Jordan Kimmel, Chief Investment Officer of Investview, Inc. (OTCBB: INVU) and radio host, talks with Opportunist’s Managing Editor Leslie Stone about his investment model, the stock market, state of the economy, and what he thinks about over-hyped IPOs.
Jordan Kimmel has been a money manager for 25 years and has worked for such notable firms as Dean Witter, Paine Webber and A.G. Edwards. For 12 years he served as founder and president of The Magnet Investment Group, LLC, an independent firm that managed proprietary funds and served as a sub-advisor to other prominent investment firms. Earlier this year, he was named chief investment officer of Red Bank, N.J.-based Investview, Inc., where his responsibilities include direct portfolio management utilizing managed accounts, managing a private fund and guiding clients through both risk and opportunities in the capital markets.
Kimmel is perhaps best known for developing a proprietary stock selection model called The MAGNET® Stock Selection Process. Created 17 years ago, this model was among the first to blend elements of value, growth and momentum and was licensed and used by prominent institutions, including John Nuveen & Co. He also published two books on the subject: Magnet® Investing and The Magnet Method of Investing.
Highly regarded for his knowledge of the capital markets, Kimmel is frequently invited to speak at financial and investment conferences and has been featured in Forbes and quoted in national newspapers including Wall Street Journal and USA Today. He has also made hundreds of national TV appearances on networks including ABC News, CNBC and Fox Business.
Today, Kimmel’s Magnet Method of Investing continues to reach new audiences, both at Investview, where he serves as managing member and portfolio manager of The Investview Magnet Fund, and via his weekly radio show “Magnet Investing with Jordan Kimmel” on the VoiceAmerica Business Network. And in 2013, the renowned Stock Trader’s Almanac dedicated its 46th edition to Kimmel.
Opportunist: Please tell us about the Magnet Method.
Jordan Kimmel: It’s a model that works because it looks beyond just simple financials. I spoke years ago about ‘engineered earnings’ and the need to look at more variables. There are all kinds of very revealing metrics, which I’ve spent the last five years studying and incorporating into the model. The discussion is not only what a company does or how seemingly profitably it does it, but actually how it does business. Magnet’s focus is based around evaluating true cash flow—trying to avoid tricky accounting. Investors have been shocked and scared for so long that, although the market has tripled from 2009, too many investors are still sitting at sub-one-percent in the bank. This was due to a lack of trust in both Wall Street and in companies themselves.
Sadly enough, I think Wall Street was partially directly responsible for destroying trust in the stock market. But if you had invested on the day the market peaked in 2007 and stayed the course, even if you just mirrored the market, you’d actually have a 7.5 percent return over the last seven years. That isn’t so bad.
During two different years I did over a 200 percent return in my Magnet Fund, but how does that help society as a whole? Unless you were one of the lucky to be in my fund those years, what impact did I have on society? My goal is to educate a greater mass of people and help them get out of sub-one-percent in banks. Whether it’s me managing their money directly or by helping them to become more confident as a ‘self-reliant investor’—that is really my goal at this point.
When Forbes interviewed me years ago I was very clear that I’m not bullish on all stocks at all times. Just like in sports, the games may stay the same but the names change. Arnold Palmer was one of the greatest golfers in the world. Tiger Woods too. But there will always be new names to replace them. Great companies like Woolworth and Pan Am and Bethlehem Steel that were all leaders in their era are now out of business. The real message is don’t fall in love with familiar companies because the Eastman Kodaks and Polaroids don’t always come back. When companies stop growing their revenue you need to move on to another investment because declining revenues and declining margins can be very hazardous to your wealth.
Opportunist: What is the focus of your weekly radio show?
Jordan Kimmel: We feature some of the absolute legends in the stock market—legends with the highest returns of the era—from Jim Rogers to Michael Steinhardt to William O’Neil. I invite other investors to share their various approaches to the market—even day traders and those who simply react to news. Others base their investments on macroeconomic conditions. I bring them on to talk about their unique style of investing because there are many different styles. Magnet Investing shows are all archived at www.voiceamerica.com.
Opportunist: How can trust in Wall Street be restored?
