Market Pivot Point Is Here — How Investors Should Get Ready

For the last few years, the playbook has been pretty simple. Only I winners. But now we're starting to see leadership broaden out. So how is the playbook changing for investors? George Seay is founder and chairman at Annandale Capital and joins us now. George, great to have you back. Thanks so much for being here. Thank you Caroline. Always great to be here. So George, tell us, how is the playbook changing especially for the second half of the year? Dramatically. You know, we're probably going to focus a lot on the space IPO in our commentary for this quarter. And I think that was kind of a juncture point in the market where it was such a huge success on the IPO, and now it's falling below the IPO price because it's it was put out there to 80 times sales. So I think a lot of investors are taking a hard look at space acts and the eye trade, the data center trade and how much they bid up the securities that are dramatically impacted for good in this area and thought, you know what, this has gone too far, too fast, and we've left the right the rest of the market behind for years now, and we need to focus on that again. So it's it's a real pivot point in the market and I'm a big fan. Also Caroline, in seasonality in the market in terms of putting new positions on dollar cost averaging is a great idea for investors where you put more money to work on a regular basis, but you have to look at seasonality. And markets in the past have tended to peak in spring. The old adage sell in May and go away, and then the fall is typically been the weaker time for the markets. So we're in mid-July right now. I think you have to look at kind of a perspective of if you're going to shoot straight, so to speak. Want to get ready? You want to aim and you only want to fire when your conviction level is super high. So right now, it's about time to get ready for the fall and get and then aim sometime in the early fall, and then get ready to put your money to work in the August October timeframe, when a lot of tax law selling is going on and investors are trying to prepare for 2027. Yeah. Okay. So we're going to dig into how we can get ready. But first do you actually look at this is a market that's run too far too fast. And if so what does that mean about where we go from here. Yeah I think it's run really hard, but it's run logically hard because earnings have been so strong. I'm looking more at the time of year. And right now it's typically when the market starts to get a little fearful going into the fall and running out of gas a little bit, even if the fundamentals are still very strong. So I think right now is the time to kind of get your picks ready that you want to look at it adding to either now or in the next several months, and be prepared when the opportunity gets, gets too good to pass it up to swing hard at that point. So as we've been seeing this rotation away from tech, do you think that that actually means that investors should be selling some of their AI winners, or should they just stop adding to them and start putting their money someplace else? Yes. That's that's a great question. I would be putting money in other places, and I've got several places I want to put money. And I also would be monitoring the big leaders because if they do take a big hit, you would want to add at that point, micron has been really battered the last several days, and that will probably continue to some degree in the fall. But the earnings power of that company right now is enormous. I would put it in Nvidia and several other stocks in that category in terms of ones you really need to own in this market, but you want to you want to buy on a weakness, you want to buy when they're really been kicked down significantly. And micron is in a real sell off process and is going to get attractive at some point. But not right now. You would want micron to dip even lower before buying. I'd be patient. I think that a lot of people, a big mistake they make in the markets, they see something they really like and they get a little trigger happy and they don't go ready, aim, fire. They just fire, fire, fire far, far. And they use up all their all their rounds. And by then, the stock is, is falling even further falls in their ten, 20, 25%. You don't need to be in a hurry in this market. It'll it'll give you plenty of time to get in in the next several months. Is a good time to watch and wait until it's just so attractive. You can't wait anymore. Are there any tech stocks that you'd buy right now? Today? Microsoft? No, I'm not just thrilled that I'm not just thrilled by the price, but that's a stock I want to own for the next 5 or 10 years. Is one of the greatest companies in the history of the world, and it's out of favor right now dramatically. Its earnings growth is still super strong, and I would feel very confident putting about half a position in Microsoft on if somebody doesn't own it yet and waiting for the fall to try to get a full position on, but I'd be very confident with that one. Okay, so buying Microsoft it waiting for a better entry point on micron just to kind of wrap up the tech conversation. What else is on your shopping list for? You're waiting for a better entry point, and then we'll get to the broadening theme. I'm very intrigued with software stocks. I always like really risky parts of the market just because it's more fun. I don't do that with more conservative investors, but for myself, I like to look at things that are grossly out of favor that are great franchises. The old cliche and you try to buy