Things investors should be thinking right now. The u. S. Stock market plunged this past thursday and swung wildly on friday. Was it just a hiccup or a sign to take profits . Big banks are weathering the economic downturn better than feared. Why its time to size up their shares. And billionaire Warren Buffett just went on a shopping spree for stocks in japan. How u. S. Investors can follow his lead. On the barrons roundtable, my colleague, ben levisohn, carlton english and al root. Ben, the stock market actually fell late this past week. I had forgotten it can do that sort of thing. What happened and how worried should i be . Well, ask three wall street strategists, and youre going to get at least five different answers about why stocks fell. But really this had to happen. Stocks just had an amazing august led by tech stocks. They just kept going up and up and up, and they started september the same way. And it needed a cleansing. Stocks had to drop. And so whether it was because some disappointing guidance or Something Else out there, it needed to fall, and they did. They got hammered hard on thursday, got hit again on friday though they did bounce back and finish well off their lows. Jack so tech has been tumbling, and some stocks that hadnt been doing well have been working better than some of the others lately. Is this the beginning of that longawaited rotation in the value stocks, or is it just one more head fake before apple triples in value and splits 12 different ways . This is one of those moments where i wish i could come on and say i had the answer. I dont. What i do know is that at some point tech is going to tumble for good. And so this is the time to start thinking about moving out of your hot tech stocks and into the stocks that havent been doing well. Its the stocks like apple, zoom, tesla, sales forest, these stock concern salesforce, these stocks have done so well, time to take profits on them. If you dont want to, do Something Else. I was talking to a strategist who said sell some highyield bonds and buy stocks with high dividends, 3m, chef chevron, dow. They could do well if that continues. Jack you cant fool me with the humble approach, ben, i know that you know everything. Carlton, for investors who want to shift into value, banks certainly trade cheap lu, but you say theres more to life beyond just the prices. Tell us about out. Yeah. So youre going to have to bear with me. Ive got to talk some accounting first. Beginning of the year there was this new accounting guideline called the current expected credit loss. That means, basically, the banks have to build reserves for their losses up front rather than as theyre incurred, and that hurts profits. Now, that standard was going in at the beginning of the year anyway, but then it went into effect, were hit with a Global Pandemic and a recession. Basically, investors on wall street are trying to figure out how serious is this loanloss issue going to be. But now as economic draw that has improved and, you know, its been better than what a lot of the banks feared going into the recession. Theres a possibility that were going to start to see some of those reserves released maybe in 2021, 2022, and thats eventually going to help banks profit. Jack so if we hi the bank results will be better than wall street expects, better than investors expect, give us a few quick stocks that we ought to be taking a look at here. Yeah. Three came out to us. Its jpmorgan, citigroup and regent financial. All of them talked about being more cautious in building their reserves in the second quarter. And the portion of their reserves to total loans is a little bit higher than peers so any improvement in the Economic Outlook is going to have an outsized effect on those banks. Jack okay. Al, Warren Buffett bought share of five japanese conglomerates. My confidence in the pronunciation, mitsubishi, mitsui, what do you think buffett likes about japan here, and do you think hes right . News job on that pronunciation, although i dont know either. You know, for warren i think that its fairly consistent with his playbook. These are all valueoriented plays. They trade for about ten times earnings so, you know, most famous Value Investor out there, thats check that box. The other thing is this is a play on the global economy. These things are farflung conglomerates. They do everything. The Business Description for mitsubishi is like 250 words. They do chemicals, logistics, they do everything. And that is sort of consistent with some of the big purchases buffett has made too, right . Its a bet on the global economy. So in that respect, its comforting. But these are wholesalers. These are trading houses. So to some extent, its a bet on inflation, and its a bet on the continued recovery. Jack so if you want to follow buffett, you could certainly buy an exchangetraded fund. Our pal andrew berry has a story in this weeks