Jordan Kimmel: You have to be willing to ignore the scary headlines that seem to always pop up and have a disciplined game plan. You can use your computer to research which companies have the fastest growing margins and cash flow in their sectors, which is what Magnet does. That’s how you will find some terrific names, some of which people have never heard of yet. I can promise you that list will change over the years as well.
There is a record amount of money sitting on the sidelines right now. Investors have been scared away by a few high profile examples of companies that were ‘cooking their books.’ Learning what to look for, how to identify ‘higher quality’ companies by using metrics that screen out the bad players, that is the key. So if there’s a prudent way for people to learn that there is actually a way to separate the good companies from the bad, I think they will gain the confidence to invest again. Investors could earn higher returns and increase their standard of living rather than continuing to lend money to banks at low interest rates.
Opportunist: What should investors be doing right now?
Jordan Kimmel: This article will find people at all different places in life. Every investor is in a uniquely different position. They are in different age groups and have their own risk profiles. Somebody with the ability to sit through severe corrections is quite different from someone who is kind of a nervous Nellie. What investors need to do is figure out what portion of their money they can afford to invest and ask themselves if that money declined in value by 10- to 20 percent could they still sleep at night and not worry. Or would they wake up in a cold sweat and say ‘sell everything!’ Investors should prudently get themselves invested in ‘ownership.’ Income-producing real estate is one way to do it, as are companies that produce and grow their profit margins and cash flow and increase their dividends every year. That is simply not as risky as leaving your money in the bank at sub-one-percent.
Know yourself, and understand that discipline could work for you. And don’t have a big ego. Problems arise when people try to reinvent themselves—trying to figure out what is working this week or when they think this guy has earned a high return doing this, so let me try it. That is a surefire strategy to lose money over time. The stock market is not a place to play with money, and it’s not a casino. It’s a place where companies can raise capital and investors can do some deep analysis and invest in companies that will grow, cycle over cycle, and sell them if they stop growing. I talk about that in my two books.
Opportunist: What is your greatest fear in the markets right now?
Jordan Kimmel: I’m afraid that the cycle continues in which people sit on the sidelines when there are scary headlines and then enter after the bull market has run for a long time. When they finally do join in its too late, they feel the pain associated with a pullback and sell at the wrong time. They end up disappointed and think Wall Street doesn’t work.
I’m not afraid the stock market is about to crash, and I don’t think the country is falling off a cliff. I believe business conditions are better than most people feel. Sure, corrections and bear markets and recessions will come, but I hope people won’t stay under this confused cloud and lose purchasing power while suffering the hazards of inflation. We may end up with an underfunded group of individuals who cannot afford to maintain their standard of living. If your only retirement plan is a savings account in the bank, you’ll end up eating cat food because that isn’t a long-term solution to anything. Being a saver is a good thing, but being a saver at 1 percent will destroy your future purchasing power. So my biggest fear is that we can’t get out of this funk where people stay at the sub-zero-percent interest rate because they’re afraid of the stock market. This isn’t the first time this has happened—we saw it in the ‘30s, ‘60s and even the ‘70s—and I am more afraid of what people themselves are doing than the market itself.
Opportunist: Will the approaching end of QE cause uncertainty?
Jordan Kimmel: I’ve been against the 0 interest rate policy from the start. I’m also against bailouts. Companies do fail and others replace them. Sub-zero-percent interest rates are what has hurt the savers the most. We all know which way interest rates are going to go next. People have wrongly believed that as interest rates go up the market starts going down, but that’s another falsehood. When interest rates start to rise the market continues to do well for a while. That being said, we are now in the fifth year of a bull market. A bear market is definitely going to show up again and it probably will come sometime after, as the old expression says, ‘three steps and a stumble’—that is the third interest rate hike. When interest rates finally do go up to 1 or 2 percent, that’s still far below historic levels. We have a long way to go before interest rates start to interfere and compete with the stock market for investment dollars. I see rising interest rates as a signal that the guys in D.C. and the Fed are at least willing to take the country off life support and realize this policy is no longer necessary. In my opinion, it never should have happened in the first place.
