Volatility Shocks vs. Value: Why Your Portfolio Isn't Your Practice

Announcer:
Hello, everyone. Welcome to The Millionaire Dentist Podcast, brought to you by Four Quadrants Advisory. On this podcast, we break down the world of dentistry finances and business practices to help you become the millionaire dentist you deserve to be. Please be advised we do speak with an honest tongue and may not be safe for work.

Jarrod Bridgeman:
Hello, and welcome to The Millionaire Dentist. I am your host, Jarrod Bridgeman. Casey is traveling today; he travels a lot. He's a busy little boy, busy little beaver. So instead today, I have a special guest, I've brought in Austin Hooker, he's a Certified Financial Planner®. He is our Planning Operations Manager. And this will be his first time on there, so please be kind to him in our comments and on social media. He's a good dude. I wanted to bring him on because we've had quite a few people reach out to us having some questions. I wanted to comment and talk about the stock market and how things are a little bit up in the air. Things are going, how would you say it, Austin? Kind of wild right now?

Austin Hooker:
Yeah, they're uncertain. They're pretty volatile.

Jarrod Bridgeman:
Volatile.

Austin Hooker:
There you go.

Jarrod Bridgeman:
That's the one I was looking for, thank you so much. I wanted to bring you on to help me help our listeners understand a little bit more of what's going on, and really help me because I don't know a thing about this kind of stuff. And so that's why we have a team of planners that work with our clients and do all this kind of stuff versus the marketing guy being like, "Yeah, I read this cool article on Claude." I wanted to ask you, break it down for me, what's happening right now in the market?

Austin Hooker:
Yeah. First of all, thanks for having me on. Thanks for the lovely intro and the sheltering from many clients that may be listening. Let's take this from a 30,000-foot view, let's really oversimplify what's going on. What's been driving the market so far? It'd be a little silly not to mention the major geopolitical event that has been going on a little over a month ago. US military launched a attack on Iran targeting specifically the nuclear and missile infrastructure. And the days that followed, I ran basically claim control of something called the Strait of Hormuz, and it's a critical point for seaborne oil.

Jarrod Bridgeman:
You can compare it to the Panama Canal.

Austin Hooker:
Sure.

Jarrod Bridgeman:
It's there, and it's a major shipping waterway, right?

Austin Hooker:
Yeah. This one in particular controls about 25% of the world's seaborne oil. So, as you can imagine, something that big has immediate and severe rippling effects through not just the energy markets, but others as well.

Jarrod Bridgeman:
And so that's why I've been having to use my Kroger fuel points to get that cost down.

Austin Hooker:
That's right, yeah.

Jarrod Bridgeman:
That makes sense. And it's this type of turmoil or news or actions that take place, especially on a global scale like this, almost always tends to have some kind of effect on the market, right?

Austin Hooker:
Yeah, it'd be rare for it not to. This is not a super frequent thing, and this led to a lot of ambiguity that we're dealing with right now. The Fed already had their hands full, but now they have even less confidence in rate decisions going into 2026, which leads people to have less confidence in their confidence.

Jarrod Bridgeman:
And I mean, and this is all on top of standard pressures that the market sees, which might be inflation, tariffs that have been in place since last year, and so these are just stacking.

Austin Hooker:
You're exactly right. Yep, you're exactly right. This is not an isolated market mover by itself. You hit it on the head. We were already dealing with sticky inflation, tighter liquidity, and the lingering tariff uncertainty, which is why things are down roughly 5% to 8% so far.

Jarrod Bridgeman:
Okay. And so I mean, any one of these things on their own have an effect on the market, but again, just the compounded interest almost of adding these together.

Austin Hooker:
Yeah. Yep, exactly. Yep. They certainly can.

Jarrod Bridgeman:
With all this volatility going on, I mean, should investors be worried about this, and they start taking their money out?

Austin Hooker:
Yeah, that's a great question. That's something we've been fielding recently, obviously with our clients. I would say worried, no. Aware, absolutely. That's the right posture to have for investors, and that's why we're talking here today. Now, geopolitics, as we've already covered, is something we're watching very closely, but it is, as we've already mentioned, just one piece of a much bigger puzzle. As investment professionals, we have to be focused on a much bigger macro backdrop, such as the thing we've already mentioned, such as economic growth, inflation, policy trends, things of that nature.

