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Meet the Masters – Confluence Investment’s Dan Winter talks Value Investing, the Financials and Technology Sectors and the Best Mustard Chicken Wings St. Louis Has to Offer!

Analyst persistently research the companies they follow to uncover the value that impacts investor outcomes. Alex Mihajlov and Trevor Chambers of Olde Raleigh Financial Group get into a wonky discussion with Mr. Winter about a bunch of topics. We cover value-oriented Stock Portfolios their tax efficiency, growth and dividends. Has the definition of “value stock” changed over time? We talk monetary policy, long term interest rates and MMT as well as the impacts of populism on portfolios and inflation.


Trevor Chambers:

Hey everybody. This is Trevor from Olde Raleigh Financial and once again I’m joined by Alex Mihajlov. How are you, Alex?

MIHAJLOV: Good, Trevor.

CHAMBERS: Another sunny day in Raleigh, North Carolina actually.

MIHAJLOV: Yes. A beautiful day.

CHAMBERS: We love that. All right, we’re syked today. We have Dan Winter from Confluence
Investments. Dan, how are you today?

WINTER: I’m doing great. Thank you.

CHAMBERS: Dan is an analyst but he’s much more than that. He shares Confluence’s Value Equity Portfolio and I love talking to you guys. Because you – you analyst understand – good – great analysts especially understand the innerworkings of a company and how to value it and when to buy it and all that stuff. And we’ve been working with Confluence for a long time so we love you guys. Based out of – you guys are based out of St. Louis and you have a bunch of stuff in your career that you’ve done. But how long have you been with Confluence now?

WINTER: Since its founding.

CHAMBERS: Okay, cool. And you were with A.G. Edwards too, right?

WINTER: I was.


WINTER: I was with the successor of Confluence, Mark Keller, who is our CEO and Chief Investment Officer. He and I date back to 1994.

CHAMBERS: Okay, great. Fabulous. Well, we’re going to hear more about your background in a minute but I did want to jump in with a question. Obviously, it is October – late October in 2020 so we have elections coming up. So, lets cover that a little bit. What are you seeing? What are you thinking?

WINTER: Well, it’s – it’s clearly an interesting run down in the stretch here with two pretty diabolically different platforms. I think too much attentions being paid to personalities and I think policies and platforms are probably more important. But I think when you look at the – the two candidates, what you really see is the influence that the populous movement has had in politics, not just domestically, but around the world for the last number of years. We date it back to Rights; it was probably the first real hallmark as far as indication that the general population of the populous were frustrated. And so, we look at today. We’ve got Donald Trump, which is by no means your traditional republican, really ran on a ticket that was more a right wing populous which was a really trying to contain immigration while trying to bring back jobs, manufacturing jobs in America, by various trade tools and trade agreements. And on the left, you have one which is much more trying to focus on providing better and free healthcare and free education. So, it’s much more of a populous movement from the left side. So, when we pull back the covers, I think the concern most of our clients are expressing to us is if there is a win on the left, what will happen? If there’s – if Donald Trump stays in office, what happens? So, we kinda (sic) just lay it out in the context of, you know, with a Biden win, I think a lot of the anxiety is overdone. I think if you look at Joe Biden’s history, he is very much more in the centrus of moderate. He comes from a state of Delaware which the vast majority of companies incorporate in because of their cooperate tax law. His biggest tax payer in Delaware is DuPont, so I think when we – when we work through the election and what Joe Biden will actually try to institute, I might think it’s going to be far less severe than I think a lot investors and anxiety built around that. More specifically, we’re in a very, very difficult economy. Very high levels of unemployment. Any type of tax policy is likely not to be the first thing out of the gate for a Biden administration. With unemployment like that, taxes are well known to hinder economic growth and employment and so those are likely to be issues farther down the line. I think more immanent would be policies, whether it be stimulus for relief for businesses and individuals or – and/or an infrastructure bill. And so, I think the – I think the overall ticket of – of – of the democrats and what they – the far-left want are probably policies that don’t have a whole lot of political capital in the early years. And then considering that he’s indicated that he really is going to be a one term president, that puts some constraints on his political capital as well and how he wants to spend it. So, what we’re trying to communicate that the anxiety really needs to be looked at, at a more pragmatic fashion and that we wouldn’t expect anything too dramatic in the first couple of years. On the republican side, you know, we expect more of the same although it is – it is worth pointing out that again he was put into office by really the right populous movement and he’s not your traditional republican so there may be a surprise or two as far as his policies. If you look at his first term, you know, the first two years were pretty traditional right down the fairway of tax cuts and judiciary and trying to negotiate better trade deals. But his second half was really instigating some trade wars with our biggest trading partner in China. So, those are some surprises out there but again, it’s – it’s pretty close to call. You know, the polls are – are heavily leaning towards Biden but I think if we look at 2016, the polls were indicating similar results as well. At the end of the day, it’s going to come down to just a hand full of battleground states and those are really difficult to poll. And so, we’ll see how that plays out. Then lastly, you know, at the end of the day the Senate is still up for – up for grabs as well. And if – there is a split between the Senate and the White House, again any of these types of policies that are too extreme are going to have difficulty getting through the House, or through the Senate. And so, if – if anything that probably holds true as I would expect a large stimulus bill to – to probably be the front and center for any new administration.

