Welcome back to Portfolio Rescue, our show where you, the viewer, select the topics. Remember, if you have a question for us, send us, askthecomponshow@gmail.com. I'm joined, as always, by producer extraordinaire Duncan Hill. Duncan, how's it going? Good, good. How are you? All right. Duncan and I have been scouring the email for the last couple of weeks, and one of the cool things we're seeing is there's starting to be some trends in there.

We've been doing the show for about a month now, I guess, and our inbox is full, and so we're getting tons of questions about things like taxes. That's a big one. People really care about their taxes. A lot of stuff on retirement accounts, what kind of retirement accounts to use.

At least one question a week from a young person who says, "Hey, Ben, I want to use two or three times levered S&P 500 ETFs in my retirement account. I swear I'm going to hold it for the long term. I know the risks. I don't mind losing 90% of my portfolio.

Will you please sign off on it for me?" We're going to get to all these questions eventually. One of the ones we hear a lot is housing, right? I think, Duncan, our first question today is another one on housing. There's a ton of questions, obviously, because the real estate market is going bonkers.

What do we got, Duncan? First up today, we have a question from Anthony who writes, "I'm a 33-year-old single male looking to move to Dallas, Texas. I'm looking at places in the $400,000 range, and I have enough capital to buy a home outright, but I'm trying to decide whether I should still take out a mortgage or rent a house and invest the $400,000 in the market instead of paying cash.

Dallas property taxes can run as high as 2% alone, not to mention all of the other fees that come along with owning a home. What would you guys do in my situation?" This is a good thing that this 33-year-old is coming in with eyes wide open, because I think right now it would be hard to ignore the fact that everyone thinks you should own a house.

There's tons of peer pressure going on. The Case-Shiller National Housing Price Index is up 20% year over year. Everyone is seeing these huge gains, and there's a lot of peer pressure from family and friends that you have to buy a house. Listen, this is the next step in life.

You're in your mid-30s. It's time to settle down. Listen, there's a lot of pros to settling down and buying a house. For me, personally, we bought a house because we wanted to be in a great school district for our kids. I think it provides a sense of stability and permanence in your life.

You have a house, you can make it your own. We actually built a new house when we moved in, so we got to put our own touches on it. You can do your landscaping, all that stuff. I think there's a level of psychic income you get from owning a house, where it's yours and it's almost like these non-monetary benefits.

I also think a fixed rate mortgage is one of the best hedges you can get for inflation over the long term, because you can plan out from your personal finances exactly what your payment's going to be. Then a bonus on top of all that is you get to build some equity that you can eventually do something else with, whether it's rolling it over into a down payment for another house, or potentially taking it out and using that for something.

There are some downsides, though, that a lot of people don't talk about. It's basically impossible to calculate the return on your home, because there's so many other ancillary costs involved. You have closing when you move into the house. You have realtor fees. You have upkeep and repairs and maintenance.

There's transaction costs at closing. If you want to sell your home, there's a lot of frictions involved to get out of it. It's not like you're just going to get the price that's listed. There's also, you lose flexibility. This is a single person. They may not want to be in this house for the long term.

They may get a chance for a career or for a relationship, move somewhere else. I almost look at a house not as much as an investment, but a form of consumption. The other thing is borrowing at a fixed rate is great, but it's also a leveraged investment. That can work in your way positively when houses are going up, but it can go the other way when houses and prices are going down.

It's an illiquid asset and you lose some flexibility. Owning a house is not for everyone. Two-thirds of the country owns a home in the United States. Some people don't own one because they can't afford it. Some people don't own it because it's just not right for them. I think here's some of the questions you want to ask yourself.

How stable is my life and my career? Can I see myself living in this area, this neighborhood, this community for the long term? Is this a place I can see myself owning for at least seven years, I'd say? Because, other than that, you're not building much equity unless housing prices just go to the moon.

If you're not living in it for at least five to seven years, I'd say. This is not something that you want to buy and move out of right away. I think you want to make sure this is something for the long term. - Yeah, I look forward to being able to paint walls one day, though, and actually put holes in the wall without having to worry about having to fix it back after a year or two.

We've been in our home for five years now, and I think we still haven't hung anything on the walls yet. It's still just the same. - That's great. - Yeah, I'm not much of a landscape guy either. That stuff kind of annoys me. There's a lot of stuff that it really depends what you want to get out of your life.

