bonds. I mean, look at PIMCO; wow. Bonds, I’ve just never liked bonds, because inflation will just cream them. There are other problems with default possibilities too, and I think we’re going to see that with a lot of municipalities, potentially in the future. But the one thing you didn’t mention though, is real estate! You didn’t mention income property. Certainly you can get good returns with income properties in markets that aren’t overvalued. Just from cash flow returns between 8 and 15, 16% annually, just on cash flow. Even if the property doesn’t go up in value, or goes down in value, as long as you maintain the income and expense ratio.
JEFF REEVES: Well, I would say that now is a very good time, if you’re a qualified borrower, because rates are pretty low, especially if you have somewhat of a decent credit standing, and you have enough capital up front to put a decent down payment on a rental property. I’d be with you on that. I do think though that I probably don’t have to say this to you, but our real estate is all about location, and I think there’s a big problem right now, where in my mind—again, we talk about historical data in the stock market, and whether or not the numbers matter or they don’t. What we kind of see broadly about values for homes in the US, I think it’s kind of doing people in the local markets a disservice. Where I am, right around Washington, D.C.—there really was no housing crash, right? There’s just not enough land for all the people that live here, and have wonderful jobs, either with the government, or with government contractors. Those jobs didn’t really go away. I kind of call DC like summer camp. We’re not a faithful representation of the rest of the US economy. So, the housing market here has actually been very, very strong, and I don’t ever anticipate the housing market here not being strong. There’s literally no land in Arlington for them to build houses on. That’s a vastly different story than Des Moines, Iowa, or Las Vegas. So, I think that’s very important for people to look at, is when you talk about housing trends broadly, I would encourage people to kind of look at data on the local level, instead of looking at some of these broader trends. I agree with you that I think there is potential there. I think it is all about the market that you’re in.
JASON HARTMAN: Oh, I couldn’t agree with you more, Jeff. There’s an old saying in real estate, that all real estate is local. And you know, that is so true. In a country as large and diverse as the United States, there are really about 400 housing markets. It just drives me nuts, I want to throw things at the TV when I’m—you know, see some talking head come on CNBC and talk about the housing market—where is the US housing market? Is it in LA? Or Phoenix? Or Dallas? I don’t know!
JEFF REEVES: If you ask Case-Schiller, they only think there’s 20!
JASON HARTMAN: It’s unbelievable. And I’ll tell you, with Case-Schiller, 14 of those markets, I wouldn’t touch, because you can’t get cash flow in them! Of the Case-Schiller 20, there are only really about 6 of them that make any real sense, for it to be a frugal, as you call it, in the title of your book—you know, a frugal, prudent investor who’s gonna be careful and conservative, and not speculate on appreciation. You’re just investing for long term cash flow. You know, if appreciation comes—icing on the cake. Take it.
JEFF REEVES: The word speculation, I think you hit something on the head there. I think right now when we talk about, whether stocks, or real estate, or anything that’s out there right now on Wall Street—I think that a lot of people are kind of leery of the notion of speculating and getting fast and furious returns. The most wonderful story, you can double your money overnight—that’s actually not very typical, and it’s frequently not a very safe way to invest. I would say that. That again, back to the idea of stocks right now being overvalued—you know, like GoPro, that camera company that makes those wonderful videos about surfers, and people doing back flips over the grand canyon—that company is valued at extremely high premiums to earnings! And it’s a very frothy company that just went public. That’s a very different investment than a utility stock that you’re going to hold for 20 years and collect the dividends for. So, I think that’s an important thing to remember—the notion of speculation, and what your investing strategy is; there are opportunities out there right now for people who just want to get long term value and get some income, in the market. And I think, you have to know yourself, and you have to know what you’re after, and I think that’ll guide you, rather than just worry about whether the market broadly is overvalued or risky right now.
Some thoughts on Apple
JASON HARTMAN: What do you think about Apple?