Jarrod Bridgeman:
When you're looking at this kind of stuff, do we look at, let's say, historical data and things that be like, okay, in other situations in the past, something similar has happened, and this is how over five years, 10 years, whatever the case may be, it played out?

Austin Hooker:
Yeah, we absolutely do. That's a great question. I actually took a note here about things that have happened in the past that somewhat revolve around the same things that are going on right now. 1973, we had the Arab oil embargo. 1979, we had the Iranian Revolution. 1990, we had the Gulf War. 2022, obviously, we had Russia invade Ukraine. All of these unfortunate events were followed by policy responses that were proportional to the pain that people went through. This is to say that the world adapts. That adaptation does take time, and it depends on the situation at the time, but to go through the pain of that time and not take part in the recovery meaning the market recovery is where people tend to get into trouble.

Jarrod Bridgeman:
Would you say it deals to the, again, not only the uncertainty, but the shock that people may be feeling? Because it seems like as soon as an event happens and grows down, the market reacts immediately to that, but it's the recovery process that's more of a slow burn.

Austin Hooker:
Yep, you're absolutely right, and the shock was a great buzzword to use. What we're seeing today is best described as a volatility shock rather than a fundamental breakdown, which leads to people very much reacting emotionally, understandably, which is why we're here to give some reason, look at the historical trends, things of that nature.

Jarrod Bridgeman:
And luckily for you, you don't have emotions.

Austin Hooker:
Correct.

Jarrod Bridgeman:
So that's why you can just dive right in.

Austin Hooker:
Just blank as ever, all the time.

Jarrod Bridgeman:
That's right. He's a robot, everybody.

Austin Hooker:
That's right.

Jarrod Bridgeman:
He's an AI guy.

Austin Hooker:
Beep boop, beep boop.

Jarrod Bridgeman:
With being worried, obviously, we're not going to be giving any advice really on here in terms of your own personal profiles out there because everybody's got their own case, their own situation, and we need to know more about those things. But is this a situation with should everybody just pull out? Should everybody buy? I mean, or is this a thing where it's like you need to do your research?

Austin Hooker:
Yeah, that's a good question. And like Jarrod said, actually, times like these, when the market's down, things are super volatile, is when it's best to reach out to your advisor, revisit your plan, make sure things are aligned with what your circumstances and goals are. So I would definitely encourage you to take that stance.

Jarrod Bridgeman:
And I would say too, if your planner has not already reached out to you prior to this, you might want to start thinking about having a more proactive planner in your life.

Austin Hooker:
Yeah, you definitely want a little more proactivity, especially in today's world.

Jarrod Bridgeman:
If you call him up and he's like... Might be a bad sign. So, in terms of reacting emotionally, what does that mean to you and in general?

Austin Hooker:
Yeah, there's a widely used term in investing, and that term is volatility is the price of admission. So to relate it back to the listeners and our clients, let's think of, say, I own a practice. Say I have a bad month or a bad stint of months where it could be an insurance billing issue, have a couple key staff employees leave, slow summer, holiday season, whatever the case may be. I'm not going to sell my practice. I'm not just going to up and say, "Oh my gosh, this is terrible. I need to sell right now." You do what you can, you control what you can, you weather the storm as much as you can, but overall, you hold steadfast, and you rely on the long-term value of what you built. Your portfolio deserves that same conviction.

Jarrod Bridgeman:
Okay. Do you often see people out in the public overreacting to these volatility issues?

Austin Hooker:
Absolutely. It gives firms and people like us the opportunity that we need to find and see those attractive entry points or exit points for certain holdings. And I get it, it's really hard not to be emotional about it. It's your hard end running. You don't want it to go away, and it seems like it's out of your control.

Jarrod Bridgeman:
All the time. Really, just being patient in the situation would be ideal?

Austin Hooker:
Yeah. Absolutely.

Jarrod Bridgeman:
And that's not really a strong state of mind.

Austin Hooker:
No.

Jarrod Bridgeman:
Can you get to the point, please?

Austin Hooker:
Yeah, sorry. I sure can.

