Rebecca Hotsko (04:45):

Eddie, thanks so much for taking the time to join us today, all the way from the UK. I’d like to kick things off today by talking a bit about your background and how you became a director at the age of only 26.

Eddie Donmez (04:59):

It’s definitely a windy one, I would say. I think if we start all the way at the beginning, I’ve always had a passion for teaching I would say. My mom always told me you would’ve been a good teacher, but I definitely didn’t pursue that path for I think pretty obvious reasons. I think I was really focused on sport I would say. When I was younger I was keen swimmer, keen basketball player. I think that did quite cliche give me a lot of good skills that would prepare me for my later years, just in terms of the communication and determination and things like that. And during school I really loved economics, really enjoyed the analytical elements of it, looking at different countries and economies and assessing the impacts of certain policies.

It all made real crystal clear sense to me. I think the one thing it lacked was financial market. When I went on to university, I studied economics given my love for it. But I think I came away extremely frustrated as many people do, with academia, and the way it was taught mainly. I just felt that there was a real lack of real world practical application embedded in the theory. What was happening on the news and with markets was completely different to what was being taught during my degree. I knew how to derive a Lagrangian function and an optimization function, but I didn’t know how an OPEC conference would move the price of oil. I didn’t know where the S&P 500 was trading at.

It didn’t, became a little bit disillusioned with that whole academic process and the way it was being delivered. I was getting less and less interested as the years went on. And it basically, if you studied economics, it’s basically a glorified math degree. I didn’t know how to read income statement. I didn’t know what banking was. I didn’t know really anything that would help me in that interview process when I was trying to break into investment banking or asset management. You study economics I think because it sounds good and people say this is a great degree to study and people get good jobs after it. But the reality is you have to do a lot of work on the side, and unless you get that guidance, it can be quite difficult.

I have to say I didn’t have a dream of working in finance, but I did take a few derivatives classes and corporate finance modules. I knew that this was much more interesting than the economic side of it for me, because it was real. Looking at real world income statements and balance sheets and cash flows, you could really see, okay, this is Walmart’s earnings, this is Nike’s earnings, this is Apples earnings, and it just became a lot more real for me. Overall I think I did have a bit of a bad taste coming out of academia and I knew something had to change. And that’s really what led me to transition into financial education technology and now Finimize.

Clay Finck (07:50):

You mentioned you’ve recently transitioned to a role of Finimize, you’re a lead content creator in global markets analyst for them. Talk about what led to that transition and maybe what the day-to-day looks like now.

Eddie Donmez (08:05):

When I was with the financial education technology company, I really found my passion was writing and writing in public. Originally started with me posting my market commentary and analysis on LinkedIn, which is untraditional social media I would say if you compare it to thin to it or something like that. But what I found with LinkedIn is you’ve got exactly who you want to be writing to. You’ve got lots of people that are in the financial market space, lots of portfolio managers and analysts and people, and you can see directly who they are, right? And who the decision makers are in the firm.

And after a few weeks and months of posting on social media, I started to get a bit of traction. I used to get portfolio managers and analysts messaged me saying, hey, I love your work on this, or I love your analysis on that. Can you tell me a little bit more about this? It really gave me a bit of confidence. I would say I’ve been pretty infrequent over the years, but really took it seriously at the start of this year, around Christmas time, starting to post more, frequently and get my market commentary out and share really useful resources if it’s investment research, interview guides and things like that. Anything to add value to my audience.

The more I started posting valuable stuff, the more messages and nice messages I got, and it really gave me confidence in you really have a talent for this, so you should keep doing more and more of it. My transition into Finimize, they saw that I was very good at talking to millennials and gen Z and writing about financial markets in an accessible way. I think when now I work at Finimize, the synergies are very, very clear. Finimize really tries to be the number one information platform for modern investors. So not students, but retail investors, really over the age of 25 all the way to 45. They have got an audience of about a million users, which allowed me to get my research out to more and more people, which was super important.

But it’s really about empowering the modern investor. A modern investor is not really a term that you hear too much, it’s more of a new phrase and a new terminology for retail investor. The way we classify modern investors really, Finimizes time poor, right? You have 20 minutes on the train or the bus to read some research, chances are you’re invested, so you probably have a great job. You have money, surplus income coming in. You don’t have time to sit your Bloomberg terminal for six hours a day because you have a job in banking or consulting or whatever it is, but you want to stay in tune with the markets and really consume institutional grade research.