CHAMBERS: We always talk about with clients that we’re not worried about stock market, we’re worried about taxes. So, you kinda (sic) – but you’re saying maybe not in the first couple years? Okay. You want to talk about that? Construction that we’re just seeing, I can’t – we can’t see how taxes don’t go up. And therefore, we’re applying strategies to our clients to mitigate.

WINTER: I think that’s a safe assessment. I think under either party, again the populous movement that’s under foot, not just domestically, but globally the share of income has dropped relative to capital. And even during this period of Covid, that’s benefited disproportionally those that have wealth. And so, I think at some point, it wouldn’t surprise us whether it’s from a Trump administration where we see the push for higher taxes. You know, let’s face it Bannon, was very outspoken about raising the high-end tax rates substantially. So that – that traditional monarch for Republicans and cutting taxes may not hold true under more of a populous influence.

CHAMBERS: Hey, real quick, where did this populism rise from? I knew you guys talk about that a lot but can you – it is an interesting broad topic that I don’t – I think gets lost in the nonsense.

WINTER: Well, at the end of the day, it’s really comes down to how the income is distributed. And our – our economist Bill O’Grady, has some great charts that really reflect it. But it – at the end of the day just more of the prosperity is flowing disproportionately to the top of the – of the food chain. And that is – that creates a lot of instability and unrest. And that’s what we’re seeing and I think it really emanates if you hold back and look historically when we allowed China into the World Trade Organization, the whole concept of free trade is to help elevate people out of poverty and we did do that. I mean, by allowing China in the world trade organization, we helped poverty around the world. Unfortunately, we did it at the expense of the middle class here in the United States and the middle class really throughout Western Europe. And so, from a global perspective, you know, it’s – it’s done more to – to aide and lift people out of – out of poverty but unfortunately it did it at the expense of citizens in the United States as well as Western Europe. And so that’s why you’re seeing this push of – of populism that income growth or the median income growth at the middle and lower end just hasn’t been the same as at the higher end. And that’s really a – a trade between income and capital. And that’s why we’re seeing this – this rise in populism.

CHAMBERS: Those are some deep, heavy thoughts, right there. I like it. All right. You know, I mentioned earlier I really like talking to analysts because the decisions you make, I think you would agree, Alex, really impact our clients, right? So, it’s – it really comes down to being lifestyle decisions that you all as a class of workers out there in the economy play a huge role. And so tell us about your background and then I know you cover financials and IT. And I’d just love to hear about what’s going on in each of those. So how did you arrive at being an analyst? Why do you love it? And then go from there.

WINTER: It really emanates from really my childhood. I was always intrigued. My father was in the industry on the operations side. And I can remember a story, he came back from being on the floor of the Exchange and I was a young kid and I remember asking him, because he was talking about being on the floor of the Stock exchange, I said did anybody step on your fingers? And he laughed and at that point he really guided me with different books to read and to understand what the Stock Market is and how it works. And so throughout my education process, it was really leaning towards understanding the industry and as I got into it, the more I really fell in love with really being a fundamental analyst of trying to understand businesses and what they’re worth. Why is, you know, why is Amazon trading at a trillion seven today. How does that – how does an investor view that? So, my whole career is spent really trying to become better and learn more about the industry. And so out of college, I was fortunate enough to start work at the then really small money management arm of A.G. Edwards, which would become the – the predecessor to Confluence. I started in ’92. Primarily focused on the A.G. Edwards trust company with their portfolio management but working within the asset management arm and when Mark Keller, joined in 1994, that’s really when my – my sole focus became on domestic equities. And so that’s the last, what is that now, almost 27 years, 26 years have been really doing what we’re doing today. And that’s really trying to find great businesses at attractive prices to aid our clients.