issue of barrons he mentions toyota and airconditioning maker dykan. Coming up, reasonable affiliates chairman rob arnaut on why hes all in on value investing, next. When we started carvana, they told us that selling cars 100 online wouldnt work. But we went to work. Building an experience that lets you shop over 17,000 cars from home. Creating a coast to Coast Network to deliver your car as soon as tomorrow. Recruiting an army of customer advocates to make your experience incredible. And putting you in control of the whole thing with powerful technology. Thats why weve become the nations Fastest Growing retailer. Because our customers love it. See for yourself, at carvana. Com. Leading armies to battle . , was that your greataunt, keeping armies alive . Drafting the plans. Taking the pictures. Was it your family members . Who flew. Who fixed. Who fought. Who rose to the occasion. When the world needed them most. Find and honor your ancestors who servered in world war ii. Their stories live on at ancestry. Its made for this guy a veteran who honorably served and its made for her shes serving now we made it for all branches and all ranks whether they served one tour or made a career of it. We also made usaa for military spouses and their kids usaa is easy to work with and can save you money on auto, home and renters insurance. Become a member today. Get an insurance quote at usaa. Com quote usaa. What youre made of were made for jack you know, by some measures the valuation divide between those gogo Growth Stocks and the beaten down value stock, its as wide as its ever been, and thats supposed to mean that its a good time to buy value stocks. The problem is weve been waiting approximately forever for investors to fall out of love with those high fliers and into love with the bargains. Joining me now is Research Affiliates chairman rob arkansas not. Rob, we touched on this at the top of the show. Rob arnott. Is this latest wobble in the stock market the sign weve been wait for to tell us values day has finally come . Well, the short answer to that question is, who knows . Anything can happen on a shortterm basis. Longer answer is value is extravagantly cheap, growth is extravagantly expensive, and in time bubble burst. Bubbles burst. So whether this is the break or whether the break has yet to come remains to be seen. It will happen. Jack and you said, you know, obviously a good time to shift money into value stocks. You also say its a good time to shift money outside of the u. S. , particularly into emerging markets. Why do you like merging markets, and whats wrong with just investing in u. S. Companies that sell into emerging markets . If you buy cocacola or apple or any of the other Big Companies in the u. S. That to a ton of business outside of the u. S. , youre paying u. S. Multiple for access to those markets. Why would you want to do that when you can buy them on the cheap in their home markets . Now, that doesnt mean buying cocacola, doesnt mean buying apple, it means buying emerging markets companies that are based in e. M. And that are priced at levels reflecting i emerging markets values. The u. S. Is at 32 times its trailing 10year average earning. That is husband to haveically high. Historically high. It was a little higher at the peak in 1929. It was quite a bit higher at the peak of the tech bubble in the year 2000, but thats expensive. Thats only twice in the last century that its been more expensive than this. And when youre looking at international markets, youre paying about 18 times, in emerging markets you paying 14 times, better than half off relative to the u. S. And if you dont capitalization with bought the stocks so that you arent fairing the most extravagantly expensive companies, if you fundamentally weight the stocks, you wind up paying about 9 times earningsing for an emerging markets portfolio. Buying half of the worlds gdp for 9 times earnings. Jack do you think Warren Buffett picked a good time to buy shares in japan . Yes. There have been better times, and japan is not overly cheap. But its cheap relative to its own history. Its quite cheap relative to the u. S. And so, yes, us ill say that its a good i would say that its a good time to buy japan. Better time to buy europe which is profoundly out of favor especially in the wake of the covid mess and better still to buy merging markets. Jack i want to circle back to something you said a moment ago because its so important for many investors out there who have s p 500 funds, you feel like the capweighted approach to indexing is fundamentally flawed. But those funds have done very well. So whats wrong with that a approach . Basically capitalizationweighted indexes do very well in momentumdriven bull markets. Weve had a momentumdriven bull market for the last decade. So this has been a splendid time to be capitalization weighting. Now, the problem with cap weighting is that the