We have a great team of in-house analysts, super talented, all of X Goldman Sachs and portfolio managers. We, along with me produce multiple research pieces every day that’s of institutional gray quality, but in a bite size way. There’s a common misconception I think, that quality research means volume, right? The more research there is, there’s lots of pages, the higher quality it is. But actually quality and premium is actually bite size, right? And that’s where the synergies between myself and Finimize really work quite nicely, is when I post on LinkedIn, I try and make it as short as possible to get my point across. Because I’m sure you guys have realized that the smartest people tend to get their opinions across in the fewest number of words.

People don’t want lots of words and lots of time to consume this information, they want, tell me what your point is, give me the stats and then I’ll draw my own recommendation from it. So more research and more words doesn’t mean it’s better. And that ties quite nicely into education, right? You’re condition socially to go, okay, you need to write in a thousand word essay or a 5,000 word dissertation, when really in the real world you’ve got two seconds to get your point across otherwise it’s like, okay, I’m moving on. Particularly with the more senior members of your team or your company. So bite size research is what we do at Finimize. And what we really understand is our community. The way people consume their research and make investment decisions is not through the traditional methods of Bloomberg institutional research, FT all the time.

Actually what we find from our community is they will discuss with their community before taking an investment decision. They want to hear it from top analyst, but in a bite size way. Okay? There’s a change I would say with gen Z and millennial investors and modern investors in the way they consume content and then make investment decisions. They’re consuming their content through podcasts, YouTube TikTok, all the trends that we see, not necessarily through the traditional institutional grade research avenues.

Rebecca Hotsko (13:21):

It’s interesting, because that’s actually how I found you, was on LinkedIn. I kept seeing your post being shared by others. And so ever since then, I’ve been reading your content on LinkedIn and I always find it super insightful. And like you said, just very concise and to the point. That’s where I get a lot of my morning news from. And so you’ve been able to create quite a large following for yourself on LinkedIn, as well as get recruited by a very large financial firm in the UK as you mentioned. I’m wondering if you have any tips you could share for anyone who’s maybe wanting to jump into this space and grow their own following.

Eddie Donmez (13:58):

Absolutely. Of course it depends on which channel that you want to go ahead and start creating content on. Really find which platform works for you and then get really good at it. Start writing and trying different avenues of content and the way you frame things and different graphics and different ways of communicating. But I have a framework that I use that perhaps some of your audience will draw some inspiration from. It might not work for other people, but it works for me. I’ve got three points that I tend to live by. So be first, I think my strategy I would say on LinkedIn is almost a bit of an arbitrage strategy, to put it into the financial concept. Obviously Twitter and other platforms are much more second by second. Whereas LinkedIn traditionally has been quite slower company announcement.

I’m delighted to be joining X company, when really there’s no reason why the news on LinkedIn can’t be instantaneous. I try to be first on the breaking news stories because seconds make the difference. I always try and stay fluid and flexible in the sense of I don’t try to pretend to be an expert on everything because that’s impossible, not even the top portfolio manager can be an expert in everything. But once you find a really interesting story or an interesting company or anything you want to do some analysis on, you can do some research and come up with your own analysis and recommendation at the end of it.

It’s all about staying fluid and flexible because the beautiful thing about financial markets is, something that’s driving financial markets yesterday or the month before that, or the year before that is gone. And every day there’s a new story. In today’s news it’s UK inflation, printing a double digit percentage, much higher than expected. And that sent two year yields flying and city strategists upgrading their forecast for next year to 15%. That’s completely different to the market narrative that was yesterday. There’s always new breaking stories that are happening. You don’t need to be an expert on all of them. You just need to know enough to take that data point and actually put your own spin and take on it through your own experience.

Another thing that I like to employ is being emotive, right? Inflation’s boring, economic data points are generally quite boring, if it’s housing stats or sales or GDP. What I try and do is relate it to the modern investor, the average person, because at the end of the day, that’s who my audience are and that’s who the majority of people are. They don’t really know what a negative print on GDP or a recession really means for them. So you need to show them. It has to create an emotional response that makes it relatable to them. So yes, inflation may be boring, right? It comes out. You hear that it’s high, but your bills going up. And the fact that maybe we’re going to freeze in Europe because Russian gas supplies are going to stop flowing to the continent.

