Phil DeMuth - “Nothing in My Global Outlook is Telling Me It's Time to Pull Up the Anchor and Set Sail" | #76

In Episode 76, we welcome Phil DeMuth. We start with Phil’s background. It’s a fun recap, involving Phil’s clinical psychology roots, his move to LA to be a screenwriter, his experiences in the Dot Com boom with friend, Ben Stein, which led to the writing of his first investment book, which eventually resulted in his managing money. Meb dives into investing, asking for an overview of the framework Phil uses with clients. Phil seeks to construct a portfolio that matches each individual’s situation, so it’s largely bespoke. That said, in general, he starts with a global market portfolio, then adds various factors – for example small value, or momentum, or low beta… Then he’ll add bonds, some alternatives, gold, and so on – again, all relative to the individual’s needs and goals. This leads into a great conversation on the idea of a person’s “personal beta.” This dovetails into the concept of a person’s human capital. Meb believes that adjusting a portfolio to reflect a person’s human capital is something advisors do well, giving them an advantage over robos. Phil thinks there are ways the robos can catch up here. Next up, the guys discuss the various types of investing clients – doctors, engineers, celebrities, and so on – and whether any specific type is better or worse suited for investing. Meb’s opinion is that many doctors and engineers can be challenging clients because they’re brilliant and love to tinker. They can also have some hubris – an element of “I can do better than buy-and-hold”. Phil agrees that doctors and engineers should be excellent investors. They’re so smart that they can do it all; yet in practice, they tend to stumble. This leads the guys to the takeaway that, in investing, there’s not a linear correlation between time/effort and returns. Phil notes the correlation could even be negative! Meb transitions to Phil’s newest book, which is one of Meb’s favorites: The Overtaxed Investor: Slash Your Tax Bill & Be A Tax Alpha Dog. The guys discuss how implementing effective tax strategies in investing is one of the biggest, yet underused, sources of alpha around. Phil notes that any savings in this area goes straight to the bottom line. Meb asks for specific tax strategies. You’ll want to listen to this section, which dives into some of the details of parking the right kind of assets into the right kind of accounts. This dovetails into an idea Meb loves: (and the topic of a soon-to-be-released whited paper) avoiding dividends. Phil tells us he hated the taxes he was paying on dividends and capital gains, so he got rid of everything issuing him dividends and distributions, and instead, sought quality investments that wouldn’t pay a dividend. He goes on to say how dividends are great for retirees who are intentionally spending the money, but if you’re earlier in your working career, and the government is taking 30% of your income via taxes, that’s not good at all! So, Phil wondered how he could get the dividend benefit, without the dividend. It was this idea that led Meb to do his own research on the topic (the subject of the forthcoming white paper). So Meb thanks Phil for the inspiration, then takes the handoff and discusses what he found through his own research. If you’re a dividend investor, you won’t want to miss Meb’s conclusion. There’s way more in this great episode: additional tax tips… ETNs… tax loss harvesting… donating stocks with huge capital gains to charities rather than donating cash… wills… how Meb wants a Viking funeral (yes, you read that right)… Meb’s unexpected bill from the IRS… And of course, Phil’s most memorable trade – it involves an investment that turned out to be somewhat less liquid than Phil had anticipated. What are the details? Find out in Episode 76.