August 25, 2023
An interview with Mark Eibel, Director of Client Investment Strategies at Russell Investments.
On this week’s Free Lunch podcast, hosts Colin Andrews and Greg Kraminsky are joined by Mark Eibel, the Director of Client Investment Strategies at Russell Investments. The three of them discuss Mark’s macro investment outlook, changes in the investments industry and where we stand in the economy.
Colin and Greg: Mark, what would you say has been the biggest change in the investment industry that you've noticed over the last 40 years?
Mark: Yeah, I mean, I think the obvious one is always technology. Probably on any industry that you mentioned, right? You talk about how things are computed now versus what you had to do back then. I think as far as the investment industry and this really goes back, I mean, I was fortunate enough to actually work under the Russell family when they were still involved in the business. And, you know, we started as a pension fund consulting firm to the largest of defined benefit plans out there. And I think the biggest change that I've seen is the solutions that were at one time really kind of available for the people that had hundreds of millions or billions of dollars to order to invest are really quite similar now to what individuals can get. And that defined benefit mentality of a pension plan. Now with technology, individuals can almost tailor their investments to what they want as if they are their own defined benefit plan. They have their own return goals, they have their own risks. They work with an advisor, just like pension plans work with consultants. So I think the solutions being available to individuals now looking very similar to what used to only be reserved for the biggest pools of money, largely because the technology wasn't available to do it at the individual level, as I think the biggest broad change and George Russell was on here today, I bet he'd say his vision and he was very much a visionary and an entrepreneur would be when he was consulting to the largest pools of money, he imagined a world where every individual would kind of be able to say, I want this in it. I don't want that in it. And I think we're getting closer to that as we get closer to the end of my career. So probably those two things, just the availability of the product and just technology overall, making everything so much faster and efficient. What hasn't changed is investor behavior, right? People still love to buy high and sell low. It's hard to actually do the most basic buy low. Sell high is Economics 101. And yet, as human beings always seems to be the hardest thing to do. And I don't think behaviorally, I think we still make some of the same mistakes we've always made. I don't think that's changed.
Greg and Colin: What what does that mean on a daily basis for you?
Mark: Yeah, I spend most of my time, quite frankly, doing this. I work almost exclusively with the retail side of the business. I'm in the investment division, but they're my internal clients, so to speak, in both us and Canada. And I think maybe it's because of my background and I was in US equity research for years. I started on the quantitative side. I ran research for a number of years on the US equity side. And you know, Mark, you understand how everything's kind of done at Russell. Why don't you spend a lot of time talking about the process and going on media and talking about our market views to clients? So I started that in 2008. They basically said, Wow, the world's crazy. Why don't you just travel and stay on the road and do that until we tell you not to? And it's 15 years later and I haven't been told that not to part yet. So largely now I have my fingers in various things, but a big part of my job is just trying to almost simplify, particularly for investors. It's really easy to make markets complex and just trying to simplify the message not only of what's going on in markets, but what's going on at Russell and. I always just remind people, markets go up 75% of the time and you're probably going to live to be 80 or 90. If you keep those two things in mind. It might take away some of your anxiety about what's going on on any one quarter, one year and even a three year basis. Keep the bigger picture in mind, which has been a message that I've been reiterating over and over and over again. You know, it's funny from market returns, like I've been meeting with a number of clients reviewing their portfolios and everybody focuses on January of 2022 to June of 2022 as a real bad time in markets. But if you actually look back over the last 12 months, most of those portfolios have had six, seven, 8% rates of return.
Colin and Greg: So it is this behavioral tendency for investors to focus on the negative. Would you say?
Mark: I would. And I get told all the time the markets are really volatile. If you actually look at the VIX right now, the volatility measure of the market, it's pretty low. Consumer sentiment, though, to your point, is low. And normally when markets are up, consumer sentiment is up because people are happy when they making money and consumer sentiment is down when markets are down. So if you extend your one year to cover this Covid experience of the last three years, I mean, look what we've gone through, right? We shut down the world and then we turned it back on again. We've had the worst inflation experience in 50 years. Russia invaded Ukraine, the worst bond market in 70 years. And yet if you look at a balanced portfolio for the last three years, you've done just fine. If you've stayed in the game, have a plan, stay in the game. And it's been an extraordinary three years and one that we won't forget. I understand that, particularly because the health aspect making it so personal for every person. But if you look over look at markets over 100, 150 years and you add in all the world wars and all the geopolitical events and everything, and what do markets do? They move to that upper right hand corner and you get these blips that are down. And when you're in them, whether they're one year or three years, you think they'll never end. And yet when you take a step back, that's why I always emphasize you're going to live to be 80 or 90 if you want something to worry about financially, worry about not having enough for that long period of time. But the media is always going to be negative again, We've been debating this recession every single day, no matter which side of the political aisle that you tend to be on. Of course, you always think your side is right and the other side has issues and there's always anxiety about all of that. But you're right, if you take the longer term picture in mind, it is extraordinary how the market processes news very quickly once it gets the answer and moves on. And again, as individuals, we have a harder time doing that, it seems.