That then becomes about the average person, because everyone has bills, everyone is actually then vulnerable to inflation, but the traditional financial media of GDP or an inflation print coming out is not that attainable and approachable for the average person. And then the other key point for me is, be consistent. Okay? Don’t just put nonsense out just because you haven’t had a post today, be consistent with reliable quality, and over time that builds up a lot of trust I would say between your audience. What is very common for content creators and like myself, I’ve done this, is go, I’m going to put a bit of content out. It doesn’t get a good reaction, it gets zero likes or zero interactions, no one really cares about it. And then you stop. And then you don’t post for six months.

And then you come back to it and go, I haven’t posted on Twitter in a few months, this time will be different. And then I post again and you don’t get any interactions. And then you give it another three months and then you do it again. And that lack of consistency or inconsistency doesn’t allow your audience, if you have the sufficient quality to communicate your views for them to actually build trust with you over time. So now as you probably mentioned, I’m known for putting out very timely breaking news, financial analysis, frequently on a daily basis. But if I only put out one every year, then it’s going to be difficult for people to associate me with that. It’s about building really an audience that trusts you to deliver quality analysis frequently.

Clay Finck (18:44):

I’m really glad you mentioned the consistency piece. I definitely think that is something that’s just so important when it comes to creating content. For me, myself, I was just a huge fan of The Investor’s Podcast Network for many years, and press and stake I knew I could rely on them to produce those quality episodes every single week. And they would literally never miss a week. I knew, like you mentioned, it builds that trust between you and the audience. I wanted to ask you specifically about getting into the world of finance. I recently interviewed Eliana Goldstein on our show that was MI205, Millennial Investing episode 205.

My conversation with her really had me reflecting on my own career path. I was working in insurance, so not technically in finance, but is somewhat related in a way. I think a lot of people, when they go down a career path, they almost feel like stuck. Whether it’s the time they’ve invested in that specific career or all the money they’ve invested through college. For someone that’s younger or maybe someone that is looking to switch careers and get into finance, are there any tips you have for someone that wants to do that?

Eddie Donmez (19:52):

I would say that there’s quite a large difference between entry level finance as you correctly mentioned breaking in that way, versus someone who’s been in a traditional insurance role or a financial role, or maybe working within a bank in the back office or anything like that. I think as you get older and more into your career, it becomes a bit more difficult to transition, right? If you think about the decision maker’s perspective, as in my previous company, I used to work a huge amount with the recruitment teams at bulge bracket investment banks and hedge funds. And of course they’re always going to be looking at fresh grads out of college that have a mind that can be shaped, right? And in their early career don’t have any biases or prior experiences. When you transition in your career, it becomes harder. That’s just the reality of it. But it’s never impossible.

I’ve come across so many examples in my previous job and in my current job now, even in the early days, where people are transitioning from different roles within finance to investment banking and hedge funds and more where they let’s say want to be. But I think what becomes of an increasing importance in that capacity is networking and putting yourself out there to be visible. That ties quite nicely into posting and writing online. So you guys are content creators as well, you put yourself out there on a weekly basis, it’s criticism and comments and things like that. I think you need to leave that behind when you write in public or you do TikToks, or you do YouTube videos, it’s quite a vulnerable position to put yourself in.

But one thing it does give you is the ability to be noticed outside of your network. And if you are a consistent creator or a writer of blogs, let’s say on the traditional investing blog websites, or you go on podcasts and things like that, it allows people to see your skills and the way you come across in a much easier way I would say, than the traditional application process. Because it’s really hard to communicate how good you are or your skills when you submit a CV. I’d say any advice for people that are a few years into their career and looking to break into an investment bank or a hedge fund, is it’s never impossible. Never give up. There’s always a chance that you can do that, but you need to have a game plan. Okay?

Where do I want to work? What do I want to do? What are the prerequisites for someone that wants to work in quantitative finance or algo trading or investment banking? Is there any mid career programs that are available if it’s like a vet program, for example, that would allow me as a seasoned worker to transition into the bank. And then start writing and putting yourself out there in public, so you can showcase your skills. If you have the sufficient quality people will notice, particularly on LinkedIn I see people that don’t come from traditional investment banking pathways, just like I didn’t.