How much flexibility and do you want to be tied down to something like that? I think as a single person, honestly, moving into a place where they take care of all the lawn care and all that stuff for you, that sounds wonderful to me. - Yeah. - All right, what do we got next?

- Okay, so next up we have a question from Greg, and so Greg has a pretty short and sweet one. "When looking at your own personal portfolio, where do you guys stand on how much inheritance to leave your kids? I recently heard Shaq saying that he's rich but his kids aren't and he wants them to work for what they have in life.

I agree with this sentiment and would be curious to hear your thoughts." - All right, I've never done a financial planning question with Shaq before, but I'm a big planner. I like to think long-term and plan out the future, but this is even like long, long-term for me, and I obviously think about this stuff, but this is a challenge because you're striking a balance between wanting your kids to succeed on their own and learn about how the world operates, but also wanting to make sure that they're secure because they're your kids, right?

So Greg asked if Josh and Michael and I have any thoughts on this. So I'll bring in one of the other three here. So Josh Brown, come on in. Let's see, there he is. - What's up, guys? - Josh. - This is so exciting. It's my new favorite show.

- Let's do it. Your kids are older than mine, but you still have plenty of time left here. How do you think about this? I know Buffett and some of these other billionaires have talked about it, but how do you think about this in terms of trying to set your kids up for success without spoiling them?

- Yeah, so to be clear, I don't have Buffett money or Shaq money, and I don't anticipate having Buffett money or Shaq money. So I'm pretty certain what Shaq is telling his kids is that they're not worth a hundred million, but it's doubtful they won't be set up with five or 10 million to do what they want with.

- How are they ever going to survive, right? - Listen, I think there are a lot of really great models for what you should be doing when you reach that level of success, which is not going to be most people, obviously, but like Rick Ross, one of my favorite rappers, he's got a whole bunch of these Wingstop franchise locations.

His kid turned 16 and he gave the kid a Wingstop. And it's like, "Oh, wow, he just handed this kid a half million dollar, you know, what it would cost somebody else to buy this franchise." No, he just gave this kid the responsibility. Like, "It's great. All right, I own a Wingstop." That's not like a ticket to riches and fame.

You have to like grind it out. So the kid's obviously going to be in school, but he's got to be involved in hiring people, making sure the supplies are showing up, making sure the property around it is being kept up. Like, I think that's really fly to do for a kid.

Like, so I love that idea. I'm not giving my kids a Wingstop, but just that concept of... - By the way, have you ever tried it before? I have one right by my office. I just went in. Yes. - Lemon pepper. Two words, lemon pepper. Okay. Wingstop is great.

But I like the idea of an inheritance being not just like, here's a pile of money or here's a trust, but like, here's a responsibility that also comes along with this wonderful gift that I'm giving you. And like, that's the balance of being wealthy is like, the wealthier you are, the more shit you got to take care of, right?

- It's also hard to keep your kids happy. So there's a study from like the Chronicle of Philanthropy where they asked people who inherited a lot of money, like what amount of money would you have inherited that would make you feel totally secure? And on average, every single one of them, no matter how much they made from like 200,000 to a couple million, the answer was always double of what they got.

So you're probably not going to make your kids happy either way, depending on how much... Here's the way I'm looking at this. I want to communicate with my kids exactly what's going to happen when I die. That's kind of morbid to think about. But when I get to that age, here's what's going to happen.

Here's the money stuff. Here's potentially how much you're going to get. But I'm also going to enjoy that money with my kids while I'm here. Vacations and... - That's it. - Right? - This is what we do for a living. We're having these conversations with households all over the country.

What the boomers are doing now is they're saying, I want my children and their children to enjoy the money while I'm alive to see it. It's not selfish. It's like, what is the point of me holding on to this and trying to grow it by another 50% over the next 20 years?

- The kids are going to love those experiences and those memories way more than more money when you die. - No doubt. So you know what we're seeing a lot of? We're seeing a lot of parents who don't just sell their house and move away, but keep their house so they can be nearby the kids and help raise them, the grandkids, and help raise them, but then also have the vacation house.

So if you're rich, that's great. You could afford to do that. Not every parent can. - Hey, can you have a talk with my parents then and tell them to move into town when I need a babysitter? Because my parents still live three hours away. - How far away are they?