Jarrod Bridgeman:
So I mean, again, as you said, it's patience, it's discipline, and not overreacting.

Austin Hooker:
Yeah. And this is where people like us or myself, number nerds, basically rely on the data and history to hold us steady and not let the emotion take over. History does help keep us at bay here. Let's take a look at something real quick. Since 1950, a market correction, which is a drop of 10% to 20%, we are not there yet. We very well might be here in the coming days, but we're not there yet. A market correction has happened about once in every 1.8 years in the past 75 years. That's quite frequent.

Looking at entry year declines, so a drop during that calendar year since 1990, so the past 35 years, the S&P has experienced average drops of about 14%. During that same timeframe, the S&P has average returns of 12%. What this dilutes down to, if you're just having a normal conversation with normal people, statistically, the market will have double-digit drawdowns within a given year. It's not only normal, it's statistically likely. It is also statistically likely that returns will be higher each year.

Jarrod Bridgeman:
So there's drops, but you'll make money?

Austin Hooker:
Sure.

Jarrod Bridgeman:
Okay. Thank you.

Austin Hooker:
That's it, we're done.

Jarrod Bridgeman:
Hey, clean it up. Nice job. Let's bring it into Four Quadrants. How are we thinking about positioning and our opportunity in the marketplace right now in the world?

Austin Hooker:
Yeah. So obviously I can't, you're trying to steal our trade secrets, and I can't give you all those.

Jarrod Bridgeman:
We're just going to invest in Iran, right?

Austin Hooker:
That's right. One of the things we try to emphasize is that opportunity doesn't just come from market drops. Everyone says buy the dip, and that's great. That's great if you can do that, but that's timing and timing. It's a lot in the market, but you just can't always time it. No, tons and tons of studies have been done on this, and the worst days are clustered with the best days in the market. So if you try to get out on the worst days and get back in the best days, you're going to miss it. And people that do that are punished for missing the best days. There are studies that show missing one to two of the best days over the course of the past 75 years can lower your portfolio wealth by more than 75%.

Jarrod Bridgeman:
Oh, wow.

Austin Hooker:
Right.

Jarrod Bridgeman:
That's a huge chunk. That's most of it.

Austin Hooker:
So if you try to time it based on whatever you're looking at, sometimes it's just a feeling. It's a very high risk and not a high reward.

Jarrod Bridgeman:
One of the notes you had says it can create mispricings and inefficiency. Can you describe what that means? How does this misprice things potentially?

Austin Hooker:
Volatility exposes imbalances, and it's through, let's say there's two types of "investors." There are investors, and there are speculators. The speculators are the one that really get taken advantage of. They're the ones that we want to go against, right? Those kinds of people and firms and whatever it may be, look at things that may be more on a discretionary profile. Let's say things that are analyzed by firms and investors can be company reportings being insanely high or low, a sector scare from incoming government policy. And then there's really crazy things like what color tie did the Fed share wear to the conference meeting that day? It's a real thing that people actually track. It's things like that that can really lead to taking advantage of companies' fundamental value can drop based on something incredibly unrelated to the actual company. A lot of the tickets for not being a speculator is investing in quality companies for the right qualities.

Jarrod Bridgeman:
Okay. That makes sense.

Austin Hooker:
Some of it's more structural than tactical. It's positioning your portfolio and your client's portfolios such that you benefit for years, not days.

Jarrod Bridgeman:
Looking at the overall encompassing idea of the market, and you said five to 8% down year to date, are all parts of the market behaving in that same way and seeing the same kind of drop?

Austin Hooker:
As you know, being the marketing guru that you are, headline numbers and articles don't always tell the full story.

Jarrod Bridgeman:
Correct.

Austin Hooker:
Those broader indexes, like I mentioned, are down mid single digits, so that 5% to 8% in general, but under the surface, there is a lot more dispersion. Certain areas like small-cap stocks are already experiencing... About a week ago, actually, correction level declines. And then there are some large-cap names that have held up much better, like John Deere's up over 20%, Caterpillar's up over 17%, things like that.

Jarrod Bridgeman:
Does dispersion then create risk and opportunity? I mean, does that go hand in hand, those two things?