I worked for S&P, the world’s largest credit rating agency, but I didn’t work for an investment bank. I didn’t work as an investment analyst, yet portfolio managers and people like that comment on my analytical skills. It just shows you that if you’ve got this skills and you do the work, then you’re able to achieve anything, but you need to have a game plan going into it.

Rebecca Hotsko (23:31):

I can definitely relate to the struggles of trying to switch careers into finance from an unrelated field. I had a complete econ background starting out and didn’t have any formal finance education until I started doing my CFA, but I always knew I wanted to get into private equity or investment banking, but it was just extremely hard. I felt like what you mentioned, it was hard to transition when I had already started a career in a different field. And I also found it hard to find the practical training that would not only help me get the job, but succeed in the job if I got it.

Given your experience at your previous job where you provided financial market training to students, as well as at hedge funds, large asset managers and financial institutions, I’m curious to know what you think are the most useful designations and educations that can help young professionals not only get these jobs, but really succeed in them when they get them.

Eddie Donmez (24:30):

I think my big mantra I would say is the best way of learning is to learn by doing it. Right? There’s no substitute for that. You can get the smartest people from Harvard, Stanford, Oxford, Cambridge, studying economics and management, and if you set them down or in front of a trading screen, or you put them in an investment banking job, they’re not guaranteed to succeed. I think that the recruitment process is changing and it will continue to evolve, but there’s no substitute for practical experience. So let me put it this way, if you’re looking for a trading job or a portfolio management job, or as an investment analyst on the buy side, there’s no substitute for going, taking a company, valuing it, running your discounted cash flow and LBO analysis, your comps, whatever it is, putting together an investment thesis and a report, and then taking that to an interview.

When they ask you pitch me a stock or pitch me multiple stocks, or what do you think about Amazon or Apple? You’ve not only just got a basic high level understanding of, oh yeah, Amazon’s pretty good because it delivers parcels and also has Amazon Web Services that I think generate decent margins. You actually have a full investment thesis, the story behind the stock, different valuation methodologies. And if you take that and have a decent analysis, then that’s always going to stand up to a VP or an MD who’s interviewing you to say, okay, this guy or this girl’s actually done the work, because it’s so obvious for the people that have done the work and those who haven’t.

I’d say there’s no substitute for practical application. If you want to go for a trading role, open a trading account, start trading, start investing, reflect on your trades, your psychology, why you made this decision at what valuation was it a correct entry or exit, and start reflecting that way. If you want to go into investment banking, start putting together your own pitchbooks and valuations of different companies and real world experiences. I would say that having done CFA and professional qualifications, it’s quite tempting I would say, to keep piling on academic qualifications to try and be more attractive in the job market.

I think the worst thing about today is that 30 years ago, if you went up to a bank, maybe didn’t even go to college, you could probably get a job if you could talk the talk, nowadays unfortunately the job market, particularly in that entry space is so saturated with master students, PhD students, those with even experience are all fighting for those really lucrative jobs. There’s always a temptation to go, I’m going to make myself more attractive and pay $50,000 for a new master’s program from a no name university. I would bet against that because that does put you, I guess, a bit more educated. But I’d much rather if I was interviewing someone and I have run many interviews, much rather see someone that’s actually gone and valued a company or got some work experience, even unpaid.

Because there’s no substitute for that practical experience, I would say. So things like CFA and IMC and all those other qualifications are great because it shows that, one, you’ve worked really, really hard. When I did CFA level one, when I was working at S&P, I wouldn’t necessarily say it was the hardest thing I’ve ever done, but it definitely, definitely required the most amount of hours to be put in. It’s an inch deep in a mile wide, you need to know a little bit about everything. I think having been through that experience, whenever I would interview someone who had that experience, I know the blood, sweat, and tears that they’ve put into that qualification.

So to me, regardless of if they’ve passed it or not, they’ve shown resilience to actually go through that, particularly if they’re juggling other commitments, I would say. If I’ve got two candidates that are exactly the same academically and in front of me they’re speaking the same language financially speaking, and one has a CFA, of course, I’m going to go for that individual. It does carry some weight, and it also means that when I hire this person, I don’t have to babysit them as much as I would have, because they do have a decent level of knowledge having passed something like CFA. In summary, I would say that it’s great if you’ve got the time, but there’s no substitute for work experience and actually learning by doing and getting those experiences.