great companies, great franchises that have generational capacity to grow and stay strong at fair prices. You're probably not going to ever get a chance to buy them super duper cheap because they're not cigar butt type companies, so to speak. They're great companies. But I'm really looking at software as a sector generally, and I'm not sure I would just pick Salesforce or Oracle or Adobe or any one in particular and say, I'm going to, I'm going to bet the farm on that might buy an ETF that reflects the whole sector so that you spread your bets out appropriately. Okay. So a software ETF, actually sort of in the same vein, though, it used to be kind of Mag seven adjacent stock, but has not been performing like that this year, although the Mag seven has certified to perform the broader market anyway. But it's Netflix and Netflix obviously has been crushed and then in line earnings not enough to reinvigorate investors. Netflix is actually one of your top picks. So tell us why. Yeah, I would say over the next 4 or 5 months, I think it's going to get a lot of tax loss selling this year in September and October. And this is a premier franchise. They own their marketplace. They're the gorilla in the space. And if you bought Netflix, coming out of the 2022 interest rate hike and all that, you made many multiples on your money because it got knocked down to kind of mid-single mid double digit price for earnings multiples. It got really beat up dramatically then it's been really beat up in the last 12 months to it's down around 50%. And you've got a chance to buy a franchise business at a below market multiple. But I would be really patient on this one. I think that they've really disappointed the street and a lot of the momentum players and a lot of the institutional buyers will be selling this thing like crazy to get it off their sheets so they don't have to say they own it. So I think you can be patient with this one, but I think this is the kind of stock you buy, and then you put it away for at least 2 or 3 years and let it perform a great, Okay, officially shifting out of tech and thinking about the rest of the market. Tell us what else you like right now and how you're positioning your portfolio for the second half and for the fall. I really like health care right now. I think it had been kind of thrown out with the bathwater, so to speak, over the last several years and was very, very unpopular. But some of health care already performed dramatically. You've got a lot of the diet drug stocks that have exploded. You've got now Johnson and Johnson is, after sitting there for years, has gone up over 50% in the last 12 to 18 months. So I think those shifts of sale to some degree, I really like HCA down here. It's it's not quite at a at a yearly low. So you prefer to be patient and take your time buying this stock. But it trades well below market multiple. And in a part of the health care space that is really unloved. And it's the best company in that space. So I think it's a really good time to look at that. The first family is running for decades in an extraordinarily capable way. So I look at that and I would look really, really hard at natural gas stocks. They're really out of favor right now because the commodities down again. But the demand for LNG and the demand for domestic dry gas in the US is going to be off the charts the next 2 to 5 years. So I think it's a multi-year play, but you're getting to buy these things really, really cheap. And they've got a long runway ahead of them. There's also been this huge push toward international diversification. What percentage of a portfolio should be U.S. versus international right now? What? That's such a good question. And we think about that all the time. And a lot of investors have just been focused on the U.S. for a decade or longer, because the U.S. has worked better than anywhere else for a decade or longer. But I think right now, if somebody doesn't have international exposure, it's time to go ahead and adopt some. And in our client base, with the people that we represent and work for, we we typically be born that 20 to 35% range of international exposure between international developed and emerging market stocks, at least for now. We've up that considerably in the last year or two because it's lagged for so long. So I would strongly encourage investors to diversify away from the U.S. because we're trading at near all time highs for prices in the US, and who knows when the market disrupts. It may not disrupt for years, but it's just not as attractive from a price standpoint as it's been in the past. So where specifically should we be looking internationally? Oh, I just I think you got to look at Europe because it's cheap. You got to look at Japan because it's cheap. I would, I would be, very cautious on China. I think China, has major demographic issues and major debt issues. They've got a lot of hidden debt at local and local government level and at the real estate level. And it's such an opaque market and it's not an open market. So I would really try to stay away from there. And I would selectively look at Latin America. I think you've got to go country by country because it's such a volatile region. But I think you just need to be very diversified, be around the world and try to put put money into markets that are growing rapidly and where you've got to you've got a good chance at the market being as close to a capitalistic market as you can. So you don't want to be in markets where they can change the rules out from under you in the currency dies, and then you don't do well at all. How