- Well, they help when they're around. They live like three hours away. It's a good buffer. - I mean, that's not bad. We moved into the town where Sprinkles' mom and dad live, and they have bedrooms for her and her sister. When they were growing up, those bedrooms now have been converted into bedrooms for my kids.

So it is an awesome setup because we could just put them there for a Saturday night, and they love it. The kids love it. The grandparents had the last 15 years to watch my kids go from being babies to teenagers and be very much in their lives. And I want that because I've seen that.

Now that I've seen that as a parent, when I'm a grandparent, which is not for many years, let's hope, but I want that. And that takes money to be able to do, obviously, to keep the house that you're no longer have kids there, but you're going to keep it running as though you do.

You got to plan for that, especially if you also want to be in Florida half the year or whatever. So that's the way that I'm trying to think about it. And then the inheritance question, which I think we started with, it's like, what can I do today to make my kids' lives easier as they become adults?

And a lot of that is going to be like helping them get a foothold in an apartment in the city so they don't have to live at home for as long, like doing stuff like that. That's so much more important than what am I leaving them in 50 years or 40 years, right?

So I think we're on the same page there. All right, Duncan, next question. Poor cousin Greg, you know, that's what I keep thinking about, that inheritance. Okay, so next up we have a question from Bennett. So maybe our youngest question asker of all time. I think so. So I am 17 years old and have been investing for three years, which is impressive.

I have funneled away money I earn into my portfolio in which I own a wide range of stocks, almost 70 in total. About 10% of the money is in crypto split between Ethereum, Solana, and Polkadot. My question is about how many stocks I should own. As you diversify to preserve wealth and concentrate to create it, I'm wondering how specialized I should be.

I think they mean concentrated. They should be, since they can afford a lot of risk at their age. And then they go on to tell us their top holdings. First of all, applause to Bennett here. This is amazing for a 17-year-old, right? Just asking that question. Yes, and well done.

And yes, when I was 17, I knew nothing about anything. I didn't know the stock market existed. So, kudos to you. One thing I want to say for a 17-year-old is, when you're holding these stocks, that's great. And I think there's studies that have done that said, well, up to 30 or 50 stocks will get you pretty well diversified.

You don't need many more than that. The Dow has 30 stocks in it. But my question is not portfolio-related. It's how much time and effort do you actually want to spend here? Studying these stocks, figuring out the trends. You're young. This is great, because by investing in individual stocks, you're learning.

And I think there's a lot to that, where that's a great way to learn how the stock market works, how businesses work. I just don't want this person to spend every waking hour paying attention to stocks and reading 10 Qs and all these things when they could be doing something else.

So, I just don't want you to go overboard and figure out the balance between tracking a portfolio and just maybe making your life easier. Yeah, I think you can follow five stocks that make up 20% of your portfolio on a quarterly basis. Let's say you're going to listen to five conference calls on the Quarter app, which is what I would recommend to every 17-year-old, quite frankly.

Put that app on your phone. Follow the stocks that you've heard about via conference calls. So, I think that's manageable. So here's the thing. Where it gets unmanageable is if you think you're going to wake up every day and do trades. That's where it gets out of hand because then you win, you lose, you lose track.

Am I even up? What was the point of this? Now I'm going to owe taxes. It gets out of hand when you're being extremely active. But if you pick five companies like that and they're a fifth of your portfolio, maybe the better thing to do is not find another five companies or another 10 companies, but maybe layer in some index funds.

And that way you get the best of both worlds. To Ben's point, you don't learn anything by owning index funds. But the other side of that is index funds will make sure that whatever the next big winning stocks are, that you're allocated toward them because they will bubble up within the S&P.

So put those names back up. Core and Explore, right? Yeah, the Core and the Index Funding Explore elsewhere. Put those names back up. Duncan, can you do that? The question. Yeah, just one second. AMD. All right. Microsoft, Apple, and Nvidia are three of the top seven market caps anyway, I think.

So you're missing Amazon and Google, whatever. No big deal. Hey, this guy, he has CrowdStrike and Nvidia. This is definitely a Josh Brown fan. And AMD. Right. No, this guy. Right. So these are gigantic tech stocks. I don't know if your position six through ten are like natural gas companies or banks or pharmaceuticals, but somehow I doubt it.