more expense i a company is, the bigger the bought it get in the portfolioful apple is a Wonderful Company, great products, great management, very well positioned for a world thats increasingly reliant on technology. What a great idea to have money in that kind of a company. But at what price . At its peak apple was worth more than the entire foot is city in ftse index meaning that apple, one company, was worth more than the publiclytraded british economy. Well, is apple going to produce more profits for its shareholders in the decades ahead than the entire british economy . I dont think so. If you believe it, then its fairly priced. If you dont believe it, its a Wonderful Company thats overpriced. Teslas even more extravagantly peculiar on its pricing. Jack i had a feeling you werent going to tell me to put it all in tesla. Rob, thanks for coming by to share your views. Coming up, what investors nearing retirement should do now to shore up their finances. Thats hey, can i. Hold on one second. Sure. Okay. Okay safe drivers save 40 guys guys check it out. Safe drivers save 40 safe drivers save 40 safe drivers save 40 thats safe drivers save 40 . It is, thats safe drivers save 40 . Hes right there. Its him hes here. Hes right here. Hi hi. Hey thats totally him. Its him thats totally the guy. Safe drivers do save 40 . Click or call for a quote today. Its not acceptable or nothing. Safeits not pretty 40 . Good or nothing. And its definitely not close enough or nothing. Mercedesbenz suvs were built, designed and engineered with only one mission in mind. To be the absolute best. In the category, in the industry. In the world. Testdrive one of eight mercedesbenz suvs, starting at just 36,230. Mercedesbenz. The best or nothing. Jack well, despite this weeks stock drama, the market has made a rapid recovery from its covid19 crash. And housing is riding high too. But were still down millions of jobs. Finish that gives investors nearing retirement a lot to think about. Barrons Senior Writer joins the round table. Reshma, you wrote this weeks cover story for barrons. Give us a sense how the pandemic has upended some retirement plans. Yeah. The peak earnings, peak savings streak for a lot of people. With the u. S. Still down 11. 5 million jobs [inaudible] job loss. Typically, Unemployment Rate for folks in their late 50s is 1520 lower. So this time around were seeing a narrower gap, and that has ramifications for Retirement Security which in itself wasnt so great even prior to this crisis. Then you add into it furloughs and perhaps, you know, the additional Financial Support giving their Adult Children or to their elders, it really puts a strain on their finances. Its typically what you would have done if you needed to shore up your Retirement Security or deal with unexpected expenses would have been to work longer, and that could be hard to do out of this pandemic. Jack okay. So in that situation you say that one of the most important things folks nearing retirement can do is to raise cash. How much cash are we talking about, and how should they raise it . So, you know, typically we talk about how you should have a 69 month emergency cash reserve. For those 510 years out of retirement, advisers are [inaudible] that higher end is really in industry that have been harder hit by covid, Small Business owners may have a lot of their retirement wealth tied up in their businesses. But its intended as a bridge until you can replenish your income and a reserve to draw on if drops from your portfolio. Jack i think al has a question on sos. I do. Huh, reshma, and thanks for the 69 month advice. Im a little short of that at the moment. One of the things you say not to do is tap Social Security early. You can cap it tap it, i think, as early as 62, but im curious why that isnt such a great idea. Yeah. Its a thing many people think about, but theres a good reason not to if youre in good health. Its one of the inflationimpacted lifetime incomes you can get, and for every year that you delay, you know, not just full retirement age until 70, youre getting an durable 8 . And so, you know additional. Half of americans over the age of 65, the majority of their income is retirement. So you want that to be as big as it can be. As long as you can to talk you there. So im just kind of curious, so much of the economic recovery has gone against norms, im wondering if theres any of this retirement advice that would be different than we would normally advise. Sure. We always hear about dont raid your 401 k accounts. Much better than taking Social Security early. And the government has also kind of opened the door to that with the cares act which allowed folks to take up to 100,000 out of their retirement assets, their 401 k s without a penalty if they were under 59 and a half. And they could spread it over three years. But if you actually pay it back within three years, youll get a credit. So