do you get exposure to those countries? Do you do it through ETFs or do you look for individual companies within those countries a little? Both. I think for the average investor, it's a much smarter to to look at ETFs and index funds. But the problem with index funds is a lot of them are way too over concentrated in China, for instance. And you don't want to all of a sudden be 40% of your international exposure in China because you picked the wrong index. You got to be really careful about how you deploy your money overseas, but you want a very low price ETF or index fund, which doesn't charge a high percentage fee for years, very cheap from a basis point standpoint, in a fee standpoint, and which gives you broad exposure to the rest of the world. And emerging markets are growing faster than developed markets. So I think you want to at least be close to the same way to develop markets in emerging markets. If you're willing to take on a little extra risk because they're more volatile than developed markets like Europe. Bringing it back here to the US, you said the market is expensive or overpriced, but you're not actually bearish. So explain that to us. So yeah that's that's the real rub. And why the markets are so interesting and they're so difficult for so many investors and have so many really great investors still perform poorly at times because it's just so unpredictable and so challenging and difficult to do just because of markets expensive doesn't mean it's going to crash or go down significantly. If earnings growth continues to be very, very strong, your price to your earnings growth is relatively low and the market remains attractive. If you've got a 24 PE on the market, which we currently have about that, or a little less than that, but your earnings growth is 1,517%. You're not paying that much more for the earnings growth. But then if the earnings growth collapses, the market will probably follow it and fall down. So as long as the earnings growth is strong you need to stay in. And I'm not bearish at all. I would get bearish if this is wrong. Conflict goes on for three, 4 or 5 months more and oil prices go well above $100. $100 will not derail the global economy, but 120, 130, 140 would might push the global economy into recession. It might even puts push the U.S. into recession. And that would that would expand the caution. And that's another reason I want to wait until the fall, three, four months from now, before I'm fully invested in things I want to pick up that I don't already own, because we don't quite know how this Iran scenario is going to play out yet. What if oil stays around $80 a barrel or even 85? Does that make you any less bullish. If oil stays there? I'm very, very happy at that. I think if you look at the fact that in 2008, the last time we had a major explosion in the price of oil, well went to $148 a barrel. And if you factor in inflation from almost 20 years ago till now, ate an equivalent price in the U.S. right now would be about $250 a barrel. So we're a third of that right now. People don't really understand that we, the U.S., really benefits when oil prices are higher rather than lower, because our oil and gas industry has tripled in size. The last 20 years is so much bigger than it was before. So it's really good for the U.S. as long as oil stays in kind of the $75 a barrel to, I'd say 90 to $95 a barrel range, it gets higher and then it gets more problematic. But we're so well positioned for oil. So we want oil to stay somewhat high but not too high. And it's it's just about right. Right now in the 80 to $85 a barrel range that's really attractive for the U.S.. You don't give price targets, but you ultimately think this is a market that will be higher than higher by year end. I'm uncertain about that right now. I used to think that, but it's come so far this year. All right. We've had another strong year after several great years in 2023, 2024 and 2025. And I think the Iran situation is the big walk hard if world prices explode to the upside, I think we probably finished the year, lower its oil prices, stay away from just adding. If they don't, I would say the market is going to be higher. I'd say that's the biggest factor going on, because earnings growth in the US domestically is going to continue to be very strong. But you also talked about seasonality and there could be some nerves heading into the fall. I'm sure there are people out there that are worried about the next market correction. We know the market can't go higher forever. And they're wondering how to protect their profits. What's your best advice for them? I think the best advice long term, because it's so hard to gauge the timing of the market. And a lot of derivatives you can use to protect your portfolio expire in time. So if you can have a ten, 20 or 30 year perspective, the best thing to do is own great companies and just not worry about it at all. But those who are significantly worried about it, there's there's two things you can probably do, which is buy cheap out of the money, put options so that if the market dives significantly, your portfolio is at least partly protected by those. Put options on the broad market indices. Or. And this is a very esoteric strategy which is inappropriate for most investors. But the VIX is almost inversely correlated to the market. So when the market goes down or gets very, very volatile, which it might do this fall, the VIX goes up significantly. So if you go long the VIX with an ETF that reflects that you can offset losses in the market. Because you'll have gains in the VIX widget which