Opportunist: What will happen once the life support is cut off?
Jordan Kimmel: Again, the bear market that will erupt one day won’t be from interest rates going from zero to 1 or even 2 percent. It’s going to come from a simple fact that business cycles are natural. We might wish we could avoid them but that’s part of life. After things heat up to a certain point they cool off. So, no, I’m not afraid of the first interest rate rise. Maybe it will cause a start term knee-jerk reaction and sell-off, but it will not be what creates the next bear market. In my opinion that’s not what’s going to do it. A bear market will be the result of a geopolitical shock or events being played out on TV news that cause people to be uncomfortable with having money in the market for the short- or long-term. That will create selling, which begets more and more selling.
Opportunist: Would you say the U.S. economy has recovered?
Jordan Kimmel: People say this is a recovery that has been too weak, but the economy is growing. I think we could probably use some sort of changes to personal and corporate tax levels and some more incentives for more large international companies to come here. The market hasn’t tripled because the Fed bought all the stock. More and more international companies have been coming to the United States to produce and manufacture. Toyota, Mercedes Benz, and 50 new natural gas plants are being built here. More manufacturing is taking place than at any time in the country’s history. The $5 billion electric-car battery plant being built by Tesla in Nevada is not due to the nice weather but because of tax incentives. This is happening around the country and we have been seeing a very significant manufacturing renaissance for several years. It will continue. It’s just not getting any press by mainstream media.
Opportunist: Why is that?
Jordan Kimmel: Bad news sells and always will. They’d rather report that nobody’s working. When I drive into Manhattan I cannot believe all the traffic. Where are all those people going? To work! Five percent unemployment is considered full employment. What are we at now, 6.5 percent? If you go into most cities after work to buy yourself a drink you’re going to be three-deep in plenty of bars. There are a lot of millennials making more than $60,000 right out of college if they get the right degree.
When the country hit rock bottom we still had a $17 trillion economy. So who’s kidding who? Unfortunately, all the gloom and doom talk about America not making anything anymore is what is keeping people out of the market. However, if you take a look at statistics, who is the largest manufacturer in the world? The United States. When we manufacture something in China, or anywhere else around the world as American companies do, it doesn’t even go into our GDP.
Opportunist: There has been so much hype about high-profile IPOs. First it was Facebook, then Twitter and now it’s the Chinese e-commerce giant, Alibaba, which is looking to raise as much as $21 billion. What’s your opinion?
Jordan Kimmel: Anything that’s hyped scares me. As I’ve shared in several articles recently, I prefer companies that have operating history as a public company before I invest in them. There is talk about the social media space changing the world like they predicted the Internet would. The Internet did in fact change the world, but if you bought companies at the wrong price you lost a lot of money. So be careful what you’re paying. If you pay three times what a house is worth simply because it’s in a desirable community where you want to live, you’re going to lose money because that property won’t appreciate to that level for years. Opportunity is lost when you sit on the sidelines, but you lose money when you pay for over-hyped stories. I’m not a go-go momentum guy. I don’t like to buy things simply because prices are going higher. I want to make sure the value of earnings, growth and cash flow of the companies I’m investing in exceeds the valuation I’m paying for. The whole concept of Magnet was to combine growth and momentum, and value. If you overpay, it’s a very dangerous proposition.
Opportunist: Do you have faith in the American Dream?
Jordan Kimmel: Not only is the American Dream still attainable, it’s being lived out by the guys at GoPro, Under Armour, Chipotle and countless others who, basically through hard work, ingenuity, courage and tenacity, have become billionaires this quarter, this year and this decade. There is no question that the price of everything is higher right now and we all wish we bought real estate 50 and 100 years ago, but people investing in real estate in the right areas will look back and be glad they did. The last couple of years are clear examples of people not making millions but billions. Anyone who thinks America is done or says we don’t make anything anymore is completely missing the boat and reading into some very misguided information.
Leslie Stone is an award-winning writer/editor with more than two decades of experience covering business, finance, real estate and lifestyle issues for newspapers, magazines and online publications. Originally from Virginia, she currently resides in Florida. Follow Leslie on Twitter: @lescstone.
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