So what the index fund would give you is you don't have to try to pick a biotech or a utility stock or whatever. They will give you exposure to that. And it's hard to believe, but there will be extended periods of time where those technology stocks that you're big in are not doing well and other areas of the stock market are.

So Core and Explore, Ben, I think is the right suggestion here. And to your point about performance, this is a good way to track your performance, too, to say, "Here's what my index fund is doing. Is all this time and effort and work really even giving me anything in a performance, or can I just set it and forget it eventually?" And if the answer is yes, it is, and you're crushing the index, then the next thing you want to do is immediately start charging your relatives two and twenty and launching your fund.

All right, dude, you're 17 years old. You're way ahead of all your friends. Keep going. Don't worry about anything. You're doing fine. All right, Duncan, last question. Great job, Bennett. Okay, up next we have a question from Sam. And so Sam asks, "Is there any way of telling" – this is kind of like searching for the Fountain of Youth, but I like this question – "Is there any way of telling when a stock has probably hit its peak, if not for good, for a long, long time?

For example, GE hit an all-time peak back in the year 2000, and since then, it's been a long decline. What are some signs an investor can look for that a stock has probably gotten as high as it's ever going to get?" Let's do a chart on GE here. I want to hear Ben's answer on this.

All right, I got some stuff. I'm backing up. So this is GE. It hit a high of around $480 in 2000. It's now at about $96. We're talking 80% decline in value. Gross. And this is the stock that was – and how many retirees' portfolios that worked at GE, because this is a huge company.

So my way of thinking about this, it's easier to pick losers in the stock market than winners in some ways. So, John, let's do the next chart on. So if you've been following our content for any period of time, you've heard us mention this agony and ecstasy findings from JP Morgan.

I think I first included this in my book, which came out in 2015, maybe, '14, and they've updated it since then. They just updated it through 2020. This shows that the number of companies in the S&P 500 having a catastrophic loss from 1980 to 2020 is 44% of all stocks.

Catastrophic loss. What percent of all stocks? 44%. Two-thirds of the time – 44% of stocks would have – wait. What is a catastrophic loss? That's basically you lose and you're not coming back. Oh, like endgame loss. Okay. So they show you the companies that are removed for distress. They said around two-thirds of the time, every single stock in the Russell 3000, which is the whole stock market, underperforms the actual index.

And only 10% of stocks since 1980 are what they consider mega-winners. So those are the names, Amazon and Apple and Google. So I'm not saying people should go open a short fund to short all these stocks, but it's easier to be part of the losers than it is to be part of the winners.

But they gave the reason. So JP Morgan said, "Well, why does this happen?" And a lot of times they said, "It's not just companies being inept and not understanding what's going on. It's a lot of times it's commodity prices that you have no control over, regulation from government, deregulation, foreign competitors and globalization, maybe intellectual property infringement from other countries, trade policies, and then, of course, technological innovation is the biggest one." So there are reasons beyond just saying, "Oh, the CEO is dumb.

They didn't see it coming." So I would love to hear your answer here because I think this is really hard. I was going to say obsolescence is the big one in my mind. I don't know if that's the reason for most of these, but like when I try to think of examples of companies that never come back, that's the big one to me.

But in the case of GE, it really was management and not in the way that most people think. So a lot of people – obviously, Immelt gets most of the blame, the CEO. He had been there a long time and almost every decision he made was the worst possible decision you could have made.

There's a great book on the fall of GE. I've read a couple of the chapters for researching something. I didn't read the whole book, but it was really good and it gets into not only was Immelt disastrous, making a huge energy acquisition at the top of the oil market and doing all sorts of things that looked bad at the time and turned out even worse, but he inherited a situation where the guy before him was aggressively managing earnings, like using the finance arm of the company – Do you think that they could do that today?

To pull money out of the cookie jar? No way. Like the way that they massaged the earnings numbers, right? They could do that today, right? No. This is pre-Sarbanes-Oxley, pre-Twitter, pre-activist short sellers putting people on blast on social media. I don't think that you could have cookie jarred your way – using GE finance to just anytime you were short a few pennies in earnings, just pull some money out of there and drop it to your bottom line.

I don't think that you could get away with that with the modern SEC and Department of Justice, the tools they have to analyze. So it's a really good question. Now if you're a shareholder in GE, you don't really know what's going on, right? There is no social media. People aren't gossiping about Jack Welch all day on Twitter.