Because when you get into that interview, even if you’ve done CFA level one, doesn’t teach you how to pitch a stock, so you better know and rehearse that stock pitch or any other interview technicals to really resonate with the VP or MD that’s interviewing you.

Rebecca Hotsko (29:40):

Switching gears a bit here, I want to talk to you about some of your views on what’s happening in the global financial markets. You post a lot of macro content and share insights into the latest economic news on your LinkedIn. And I’m just wondering, do you generally follow a more macro based investment strategy or how would you describe your investment strategy?

Eddie Donmez (30:04):

I think my investment strategy definitely has a macro bias. I always take the view of, you can build the best financial model, a 100 tabs with the utmost precision, but if you don’t take into account the macro, the political, the geopolitical, then you’re dead. Right? If you look at let’s just take China as an example, some of those Chinese tech stocks like Alibaba for example, are absolute money machines, great fundamentals. And many investors have invested in these types of stocks because of these super strong fundamentals. But if you ignore the macro, the geopolitical and let’s say Xi Jinping clamping down on tech stocks, then you can be almost wiped out with Alibaba down 50%, right? Just because you didn’t pay attention to the macro and the politics behind it.

I would say that, of course I focus on key macro indicators, which of course at the moment has been inflation and hawkish central banks. So CPI obviously slowing, decelerating month or month, which has led to this equity market rally, the interest rate policies from the Fed, central bank speakers they’re of the utmost importance at the moment. But again, this type of thing gyrates in the sense of what is of the utmost importance to financial markets. I’m always watching all the macro indicators, but if I want to invest in a single stock, I would say that I do have a bottom up approach where I do value the company and run my own analysis. But you always have to give a weight I think to the macro environment,

Clay Finck (31:50):

You mentioned inflation and where inflation’s been trending recently. Is there any other data or macro indicators that you’re looking at to help in your analysis?

Eddie Donmez (32:02):

Inflation at the moment is going to be of the utmost importance. It seems like it’s decelerating in the US. In UK we just had a double digit inflation print in the Euro zone. It’s extremely hot again. Inflation’s going to dominate the narrative for the foreseeable future. But one thing that I’m watching at the moment is the macro data, of course. So things like housing, consumer credit, the strength of the consumer, are all becoming extremely important when we think about how the inflation picture and the recessionary fears are shifting the central bank’s reaction function. At the moment I would say that financial conditions have eased and really were stuck in the sense of a market narrative between inflation and recessionary fears.

I’m really paying close attention to housing, which is usually the first indicator of a slowdown. I’m really focusing on consumer spending, which apparently is quite strong at the moment. But when I look at consumer credit card data and data points like that, it seems like the consumer is leveraging up to basically fight off the cost of living increases with credit rather than actually being a healthy, strong consumer. I’m really watching consumer sentiment, consumer spending and the manufacturing picture as well, which is going to come under a huge amount of pressure given the margin erosion where we’re likely to see over the coming months.

Rebecca Hotsko (33:34):

Some investors who follow more of a bottom up approach may not be looking at all of these economic and macro data points as much as those that use a top down strategy. However, regardless of investment approach, I still think it’s important for investors to understand the relationship between economic data and stock prices. I guess because economic data is backwards looking and is often released with significant time legs, while the stock market is a forward pricing machine. Why should investors care about what happens in economic data, given that it is backwards looking?

Eddie Donmez (34:13):

I think the perfect analogy for this is looking ahead now, Q4 earnings for the S&P 500 and US equities, for example. With the inflation picture decelerating, I would say, but likely to remain sticky and high. The most important stat I think at the moment is inflation 8.5%. If it slows to not percent, month or month until the end of the year, inflation’s still going to be at 6.3%. And we’re seeing the very sticky components of food, for example, and some other elements like shelter really actually accelerating and remaining high. This has a big impact on earnings, right? I think the markets breathed a sense of relief when we went through Q2 earning season, because I think people were planning and analysts were planning for the worst, lots of fears about this is going to be terrible and it wasn’t amazing, but it wasn’t terrible.