Austin Hooker:
Yeah, that's a great way of saying that. And what it really signifies right now is that it's not a uniform selloff. There is a dispersion, and the leadership in the market is narrowing, so holding selectivity is becoming more and more important.

Jarrod Bridgeman:
This isn't the Great Depression, where the entire... Everything's like, "Nope, that's it. We're done."

Austin Hooker:
No, it certainly shouldn't be. And there are certain factors we haven't mentioned yet that we're looking at, and that a lot of the investment world looks at that aren't flashing red. It's always to panic.

Jarrod Bridgeman:
Would those be potential red flags or signals flashing in red light that this could become something more serious?

Austin Hooker:
Yeah, they definitely could. I would say that could happen at any point in time, though.

Jarrod Bridgeman:
What were some of the things that you guys monitor to keep an eye on that?

Austin Hooker:
Something we're always asking, especially right now, is this just a time of volatility or is it something more serious and structural? A few of the things that we pay attention to, again, without giving away trade secrets, you just keep prying with that. Our credit markets, so our spreads widening in a meaningful way, liquidity conditions, our financial conditions tightening rapidly, and economic data. Is there a real deterioration, growth, or in growth or employment? Right now, none of those signals are flashing red.

Jarrod Bridgeman:
Okay.

Austin Hooker:
That's why we're framing this as it's a volatility shock rather than something more systemic.

Jarrod Bridgeman:
And some of that will be time will tell. We're still pretty fresh on this, but right now, we're not seeing a complete structure crumble kind of a thing.

Austin Hooker:
Yes, exactly. And if those were to change, say one or two or all three changed, then our posture probably changes, but right now we're going to hold fast until any data suggests being overreacted.

Jarrod Bridgeman:
Again, these are things that we already do for our clients and take care of. And of course, they'll call and ask us questions. We're more than happy to talk with them. For those folks out there that either don't have a planner or their planner is not being proactive enough, I mean, email them, call them, ask them questions, find a planner who may be able to help you in your situation.

Obviously, it's probably best to find someone who's a little bit more familiar with your practice, with you, and with the world, with the dental business. And if you're ready to move on and ready to talk to somebody who knows you in and out, I would say give us a call, give us a contact. Austin, any other final points you would like to add in there? I mean, I really liked how you described the current marketplace being similar to a dentist practice, maybe had a couple bad months, but it's not time to throw the baby out with the bath water.

Austin Hooker:
Yeah, that's probably the takeaway from our little conversation here is it is a lot like running practice. It's about staying steady through the hard times, keeping your eye in the big picture. And if you do all those little things right, you won't have to worry about the volatility of tomorrow.

Jarrod Bridgeman:
Right. If you've got a nice little bundle of money and you got your cash flows going well.

Austin Hooker:
That helps.

Jarrod Bridgeman:
Yeah, it does help. Austin, thank you so much for stopping by. Thank you. I really appreciate it, buddy. Folks, if you want to learn more about Four Quadrants, learn more about ways to master the business out of dentistry. Don't forget, we're having events all over the country coming up very, very soon. We're going to be in Hartford and Providence. After that, we're going to be in Cleveland and Pittsburgh, and then we're going to be hitting the New York area. We're going to be in Amherst and Rochester.

So please visit fourquadrantsadvisory.com. Click on the button that says upcoming events. You'll be able to register right from there. You'll get to see Casey and his team and learn a lot, and then usually get free bourbon and a steak or something with it too.

Austin Hooker:
Can I go?

Jarrod Bridgeman:
We got one coming up in Carmel.

Austin Hooker:
There we go.

Jarrod Bridgeman:
In June, so outside of Indianapolis, so I'm going to worm my way into that one.

Austin Hooker:
Heck yeah.

Jarrod Bridgeman:
Heck yeah. Thank you, Austin.

Austin Hooker:
Thanks, Jarrod.

Announcer:
That's all the time we have today. Thank you to our guests for their insight and for sharing some really great information. And thank you to you, the listener, for tuning in. The Millionaire Dentist Podcast is brought to you by Four Quadrants Advisory. To see if they might be a good fit for you and your practice, go on over to fourquadrantsadvisory.com and see why, year after year, they retain over 95% of their clients. Thank you again for joining us, and we'll see you next time.