This predates all of that. But GE is definitely a case – and then Immelt steps in and he can't do those magic tricks. So already, he starts disappointing. Here's the crazy thing about GE. I looked at this. They were in the top 10 holdings of the S&P 500 every year from 1980 to 2005.

So betting that they would fall probably seemed like there's no way this is going to happen. Of course this is going to go back. So I think I've posed this question to Michael before. Take the top 10 today. What is the company most at risk potentially of falling out even though we don't know what the reason is going to be?

Is Facebook the easiest one? Well, where is the top 10? How do I get to the top 10 on Y charts? What page do I go to? Type in SPY and go to holdings. Yeah, right. Facebook is the one that would make me the most nervous of that risk to be honest with you.

Whether it's competition with the government? Like that obsolescence risk. Berkshire Hathaway is in there? Is that a Warren Buffett risk where they could somehow fall off the map? Well, the consensus on Berkshire Hathaway for the last 10 years is the day he dies, that stock falls by 40%. I'm going to go the other way.

I think the knee jerk is down 15% and then within six months, they're dismantling the company, spinning things off, creating shareholder value. Bill Ackman comes in, yeah. That stock goes crazy. I think it's possible that Buffett's presence is tamping down on the potential of Berkshire. They have $180 billion in cash.

They have no idea what to do with it. They're in their 90s. They're in their 90s. So I don't think that's the bigger risk in that group. Let me say this. Put back that GE thing for a sec, the chart. We didn't create this with moving averages or any of that shit.

But one good way to keep yourself out of a stock that has the potential to do this is to think about monthly charts and monthly moving averages. So if you were to do a monthly chart of GE and overlay that with a 200-period moving average, in this case it would be a 200-month moving average, if this stock starts to close below that very, very, very long-term monthly moving average and it's in a defined downtrend on that basis, you're definitely not going to be able to get out at the top because it's already falling.

But that might be an indication that something has materially changed in the trend for a stock. So I'm not suggesting that would save you 100% of the potential loss. But if you had sold GE 30% off the top and your rationale is this thing is now in a long-term downtrend and I no longer believe that this is as good of a stock as it used to be, that's not the most rigorous intellectual argument, but it would have saved you a ton of money.

So think about monthly charting just as a way to get a better idea of the more important trend. Anything shorter than that, weekly, daily, hourly, is too noisy. I think there's a lot of signal in a monthly chart for an individual stock. So that would be my one suggestion to try to avoid catastrophe.

It's easier in predicting what's going to happen in the future with technology or some other outside force that's going to cause. But my point is just that you have way better odds of picking a mega-loser than a mega-winner, unfortunately, in the stock market. It's amazing that that's true because we forget about the mega-losers.

Yeah, it's a survivorship bias. Once they disappear, they're no longer readily available to us in our memory banks. Enron stands out and Lehman stands out because of how catastrophic it was. But there have been thousands of companies that have filed for bankruptcy. We just don't care about them anymore.

You're 100% right about that. So there's definitely an availability bias at work against us remembering that. All right. If you in the comments here have an idea, what's the next top 10 S&P 500 company that's going to go down? Leave it in the comments. I'll take a look at them.

That's a great show. Great questions today. This is your show, but can we give a couple of shout-outs to the live stream? I saw some really great stuff while we were talking. Ken Havens, when we were talking about the top five stocks in the kids' portfolio, the challenge is going to be finding the next NVIDIA AMD.

The 20 baggers, these names were 20 years already in the making. That's really a great point. They're not going to do what they've already done unless they're all Tesla. This guy, Peter Georges, the moment I go all in is a pretty good indicator the stock peaked. Let's leave it there.

That's a good one. That's fire. Thanks, Peter. Thanks, Ken, for hanging out with us today. All right, Ben, your show. You wrap it up. Yep. Thank you, Josh. If you have a question, email us at askthecompoundshow@gmail.com. Remember, Duncan and I are checking all those. I'm a big fan of round numbers.

So we want to get to 100,000 subscribers this year. So hit that subscribe button if you haven't yet. We want to get there. idontshop.com. I think you can still order some stuff and get it in time for holidays here. Hell yeah. And we will see you next week. Thank you.

Thanks, everyone.