I think that’s really what saw equity investors through that period. With that being said, looking out into Q3 and Q4 earnings, there’s likely to be a lot of earnings deterioration in my opinion, amid this rotation in consumer spending. We’ve obviously got the Federal Reserve, will they pivot? Will they not? In my opinion, they won’t, and they’re going to have to tame inflation despite it decelerating. Because employment, for example, or unemployment is low employment is very, very strong and the labor market’s strong. I think there’s no reason for the Federal Reserve as an example to take the foot off the gas, inflation is still 6.5% above their target. So they need to get that down closer to that 2% mark, which is going to prove a challenge.

And all these inflation re pressures, just talking about inflation, do feed through to the bottom line of companies. When you’re looking at energy costs, materials, manufacturing, all of these components show up in the cost line item, right? Inflation shows up in that cost line item and erodes margins. When we see companies report their earnings in the subsequent quarters, I think we’re going to see a lot of margin pressure. And then looking at where evaluations are trading at the moment around 19 times earnings for the S&P 500. That’s not cheap, right? According to historical standards, despite the draw down we’ve seen this year. So earning then start to matter, and then the valuations start to matter.

And then that’s why investors should be looking at the macro picture and how that interacts with company fundamentals, because they’re all interlinked and you have to stay wary of where there’s going to be some pressures. Because as we’ve seen with some big, big misses this year on earnings, just even looking at, let’s say your Netflixes and things like that, inflation impacting the number of subscriptions people want. If you look at the Walmarts and the Targets, the fact that the pupil’s consumption patterns have changed since COVID, they’ve ordered the wrong stuff, inventory is bloated, they now have to discount these infantry stockpiles that puts further pressure on earnings.

They report lower earnings and then they drop 30% when their earnings come out. That’s why it’s really, really important to be watching all of these indicators if you can, even if you’re a fundamental bottom up analyst.

Clay Finck (37:56):

A lot of investors might be listening to this and seeing all the inflation headlines and get spooked and maybe sit on the sidelines, maybe sell their positions, which could be a big mistake for some, just depends how things end up playing out. Are there any common mistakes you’re seeing when it comes to the economic data, whether it’s inflation or any of the other headlines we’re seeing, what are some of the common mistakes you see with investors?

Eddie Donmez (38:25):

At the moment I think retail and the modern investor is still very keen to buy the dip. I think when we saw that big draw down, you would’ve thought that if these new investors coming into the market, they’ve only seen good times over since the COVID crash, and then the subsequent rally and then 2021 was a fantastic year for investors, that they would be a bit disheartened by a 20, 30% drawdown that they’ve never seen before. But actually the mindset and the sentiment was completely different. It was, when can I buy the dip? When can I buy the dip? When can I buy the dip? And now the dips come, people have bought the dip. And I think now times are good again.

There’s a lot of risks out there currently. And I don’t want to sound like a permabear, but there’s so many risks that investors should be watching right now that really is quite dangerous for short term traders. As we know over the longer term. And depending on your time, horizon stocks will most likely continue to go up if you zoom out. One of the biggest mistakes if you’re a longer term buy and hold investor is not buying any dips, I would say, but if you’re a shorter term trader, now looking at this equity market rally, to be honest, is being driven by lower real yields and a misinterpreted federal reserve and potentially a misleading inflation data point in the sense of one data point, doesn’t make a trend and we’re yet to see the other data points flow through.

Now you are betting your house that times are good again, inflation’s going to come down, we’re going to get a soft landing, life’s good. Not taking into account the worsening economic picture, because what we’ve seen very recently is economic data slowing down. And I’m talking about some of the indicators that I were referred to before, looking at manufacturing and housing, and these higher rates are playing havoc with things like mortgage payments and housing demand and housing stats when you’re looking at construction and the higher price of things preventing house builders from building houses.

And then you saw the data out of China, this week I believe, that basically zero COVID, weakening demand. Obviously the China Taiwan situation, the real estate crash that’s going on, and with house sales down about 30%. Then you’ve got Europe with extremely high energy prices that’s playing havoc with small businesses, large businesses, rivers that are running dry, energy prices are up 400, 500%. There’s a lot of risks out there on the horizon. So going in blindly and saying, look, markets are up, we’re going to get a soft landing, and a Fed pivot is probably not the right strategy.

I would say that in my years of being in the market, this is probably the most confusing market I’ve ever been in, in the sense of so many conflicting views from top strategists that are on completely other ends of spectrum. So making an investment decision at the moment is quite difficult because depending on whoever you listen to, they’re saying something completely different. I would say if you’re a longer term investor, dips are there to be bought that dips now been erased with the S&P up 17% of the bottom, but now not taking into account some of the economic data points at the moment would be a mistake in my opinion.

