Upticks: How to Invest in Stocks with Cory Bittner, CRPC

By Jake Falcon on April 20, 2022

On this episode of Upticks, Jake is joined by Falcon Wealth Advisors Co-Founder and COO, Cory Bittner. The two discuss how they invest in stocks, in both good times and bad, and what truly makes a portfolio diversified.

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Falcon Wealth Advisors Co-Founder and COO Cory Bittner, CRPC®, joined me on this week’s episode of Upticks to discuss how we invest in stocks, in both good times and bad, and what truly makes a portfolio diversified. A summary of our conversation is below.

Jake: I’ve been having more and more real client conversations about the individual stocks in the Falcon Wealth Advisors portfolio. First, Cory, a question for you. If someone asks you why we invest in stocks, how do you reply?

Cory: There are two reasons. The first is to keep pace with inflation over the long term. And the second is growth and appreciation—increasing the value of our portfolio.

Jake: Yes, stocks help you maintain your purchasing power, so you can keep living the same kind of lifestyle even as the cost of goods and services grows.

At Falcon Wealth Advisors, we invest our clients in publicly traded stocks, which spurs economic activity. Most people need their nest egg to grow to ensure they don’t run out of money. So how do we choose the stocks in which we invest? Let’s first talk about what we don’t do. We don’t worry about what our neighbors, friends or TV personalities suggest. And we don’t invest in companies simply because they have a new product we think could sell.

Cory: Correct. If we’re investing in a stock, we’re investing in a publicly traded company run by people. We’re investing in management teams and people, not just assets.

Expectations are important. If you buy a stock, any number of things could happen in the first 3-6 months you own it. That’s a short period of time in the grand scheme of things. I think it’s a flawed strategy to focus only on a company’s recent performance.

Jake: That’s a good point. If a stock goes down in value after we purchase it, that doesn’t mean it’s a fundamentally bad stock and we made a mistake. In fact, we may even go buy more of that stock because we believe in it in the longer term. Let’s take a look at the chart below, aptly titled A Disciplined Approach. As you can see, it covers the years 2002-2021 and every column represents a year. Every box represents a broad area of the main market—you have large cap stocks (big blue chip companies you’ve likely heard of); real estate companies; small cap companies (small companies); developed international stocks; high yield (riskier or “junk” bonds) investments; cash; US bonds; emerging markets; and global bonds.

The Callan Institute published this chart and each year they rank all of these categories from top to bottom. The point of this chart is to show you these categories cycle up and down, in and out of favor with investors. You can look for a pattern, but for the most part, there isn’t one.

So looking at this chart, let’s say an investor puts all their money in large cap stocks. As you can see, you’re going to be riding a wave up and down. At Falcon Wealth Advisors, our approach is instead to put a certain percentage of a client’s portfolio into each of these boxes, and to make sure these percentages align with their financial plan.

In our clients’ portfolios, each one of these boxes is assigned a percentage, and taken together, they add up to 100%. If one of these boxes grows to be more than 5% of its fixed target, we sell some of its stocks to lock in gains. We then use the money from that sale to buy stocks in the boxes that are priced lower at the moment. This is called rebalancing and it helps us to buy low and sell high.

Because owning individual stocks is so transparent, sometimes a client will say something like, “I don’t like that stock, it’s not increasing in value, please sell it.” However, when they do this, they’re negatively impacting the infrastructure of their portfolio. It’s like taking out the backseat of your car because you don’t have passengers back there often—it doesn’t make sense. Or trying to bake a cake with all the ingredients except flour.

Just because a stock is down now doesn’t mean it will be down forever. We put a lot of research into stocks before buying them for clients, and part of having a diversified portfolio is having some stocks that are up and some that are down. While I love hearing from clients, I don’t recommend calling our office to tell us you want to sell a stock because you don’t like its recent performance. Please know that each and every stock in the portfolio was chosen for a reason. Your portfolio is too important to treat so casually.

Cory: When we invest for our clients, our goal is to achieve a target return that fuels their financial plan. How we allocate the stocks that are in these boxes is based on data and historical risks and returns; having a properly allocated portfolio involves blending different asset classes and not having a large percentage of your portfolio invested in any one asset class.

For example, if you invest your money in four different mutual funds, you may assume your portfolio is diversified. But if those mutual funds all contain the same or similar investments, I would argue your portfolio is not diversified.

If you look at this chart, there has not been a single time the top performer was first for two consecutive years. That’s why it’s so important to be properly diversified.

Jake: Yes, and as you can see, these asset classes can go from the top to the bottom very quickly.

Cory: We construct the Falcon Wealth Advisors portfolio to have some stocks zig while others zag. Why do we do this? It can help soften the blow when things get ugly in the market, and hopefully allows our clients the opportunity to stick with their financial plan long enough to do what it’s designed to.

Jake: The main takeaway here is that we have a detailed strategy we execute when choosing which stocks we invest in. We don’t simply pick companies we believe could perform well. Instead, we use math to determine when to buy and sell. The process we’ve talked about today originated at The Wharton School of the University of Pennsylvania, where both you and I have studied, Cory.

We take pride in investing in individual stocks, but how they work together in the portfolio is more important than how they perform on their own.

Cory: An important example: TV networks will often run graphics showing how wealthy you would be if you invested $10,000 in the largest e-commerce company in the world when it went public. What they often don’t say on TV is that the stock twice experienced a 90 percent drawdown from its peak in the decade after it went public.

Would most investors hold the stock during those drawdowns? Many would not. But those who did have earned a huge return by being disciplined and patient.

Jake: Thanks so much for joining me today, Cory. If you want to learn about how portfolio diversification can work for you, or if you’re not a client and seeking a second opinion about your portfolio, please don’t hesitate to contact Falcon Wealth Advisors. You can reach me directly at Jake@falconwealthadvisors.com.

Clients choose to work with us to enhance their financial literacy and explain exactly what their financial plan means to them.