Colin and Greg: Yeah, so true. We always try to preach the same message that investors should focus on the long run and look at what happens over a long period of time. But how does he average person deal with all of the news and what do you think the economic outlook is?
Mark: Yeah, put it this way. If you were to invest on the first day of the last 7 or 8 recessions that we've had over the last 40 years or so, and you would think that's got to be the worst day in the world to invest in, right? If you actually look at your returns three and five years out, they're pretty good on a balanced portfolio and they're almost all green. And why is that? Well, you're effectively kind of buying low at that point, right? If you wait until recessions are over and invest, the market's already moved. So what does the average person do? Stay with the plan. You make tweaks with your advisor as you need to, but just avoid getting out of the game because the market is a forward looking mechanism As far as our views. And you're right, I think this has been the most discussed recession and quite frankly, this might be the most, again, nuanced market to talk about because to your point, you can argue both sides. You can say the same thing about inflation. Inflation's coming down. That's great. And others will argue, Yeah, but it's not coming down fast enough. You can argue every issue and the data is just wonky. The data is weird because it's all seasonally adjusted with a period of a global pandemic. And I don't think most Fed chairs or any central bankers studied global pandemics in their training to become chairs. So you've got traditional recession indicators that are out there. The yield curve has been, as they say, inverted now for a little over a year. All that means is that you get paid a higher interest rate for something that matures in 1 to 2 years than you do for ten years. And that doesn't make sense. If I'm going to take eight more years of uncertainty, you should pay me a higher coupon. Not right now, because people are more worried about the short term you've had. You know, the economy's bouncing back and forth between slightly growing to not growing GDP. Some of the real traditional indicators out there saying a recession is probably out there. And if you look at the leading indicators, we still think what we might have thought is a recession at the end of this year is probably still in early 2024 event that it'll happen. The problem with. Predicting it is this. Two thirds of our economy is the consumer. We will have a recession when all of us decide we're going to have a recession and we stop spending. If there's been one thing that's been consistent over the last 40 years is don't bet against the US and probably don't bet against the Canadian consumer. You'll go wrong most of the time. And what gets added to this now is with all the savings that we had during Covid, we're still spending some of that, right? And there's different reports that say it's still $1 trillion on people having accounts. Some of it's 500 million, but people are still have kind of savings built up. So they are still spending. Anybody that travels knows it's like, my gosh, how can you say we're in a recession when you look at hotels? So we still think we're going to slow down a little bit. But quite frankly, whether you grow at a percent or contracted a percent, it kind of feels the same. Companies, I think, are running their businesses as if we're in a recession, which is why earnings seem to be holding up better every quarter than most people think they will because they're not waiting to just have the recession and then go, Oh, no, now I got to lay off a whole bunch of people. They're kind of easing into it a little bit. It's also hard to say a recession. We have, at least in the States, 3.5% unemployment. How do you call a recession during that? But you have a tightness in the labor market. Again, some of that due to demographics, but some of that just due to issues related to Covid. So a long way of saying, I don't know, we still think we'll have it early next year. But quite frankly, it's been talked about so much. I think most of it's priced into the market. And while if you flash recession on a business network, I'm sure the first reaction most people would have would be to maybe trim some of their portfolios. Also, keep in mind, as inflation continues to work its way down, by the time it actually hits, central, bankers are going to have much more flexibility to start thinking about when do they cut rates and as soon as they signal that the market would take that as a bullish signal. So again, timing changes in your portfolio based on it is so hard to do better to have a plan and stay in the game if you need to raise a little bit of cash, particularly when you're getting paid more for it now, fine. But just don't make dramatic moves. This year is a great example. Markets are doing pretty well, probably better than most of us thought that they would.
To listen to the entire interview, listen to the Free Lunch podcast wherever you get your podcasts.
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