Rebecca Hotsko (42:01):

We are in a strange place right now where bad economic data is actually positive for the market, such as if a country’s growth outlook declines, because then the market is viewing that as a positive in the context of the Fed might stop raising rates as much. Can you explain to our listeners what type of economic data would be positive for the market going forward? Because you mentioned that these are just one data point, and then you’re not really convinced that things are going to get better. So in your view, what would be positive data?

Eddie Donmez (42:37):

I would say that it’s all about inflation and that deceleration. I would say that if we see flat 0% month on month inflation for the remaining month of the year and into 2023 or even negative inflation prints, that’s going to be a really positive sign for investors. I would say that it really depends on which geographical region that you’re looking at. So with the US, it’s definitely that decelerating inflation print. With Europe and the UK, you really want to watch the health of consumers, credit spreads of companies, more specific data points like that.

Clay Finck (43:19):

You mentioned the UK specifically, and you’re looking at some of the data in the UK, but you’re also mindful that the US and the Federal Reserve in the US is going to have a huge impact on the global macro markets. How does the UK fit into your investment approach as someone who resides in the UK yourself?

Eddie Donmez (43:39):

I think it’s always important to realize that the Federal Reserve as a central bank, more often than not leads all other central banks all over the world. It’s absolutely essential to watch them because they tend, the ECB and the BOE, the Bank of England tend to follow their path with somewhat of a lag. It’s been really important to watch how Jerome Powell and the Federal Reserve have dealt with the inflation situation. Arguably they’ve done a much better job than the Bank of England and the European Central Bank, going somewhat late. It’s very apparent that they were behind the curve, but they haven’t been as much behind the curve as the ECB and the Bank of England who have only just started raising rates. Now they’ve got a real mess on their hands where they’ve got a much greater deteriorating economic climate with now accelerating inflation.

Whereas in the US, it’s a different story where, yes, we’re getting weakness in the economy, but unemployment is still low. The labor market’s still tight, but inflation now appears to be decelerating. That’s the key difference between the two central banks. When I look at the Bank of England, for example, now they’ve got a real mess on their hands where they’re going to have to hike aggressively into a slowing economy heading into the winter where we’re going to get energy bills going from 1,900 pounds to 5,000 pounds. And you hear anecdotal stories of those in Europe, small businesses and things like that, that are seeing their energy prices 10X. Okay. That’s going to be a real mess for both the government and the central banks of the UK and Europe to really deal with at the moment.

Rebecca Hotsko (45:28):

For us investors who are trying to still earn a return over the next few years, even though there’s a bleak investment environment right now, I’m wondering if there are any markets that you are bullish on right now and if you could speak to some of the major themes you’re watching in those.

Eddie Donmez (45:49):

Despite the recent pullback I would say that the commodity story is very attractive longer term. I think now provides a decent opportunity to get back involved in that space, given the demand, supply dynamics. The other contrast to that is that now as we head into 2023, we are going to get more and more headlines and data points that point to a recession and a global slowdown, right? Even if you’re looking at China slowing down, Europe and the UK definitely heading into a recession. It’s obviously somewhat undecided whether the US is heading into a recession now or if it’s tubing termed as a recession. I would say geographically speaking, I prefer the US over Europe and China and the UK as an example.

I do have a bias towards the US that I think we are getting some weakening economic data points, but with inflation decelerating, I feel that the US is best placed relatively speaking. I would have a bias towards defensive plays. So heading into this slowing economic environment, healthcare, consumer staples, energy, despite the recent pullback in commodities and energy markets, I think the market there is going to be driven by supply dynamics, which I don’t think have actually worked themselves out too much. I think the longer term commodity story is definitely there. You always want to look at, particularly over the last couple of years, which asset classes and which sectors let’s say, do well in inflationary environment. And that tends to be real assets. Equities depending on the sector can provide somewhat of a hedge.