JEFF REEVES: I’m pretty bullish on Apple. I mean, this is one of those companies too where people like to speculate and day trade. I don’t pretend to believe that Apple is gonna be the second coming to take over the world in the next 10 years. I also don’t think it’s going to fall off the face of the planet. Just looking at the numbers, I’m encouraged by the fact that iPhone sales are still very strong. They’re 50% of revenue for the entire company. They’re growing briskly overseas in markets like Russia, and China, and Brazil. I do think they have risks to their iPad line, which had some softness, but Mac sales have been pretty good, and they got that new partnership with IBM, which could help them get iPads and iPhones into the enterprise setting a little bit more. And by the way, back to the idea of a conservative investment strategy for income—Apple has tons of room for dividend growth. The dividend right now may not be all that impressive, at 2%, but it’s got $150 billion in cash, it’s only paying out about a quarter, or a third of its profits as dividends right now, so it has plenty of room for increases. So I think if you’re a long term investor who’s willing to hang around with Apple and get paid as they deliver capital back to you—again, as an income investing strategy, I think I like it even at this price. And again, while there are stocks out there like GoPro that are really extremely frothy, when you back out Apple’s cash, it’s got a forward P of about 10, and with the cash included, it’s only about 14, which is less than the market’s average broadly. So I don’t think it’s overbought; I think it’s fairly valued, and I think people have a good opportunity right now to get in, before some of these big efforts, whether it be the IBM thing, or the [indiscernible] acquisition, where they start to drive bottom line impact in the year ahead.
JASON HARTMAN: Are they going to keep paying dividends? They almost had to be forced to the last time around.
JEFF REEVES: The kind of cliché out there is that Steve Jobs is very much a wartime president for Apple. He was there when the company was in the middle of its death throes, and he had to turn it around, and he was blazing a new trail for consumer electronics. That’s not kind of Tim Cook’s bag; Steve Job was an innovator, Tim Cook is just kind of a peacetime president. He’s supposed to keep the trains running on time, and keep everybody happy with potato in every pot, and if that means increasing dividends 10% a year and just delivering some capital back to shareholders without getting dramatic 100% year over year earnings growth—you can’t get that. Apple’s a $500 billion company, right? Are they going to double in size in the next nine months? It’s just not realistic. I think that Apple has kind of transitioned to a place now where it has to do dividends and buybacks, it has to kind of be this slow and steady wins the race company, just because it’s already got the scale, it’s already got the dominance that Steve Jobs aspired to, and that’s a good thing, and I think investors should embrace that. It’s a different company, and I think a lot of people have trouble looking at it in a new light, but I think Apple as it is now is still a good investment. It’s not Apple as it was 5, 10 years ago, but it’s still a good investment.
JASON HARTMAN: Do you follow, by any chance, Herbalife?
JEFF REEVES: I’m not touching that thing, man. This is literally a war on the schoolyard between two factions who have a lot of money to throw at this thing. That is speculation at its best. I don’t know if we’re ever going to know the truth, but if we do know the truth, it’s certainly not going to be any time soon. Investors are just riding the sentiment. They’re riding the PR war between the two firms. I kind of find it hard to bet at all against Carl Icahn, because, you know, he’s kind of savvy, and knows what he’s doing, and he’s been winning this battle so far, but I just don’t know what the truth is, and I don’t know, you know, what guns are on either side. It’s a war. And people can make a lot of money I guess if they guess right on that, but for the typical investor, man, I would just sit this one out.
JASON HARTMAN: Oh, me too. Totally agree with you, I wouldn’t touch it, but it’s just really interesting. I mean, what a drama! It’s just an amazing drama, what’s going on there.
JEFF REEVES: Yeah, I mean, that’s the internet age, right? It’s not enough to go make a billion dollars anymore. You gotta do it in a public way, and embarrass the enemy on CNBC. That’s the internet for you.
Closing comments
JASON HARTMAN: There you go. Jeff, give out your website, and tell people where they can find your book, too.
JEFF REEVES: Website’s InvestorPlace.com. We like to figure ourselves as an actionable website for individual investors, which just means we give you commentary. Not a lot of news. We tell you actually what to do with your money, which I think a lot of people find refreshing, instead of just a regurgitation of reports and data. And you can find a link to me and all my articles there, and also the book, if you’re interested in it, and we have plenty of other free reports and newsletters and stuff for you to sign up for, at InvestorPlace.com.
JASON HARTMAN: Jeff Reeves, thank you so much for joining us.
JEFF REEVES: Great to be here.
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