measures volatility in the market. That's pretty too extreme involved for most investors okay. So basically the bottom line then for investors who maybe their heads are spinning thinking about that strategy. The bottom line for the everyday retail investor as we think about the back half of the year is what happens. Is just stay the course as long as your allocation is as you would like it to be. Just stay the course and add to things you like and trim things that you're not. Is is happy about. The only hedge to that argument I would make is if investors have a shortened timeline. Let's say they're 83 years old and they're 90% in stocks, or they're an institution that has a huge gift they have to make in 3 or 4 months. I would definitely reduce equity exposure going into the fall and get more to. Actually do it. Oh, sorry to interrupt you. You know, I was thinking we've had quite a few comments recently from our viewers that hear things like take profits or start trimming these stocks, you know, kind of rebalancing. And they're saying, but we're not traders, why would you take the profits? You're supposed to just kind of like, sit and ride it out. Can you just talk to the importance of it's not, you know, trading, but actually rebalancing somebody's portfolio? Yeah, I think that that's not kind of selling out of the market or incurring capital gains taxes. It's just being prudent about how your position, the most important factor in how you perform over time is your asset allocation. And the younger or longer timeframe you have. The younger you are, the longer timeframe you have, the more you should be in equities, because that's going to perform by far the best. I'll give one example. We have a client that bought Microsoft in the early 1990s, and Microsoft is trading at about 383 90 right now. And their cost basis is the dollar in the stock. So why would you ever sell a stock like that. That's a great company that all you're going to do is pay a lot of taxes. So that's a good example. If you hold stocks for a very long time, as long as you pick great companies, you're going to do extremely well in the market. The only differentiation I would put on that is if you're you're close to a life ending event, you're in your 80s or 90s and you don't have much time left, or you have a big, big liquidity need in an institutional portfolio or pension fund. In the near term, you definitely should not all be in the market. You should have a healthy amount of cash and bonds. In addition. You wouldn't be. The biggest is you wouldn't be advocating for rebalancing then because, you know, we talk about, oh, buy this dip or add to here, but that money has to come from somewhere. So if someone isn't sitting in a pile of cash, how do they know when to trim the profits and when to not? You need to have, just very strict data driven measures in terms of rebalancing. And I'm a big fan of rebalancing. If you get way off your, your, your optimal asset allocation, let's say you, you very strongly think you had a, you ought to have 70% of your liquid assets and stocks and 30% bonds and cash, and you're 80% in stocks at the current time. Well, I would definitely in phases, reduce that at least 5% and perhaps as much as 10% to get back to your regular allocation. You don't let the tax tail wag the investment dog, so to speak. You go ahead and pay some taxes on a small amount of money if you get away from your asset allocation. What I don't believe in is massive swings. Let's say you're 9% in the market. You're at your your target allocation is 80 and you get a 50 because you're scared that that's a big mistake. You're going to pay a lot of taxes in your way off your long term optimal allocation. And you have to have the emotional intelligence and fortitude to stick to the plan. And the plan should be over many years. It should not be a result of trading or short term decision making. Okay. All right. I think this is a great time to pivot to our rapid fire game of this or that. You've played with us before. We have quick questions. Quick answer. So you're ready, George. Ready. Always ready. Tech winners take profits or just stop chasing. Stop chasing tech losers buy the dip or wait for better prices. Buy the dip or sell puts. One dip you would buy here. That I would buy micron but not yet. One dip you would buy right here. Netflix space below its IPO price fire avoid avoid. When do you buy it? Oh much lower. I would be very interested in space. Around 50 bucks. Cash or fully invested. Fully invested. U.S. or international. U.S.. Value or growth. Value right now. Large caps or small caps. Small caps. Energy or health care? Energy. Financials or industrials. Financials. Tech or everything else. Everything else. Oil prices higher or lower by year end. Higher. JP Morgan or Goldman Sachs? JP Morgan. Exxon or Chevron. Exxon. Costco or Walmart. Ooh, that's a tough one. Both of the. Costco, Walmart or Target choose one. Costco. Yeah. Visa or Mastercard. Oh gosh. Visa. One stock you wish you bought a year from now? Nvidia one sector you'd overweight today. Energy one sector you'd underweight today. Utilities. Biggest risk investors are annoying not annoying. Biggest risk investors are ignoring oil prices. One word to describe how you're feeling about the market for the rest of this year. These are edgy. George Seay founder and chairman, Annandale Capital. Always a pleasure to have you. Thanks so much. Thank you Caroline. It was great fun. If you enjoyed this interview, check out our street talk with Dan Ives on why. Despite the global chip selloff, he's still bullish on tech.