However, equities on average citing a man group research paper, generally do not perform well in high inflation environments. In the US we now have potentially a decelerating US inflation picture. I still want to be involved in those that have inflation protection, I would say, or at work as a little bit of a hedge, because it depends on how fast this inflation comes down I would say, and where it settles to. The big risk to financial markets is that it either doesn’t come down as fast as possible, or it remains extremely sticky into 2023. That would be a disaster scenario for the economy and equity markets. I’m underweight, I would say stocks, but have a defensive tilt to healthcare, consumer staples. Off the June bottom we’ve seen consumer discretionary technology stocks really outperform growth, outperform value.

I don’t think that trend is going to last, particularly with let’s say weakening economic data picture flowing through to consumer spending. I think we’re going to see a pull back again in discretionary spending. I still want to be involved in the equity markets, but I’m picking my battles quite carefully and keeping extremely vigilant of the risks on the horizon. Some even red herrings like China, Taiwan potentially could exacerbate geopolitical tensions at any point. So watching that story, that of course could flow through into semiconductors, which could then flow through into some of the tech names like Apple and Samsung as an example.

There’s a lot of risks out there. I’m staying vigilant and looking at those real quality companies that have low interest payments, high interest coverage ratios, good earnings, a good track record of earnings. And I think the market’s really going to value those with high earnings going into Q3 and Q4.

Clay Finck (49:46):

Since you’re based in the UK, I had a question for you, more for the buy and hold type investor. On the one hand a lot of people have home country bias in that they’ll only invest in the country that they’re in. But on the other hand you’ve mentioned that inflation has been really hot in the UK, higher inflation in the UK than in the US. And the US in particular has been one of the top performing markets for the past many years. Part of that’s just due to being a global superpower and having the federal reserve on their side and being the global reserve currency. How should international investors think about having a buy and hold approach, should they put some portion of their money in the US or a lot of it in the US, or should they stick to their home country? Because some of our listeners are located outside the US, so I’m curious what your take is on this.

Eddie Donmez (50:40):

I would say talking about different time horizons, I would say I’ve mentioned that I’m relatively biased towards the US given where we are economically. I would say that there’s some attractive opportunities in emerging markets, but with a stronger dollar that we’ve seen this year, that’s been a terrible pick, but there will be some opportunities if the dollar, for example rolls over. When you’re an international investor, of course investing in the US, you also need to take into account the FX effects of your purchase. So pound to a Euro, to a dollar with the dollar at all time highs, you need to make that adjustment on your return.

There’s a few things to consider, I would say investing globally as well, given what we’ve seen with Russia, Ukraine now, China, Taiwan, there’s a lot of uncertainty globally, especially with China, let’s say Europe slowing down in the near term. I’d be slightly wary of investing outside the US actually at this time. But that’s just my view.

Rebecca Hotsko (51:49):

I’m so happy that you mentioned that currency aspect because I’m actually based in Canada, and I would say majority of my investments are in the US. It’s so important for investors that are investing outside of their domestic country to remember that you are long whatever currency your investment is based in. If one of my US stocks goes up by 10%, but over the same time period the US dollar depreciates 10% relative to the Canadian dollar, well, I just lost my return. I’m glad that you pointed that out because I think that’s really important for all investors to remember. Thank you so much for joining us today, Eddie. Before we close out the episode, where can the audience connect with you and learn more about your work?

Eddie Donmez (52:36):

Absolutely. The best place to find me is LinkedIn. If you just search Eddie Donmez, I’m also on TikTok as well for those millennial, gen Z audience. But other than that, you can look at Finimize on social medias and there’s a killer app as well, where you can get basically access to institutional grade research at super, super low price.

Clay Finck (52:58):

All right. I hope you enjoyed today’s episode, please go ahead and follow us on your favorite podcast app, so you can get these episodes delivered automatically. If you’ve been enjoying the podcast, we would really appreciate it if you left us a rating or review on the podcast app you’re on. This will really help us in the search algorithm so others can discover the show as well. And if you haven’t already done so, be sure to check out our website, theinvestorspodcast.com. There you’ll find all of our episodes, some educational resources, as well as our TIP finance tool that Robert and I use to manage our own stock portfolios. And with that, we’ll see you again next time.

Outro (53:34):

Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires by The Investor’s Podcast Network. Every Wednesday we teach you about Bitcoin and every Saturday we study billionaires and the financial markets. To access our show notes, transcripts or courses go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision consult a professional. This show is copyrighted by The Investor’s Podcast Network, written permission must be granted before syndication or rebroadcasting.