CHAMBERS: How much in total are you guys running these days, roughly?

WINTER: About nine and half billion today.

MIHAJLOV: That’s great.

CHAMBERS: Good for you, guys.

MIHAJLOV: Awesome.

CHAMBERS: Fabulous.

MIHAJLOV: That’s awesome. You want to talk about –


MIHAJLOV: — you want to talk about financials, Dan? What – what’s going on –

CHAMBERS: Yeah, what’s going on in our world and in IT too?

MIHAJLOV: And the other thing is on the financials it looks like it’s cheaper – it’s better to own the banks than keep money in the banks.

WINTER: Very much so.

MIHAJLOV: They tell my clients —

CHAMBERS: He’s – he’s fiery today. I love it.

WINTER: No. It’s the – the bank industry is clearly following the great recession and has had elevated levels of regulatory control, and rightfully so. The banks really were teetering in difficult positions following the – the real estate bubble and – and their access leverage that was applied. And today we sit where banks are – are probably as – as solid from a capital perspective as they’ve ever been. And so, it’s a little – it’s – it’s a different scenario than what we saw in ’08, ’09. Today there – the capital levels at the banks are multiples of what they were in the trough of ’09, ’09. But the issue that banks have faced is the regulatory headwind when you have more capital and you’re required to carry more capital, you, in essence, end up with lower returns on capital because you can’t deploy it in ways that helps you enhance cash flow or earnings. And so, by having the – the lower levels of return on equity they are safer but they’re not able to generate as much income and cash flow as they have in the past. And then we overlay what is – is been quite stunning in retrospect where we’ve had, in essence, zero – zero percent interest rates at the short end going from ’09 through much of – of the next decade and a half. The fed did start to raise a little bit, you know, in that 15, 16, timeframe and we saw that – that – that really didn’t work out as well as they had hoped. And with COVID, now we’re back to zero percent interest rates. But we’re also now have a ten-year treasury that’s yielding below one percent. So, banks make money primarily on the spread. They take in deposits, which Alex eluded to. They don’t pay on now and then they take – they take that and they make loans with it. And that spread is what they earn and so that spread has been compressed pretty dramatically. And it continues to be compressed. And so that’s really why banks are trading at the big discounts to their historical multiples in valuations. And then you overlay credit risks. Unfortunately, the shut downs were induced by the government for – to – to aid the health of the populous but they’ve – the banks themselves have been put in a position where they’re forced to, and rightfully so, to defer any type of nonpayment or collections. And so, there’s still a question hanging out there about collateral and businesses. What are the – what are the losses going to be for the banks? But by in large our perspective is the banks’ balance sheets are going to be able to withstand it. And the question is what can they earn going forward and that’s as much a function of the spread as it is the regulatory burdens that they’re put on. But at the end of the day they’re – they’re starting to look a whole lot more attractive than they have in a long time.

MIHAJLOV: Any – any particular banks? Or do you like the regionals better than the big banks, big money centers? Where – where are you at on all that?

WINTER: So, when it comes to banks, I think that there’s a couple different ways to look at it. But it is – it is, obviously, an extremely mature industry and there’s an old saying with banks too. That there’s more banks than bankers. And so, you have to really find the right management team. And so, for us when we’re looking at banks, we want to look for ones that are in good geographic footprints. In essence, the ability to grow is really contingent on population growth and – and growth and GDP in that region. And so, we want to look for ones that are in the proper regions for growth. And when it comes to money centers verse the – verse the regionals, the money centers bring a — different level of – of business. Regional banks tend to generate about 80 percent of their business through the traditional spread. Business I talked about. The other 20, you know, let’s just call it 20/25 percent is done whether it be through – through wealth management or mortgage originations. Where the big money center banks generate about half their business through what’s referred to as other income. And banks like JP Morgan, for example, they have their big investment bank and trading desk. They also are very large in – in credit cards. And so, they have a little bit more diversified revenue streams than your regional banks. But one of the bigger banks that we do own is US Bank. US Bank, a lot of their income outside of the spread business is from payment processing. So, the – as the secular movement in debit and credit cards continues to grow, they should benefit. So, it really gets down into looking at, in our opinion, looking at the bank and – and first the – the management team and then getting into where they’re located. Because at the end of the day, in a mature industry, you like some tail winds to help you with that growth. The best way to get that is being in the right geography.