its almost like a loan. And you could also take a loan out of your 401 k of up to 200,000, five years to pay that back. People like the loan angle because that withdraw you are more likely to pay yourself back. The other thing is debt. Usually we tell people to take down their debt going into retirement. Still good advice, but if we really need to free up cash with the Property Market holding up so well in parts of the country, some say its not a bad idea to [inaudible] getting a little bit of extra cash or opening up a home equity line of credit that you can draw on perhaps if you lose a job next year or if the market turns ugly and you need some cash. Jack i just want to drill down on that point real quickly because i think its so important. I hear about Social Security, the payment is such a big asset for many people. You saying for folks who are 62 and theyre tempted to take that cash now, those new options available to take money out of a 401 is k 401 k , you might not have recommended that in the past, you think that a makes sense now for folks to dip in there in order to hold off on those payments, and are you thinking they ought to hold off as long as they can, potentially, until age 70 . Yeah, exactly. I think that no matter how you do it for folks in the 65 and up group, you know, we hear about Social Security reform and possible benefit cuts. But for those window, it still makes sense to hold off. And the cares act allow you to tap that retirement as set. Jack ben, time for one more quick question. Make a it a real hard one. So the market tumbled. If you were in stock, you lost a third of your portfolio, but now its bounced back. What should i do if that scared me . Yeah. So this is a great time to rebalance normally, but its especially a great time to free up cash. Asset allocations are really going to determine where you go to rebalance and free up cash. If you had an aggressive portfolio, itd be a good time to take some gains there. Its also a good time to sort of look at your portfolio, reassess risk. You know, were in unprecedented spending here, taxes could be going up. You want tax diversityification with diversification and also some inflation hedges. Gold and real estate as we sort of rebalance a little bit. And the other thing is you really look at that bond portfolio and make sure its offering some balance and diversification. Theres been a lot of risk piped into that portion of what we consider safe money in our portfolio. Jack thank you, reshma, always great to talk with you. Up next, round table members give their investment ideas for the coming weeks. Stay right there. Muck limu emu doug you know limu, after all these years its the ones that got away that haunt me the most. [ squawks ] cause youre not like everybody else. Thats why Liberty Mutual customizes your car insurance, so you only pay for what you need. What . Oh, i said. Uh, this is my floor. Nooo only pay for what you need. Liberty. Liberty. Liberty. Liberty. Jack lets end with some actionable investment ideas. Al, lets hear your bullish since youre bullish on ibm, tell me what you like. Well, you know, i was listening to ben talk about dividend yields and the tech route, and it got me thinking, listen, i know theres no i in fang, but ibm has a 5 dividend yield. It was down about 4 or 5 at the worst of the tech rout. Im warming up to ibm. I think its worth a look, and you can get paid to wait. Jack warming. Okay, ben, you like small caps. Youve got an et, if you think investors ought to consider. Why to you like them here . Well, because they stunk. The russell 2000etf has small cap stocks that are small, and it jumps towards value. Investors like big and thaw like growth. When the rotation final lu takes hold, small caps are going to do pretty well. Jack and carlton, you talked earlier about banks and some stocks that you like. What if im too chicken for individual stocks . What should i buy . Ive got an etf for you, its a spider bank etf, and its just for that reason. This is a beatenup sector as the economy recovers, this gives you broad exposure today. Jack those are great ideas and thank you very much. To read more, check out this weeks edition at barrons. Com. And dont forget to follow us on twitter barrons online. Thats all for us. See you next week on barrons from the fox studios in new york city, this is maria bartiromos wall street. Welcome to the program that analyzes the week that was and helps position you for the week ahead. Marias off this weekend. Im charles payne. Coming up in just a few moments, marias oneonone with blue aprons ceo, linda kozlowski, on the growing interest in home cooking during the pandemic, and later saul khan on remote learning. But first, another solid jobs report as the recovery from covid19 pandemic shutdown continues. The u. S. Economy added more than 1. 37 million jobs in
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