MIHAJLOV: You want to answer the simple question of what’s going on with technology?

WINTER: Well, everybody loves it. Just buy it and – and – and –

CHAMBERS: Yeah, there you go.

MIHAJLOV: That’s right.

WINTER: — so.

MIHAJLOV: What could possibly go wrong?

CHAMBERS: Yeah, exactly.

WINTER: What – what could possibly go wrong? Right? Let’s just ask every investor in 1999 how that ended?

MIHAJLOV: It was not good.

WINTER: So, clearly the – the primary beneficiary of a lock down has been the ecommerce and the – the any player in the cloud space as we all were forced to work from home, work remotely and to alter how our – our shopping patterns were. And so, it shouldn’t surprise anybody that the Amazons the Microsofts the Googles of the world, Netflix, has really benefited from a business perspective. But the – the extreme concentration that’s going on in that area, we have not seen in – in history, even looking back in the late 1990’s the concentration in just a handful of names was not nearly as pronounced as it is today. And from our perspective I think we need to take a small step backwards too because it’s not just because of what’s transpired with COVID. If we look to as I was eluding earlier, as the fed did start to raise interest rates, it really emanated in that 15,16 timeframe where after a very prolonged, the longest economic expansion in history, there was concern that the fed raising rates would push us into a recession. And it’s not uncommon and when investors start to – to believe that the probability of recession is increasing, is they start to migrate to businesses that they believe can grow through a difficult economic times and so the bifurcation really started not in – in 2020, but in that 2016 timeframe going forward. And I think that’s why when we – we see the just real concentration that’s developed in 2020, it’s really on the back on the last handful of years. From our perspective as the stimulus of both fiscal and monetary start to stabilize the economy and we get back into much more of a recovery into an expansion stage, we would expect the market to broaden out. Valuations in the near term don’t turn markets. They never have. They never will. But in the long run, cash flow and earnings matter. Said differently, valuations matter. It’s that old Ben Graham quote, in the short run the market’s a voting machine. In the long run, it’s more of a scale and so we’re in that – we’re in that odd, uncomfortable period where the tech has really driven the markets. And probably more importantly in that context, it has changed the risk profile of the markets, while clients may not have changed their risk profile, that broad indexes that are market cap weighted are very skewed towards the top five tech names. So, from our perspective, it’s – it’s one where having a good grasp of – of the valuations and which ones may make some sense and which ones don’t. And more importantly to stay diversified because when the economy does regain its footing, we would look for and expect the market to broaden out. Those names may not go down like they did in the early 2000’s. But we would expect them to have to play catch up as earnings have to catch up to price. And so much more like the – the last 60’s, early 70’s where then the phrase was “then nifty fifty” were a number of names that were very great businesses just became extremely overvalued and, in essence became suboptimal investments for a reasonable period of time and I think that’s probably most probable here with the technology space, as well.

MIHAJLOV: So, within the last month, or so, I saw a stat, I think at the bottom or March, at the bottom of the decline there was five trillion dollars in the money market. And I think as of a few weeks ago, maybe worth four and half, so they’re still a lot of money sitting on the sidelines. I know you guys are basically, by nature, value investors but you – you also have some growth names. What do you thinks going to drive that money off the sidelines and where do you think it could end up? Do you think value will resurge because it has not really worked in what, three or four years at least?

WINTER: Yeah. It’s a great question. There is – there is ample liquidity on the sidelines. Again, Bill O’Grady in his daily comments will talk about it. And we’re at levels, you know, that are – are abnormally high. And I think it’s driven by a couple of things. First, you know, investors are apprehensive. We went through just an extreme shutdown that I don’t think anyone expected. I know we didn’t. And the response was to put massive amounts of liquidity in the markets and so savings rates are at the highest level we’ve ever seen. And so, the – the – there is some rational reasons for it because the unemployment rates are as high as they are. And we’re still not quite sure of how the reopenings at the – at the state and local levels are going to be reflected in employment and incomes. So that’s there and so from our perspective as confidence is gained that the – that the virus is – is either obtains the herd immunity, whether through vaccine, or just through naturally running its course and individuals become comfortable again, going about normal life, that’s when you, I think, you’ll see the – the cash come off the sidelines. Where will it flow? You know, there is a – a risk that you get a melt-up in the market where that cash flows to what’s been working. That’s an uncomfortable position or proposition for value managers, like ourselves, to be in. But it’s also the time where you really need to be able to reflect that you’re – you’re managing risk and not returns because again the underlying businesses would have a difficult time justifying those type of valuations and a run away. For us, you did elude, we do own a couple of the names. We do own Google and we do own Microsoft. When we look at those businesses from a valuation perspective, there are – they are – they are within, what we would call our intrinsic value or private market value. For us, in all of our businesses, what we’re trying to do and achieve is, not just understanding the business and trying to identify ones that are competitively advantaged, which Google and Microsoft probably are as close to monopolies as you can get. So, they’re definitely are types of businesses we want to own but then we take the valuation side. We want to look at businesses in the context of cash flow and try to determine what they’re worth. And we like to use the phrase, “what would a strategic all cash buyer pay for a business, or these businesses?” And while google and Microsoft are obviously extremely large and not likely to have a buyer, the same mental process that you apply for all of our business whether the mega caps like Microsoft or google, or the small ones, is what multiple of cash flow are businesses being sold for? And so, we can look at public markets of what businesses are being sold for and that to us is what a intrinsic value or private market value would apply if we used those similar metrics, deeming price to sales, or enterprise value to EBITDA. The more metrics, the better. We apply those metrics into businesses like google or like Microsoft to determine what they’re worth. And that would be really the private market value. And then we want to pay a discount to it. For Microsoft, Microsoft has three core businesses that are cash flowing with terrific margins. It’s in essence their windows. Then they have they’re – they’re office products and then they have what used to be called server, which is in essence the cloud business that generates the bulk of their revenue. But they have a handful of incubator businesses that it’s – that’s they aren’t really generating cash flow, despite their massive size, specifically LinkedIn. So, they own LinkedIn. They own Xbox. If you recall they acquired skype. They have a large chunk of their business that really if you applied your traditional measures of – of P/E multiple, you would actually be applying a negative value to LinkedIn and Xbox which are probably worth, you know, 20 to 30 billion, plus dollars, themselves. So, we do a real deep dive with the Microsoft and – and we walked through google too but to derive what we think it’s worth. And right now, those are businesses are trending towards their private market value but they still provide some opportunities so we haven’t sold them. But that’s the type of work we do with all of our businesses. We’re not opposed, you know, the term growth and value is one that is more academic and gets somewhat needs to be dissected a little bit deeper, is at the end of the day when the terms growth and value came about, the primary focus was looking at metric primarily priced book. In a asset intensive economy, that makes sense. So, 25, 30 years ago, when tech was still in its early stages, those businesses that were low valuations on price to their book value because they had lots of assets, you could really define as value. And value and growth were about evenly split. But over the last 25 years where our economy has evolved into much more of a technology and service economy, those traditional metrics don’t carry as much impact, and in fact if you look at the weightings, they’re no longer diversified index, whether it be the growth indexes or the value because that skewed towards, again, the more asset like types of businesses that drive our economy. So, for us, I think the important thing is, is deriving what is a business worth and by doing the private market value the way we do, you’ll look at it in the context more of a phrase we use. It’s called absolute value. We’re not looking for, you know, broken down, beat up companies that are trading at deep, deep discounts to their book value. To us we want to find good growing businesses and we just don’t want to pay too much for them. So that’s how we come about it and that’s how we would look at the technology space and how we’ve adapted in this environment.

MIHAJLOV: Do you want to make a comment on dividends? What do you – what do you think the general gist on dividends is going to be? Do you think we will continue to see a rise in the next few years? Or not due to the COVID set back and all that?

WINTER: It’s – it’s fascinating when you look at the market the last handful of years. And like I said, when rates started to go up and the fear of a recession, dividends and dividend paying stocks have actually lagged. And you think about that in an environment where the ten-year treasury is yielding less than the average dividend in the S&P 500. I think at – as investors and, really take a step back and look more pragmatically at the future whether it be from a political perspective or from a healthcare perspective that we’ll probably get back to a more normal. That they’re going to be in search of yield. There’s no – there’s no easy way to get yield now and so I think dividends are going to become very important. The dividend cuts have been pretty substantial but they’re also been fairly focused too on certain areas of the market. Specifically, consumer discretion and energy have really felt the brunt. There’s an old saying that in recessions the trends that were in place just get accelerated. And that’s really what we saw with – with ecommerce and new economy is the – the gradual death of the mall and bricks and mortar just got accelerated during this COVID and that’s the area of the market that’s really been punished. I think dividends historically have been an important component of total return. If you look historically it’s been about 40, 45 percent of total returns been derived from dividend. I think investors are going to seek it and look for it. And define managers that can find businesses that can identify businesses that are able to sustaining grow it is going to be really important. We have a couple portfolios centered on that. One’s dividend growth oriented. The other is more higher yield oriented. And fortunately to date, COVID, we’ve only had two names. One in each portfolio with dividend cuts. One was Weyerhaeuser which is the timber REIT. And that was, I think, purely precautionary. Because as we’ve – as – as results have developed, lumber prices are – are –

MIHAJLOV: Skyrocketing.


WINTER: — and they’re doing well, so we’ll expect them to reinitiate it. The other one is TJ Max. TJ Max has – does very small amount on – on internet sales. They are much more of a treasure hunt. They cut it proactively just to be safe but their business is doing – is doing very well. And we would expect them to reinitiate it. So, business – I think it’s just important to understand the businesses that are cutting and why. And the ones that are cutting for fundamental business reasons. I think you need to be cautious of the ones that are doing it just to be prudent, I think are good opportunities and that’s what we’re here for.

CHAMBERS: And why is that dividend and combined with growth so important, for the client.

MIHAJLOV: The total return on that, and you know, and that gets back to the comment we started with. I think it’s better for the clients to buy the banks than put their money in the banks, basically at these levels because they’re going to get paid. You know, I don’t – I don’t know what – what are you – I’ll circle back to that for one second. Do you think we’ll see any bank dividends raises in here or not?

WINTER: The fed is going to hold them down until there’s more clearer signs that the – the economy as it reopens that there’s not going to be a lot of defaults.


WINTER: But I do expect when the tide does – when the tide does change that the banks are going to be in a very good position to both do share buy backs as well as dividend increases. And I would expect that to happen. It’s just going to have to be with the blessing of the regulators.

MIHAJLOV: How many companies are you following?

WINTER: So, we have a team here of 11 analysts that focus on the domestic equity. And each analyst, you know, in the portfolio, they probably have, you know, 12 to 15 names each and then, you know, their coverage is probably three to four times that. We have a very strong bias on the types of businesses we look for. Again, the competitively advantage, the ones with good free cash flow and good management. So, it’s a universe of a few hundred names.

MIHAJLOV: And I think – I think one of you all told me one time, you all get together in a board room, what, once a week or something and argue about stocks?

WINTER: Yes. We – we – we’re weird in the sense that we love talking about businesses and stocks and we have meetings, regularly scheduled twice a week. There’s always either a new idea being presented or talking about names that may be getting near that full valuation. The private market value or unfortunately, names that have – have underperformed. And so, trying to understand if it’s a – if it’s a perception or a fundamental issue. So, yeah, the team is – is together quite frequently.

CHAMBERS: How important is that asset allocation to – in a management team. I mean, I know it’s important, but talk – can you just talk about that a little bit? Because that’s what we kind of do. We help our clients, you know, with asset allocation. So, the big levels huge, but you guys look at them on a company level and I’d love just to explore that for a minute because it’s s so important.

WINTER: It is. And so, we can talk about it at the – at the portfolio level, for the domestic stocks. But we also on the side of our business that does asset allocation, we can touch on a little bit too. But, yes at the end of the day, when we – when we look at businesses it’s important that you find the business first and then you put a good collection of them together. The businesses themselves are what’s going to drive your long-term compounding returns. But how they – how the portfolio performs over that – that – that timeframe is how the – their put together. And so, we want to, and we take a deep dive into what’s the driver behind each business to ensure that we have a diversified portfolio that can withstand the surprises. And they happen all the time, right? You know, we can go backwards from COVID, which was early on we thought there would – it’s effect would be not a whole lot different than prior viruses that came. And the shutdowns and lockdowns were really a low probability event that happened. But you can go back to, you know, the ’08, ’09, the collapse of the big banks. I don’t think that was seen. The tech bubble, while we knew it was developing, you don’t know when it’s going to end or how it’s going to – or the cause of it. So, it’s so important to ensure that you’re not just jumping on the fastest horse and doing it in a concentrated manor because that can really impair your ability to achieve your long-term goals. And so, we look not just at sectors to make sure we’re diversified across sectors. We look at – within sectors. Financials is a pretty broad industry. You’ve got from insurance brokers that simply make money on selling insurance to insurance underwriters that make money on how well they price the premiums. You’ve got regional banks. You’ve got money center banks. We walk through how they’re a little bit different. You’ve got real estate investment trust which used to be in financials but there’s – there’s a component there as well. Especially the mortgage rates. So, for us it’s – it’s really taking, you know, first understanding each business and then making sure we put a good collection of them together to ensure that we can generate those above average results. And in fact, if you look at really any of our portfolios, we’re relatively concentrated. Generally, you know, 25 to 50 names in a portfolio. But despite the concentration, our volatility or risk is substantially less than the broad markets because it’s not the number of business, but which businesses you own. And when we take that diversification to the next level, our other side of the shop does asset allocation and while the last, you know, really since the great recession, the concentration and returns have been predominantly in domestic equities. We would not expect that to last much, you know, much longer. It’s benefited from, one, the strength in the dollar. And, two, the strength of the domestic economy relative to other – other economies. And so, there’s been a perception that there’s not a need to diversify. And that’s just not historically holds true. And in fact, if you look at our asset allocation products today, there’s 11 asset classes. They’ve done a just a terrific job in really diversifying the risk away and to those different asset classes. And over the long run that is the best way to achieve less volatility while achieving good long-term returns. And so again it starts at the portfolio level for us but then it works up to the other side of the shop looking at the different asset classes, from domestic, international, fixed income and equity, and even commodities.

MIHAJLOV: What are you most optimistic about these days and, you know, what are some of your challenges. Give us your – your good days and your bad days. What’s going on?

WINTER: So, I think the most optimistic, I – I having gone through such a stiff headwind for the valuations and values side of investing, I think that I’m most optimistic that as – as we get back to recovery and expansion that there’s just some absolutely compelling opportunities both in small cap with values as well. The concentration has been so narrow in the large cap, mega cap growth area that it does provide a lot of wonderful opportunities. I think the thing that – that from a long-term black swan concerns of ours as we started off the conversation, the policies that are of populist in nature are inflationary in nature. You know, the right is much more focused on constraining immigration which is another way of saying constraining supply of labor. Constraining trade, may help domestic manufacturing but it reduces your capacity as an entity. Those are all – those are inflationary pressures. The left side of enhancing demand, whether it’s free healthcare or free education, that is inflationary. And so, I think the last, what are we now, almost 40 years of a deflationary environment from the late ‘70s. At some point the excess that’s going on in the stimulus of fiscal and monetary policy combined with the populous policies will likely bring back inflation at some point. And I don’t think investors, because we haven’t experienced, our generations have not experienced inflation. In fact, you know, you look at some of the discussion from the fed, it says if inflation is – is not a big deal, ask anybody that lived through the 70’s, inflation is very disruptive.


CHAMBERS: Oh, yeah.

WINTER: And so that’s – I think that’s something we’re keeping a keen eye on and watching and that – that would from the investors perspective, if you raise interest rates, you’re going to raise real rates which are going to impact valuations and multiples. It will also impact margins of businesses. So, I think it’s important to keep a close focus on it and I never thought that – that modern monetary theory would be given the credence it has. But not only has it, we’re experiencing it first hand with the trillions of dollars. I mean I would have never thought that the –


WINTER: — democrats and republicans would be debating whether 1.8 trillion dollars is too little. I mean, the number is enormous, so. That – that’s the – that’s the concern in the back of our minds.

CHAMBERS: Well that’s – you go ahead.

MIHAJLOV: So, we’ll wrap up here shortly, but what are you reading, streaming, pod casting? You doing any cooking? What are you doing for fun these days?

CHAMBERS: Yeah. When you’re not being an analyst superhero, what are you doing?

WINTER: So, I’ve got four teenagers and unfortunately the lock down has been disproportionate on them so.


WINTER: We found our reprieve – we live across the street from a golf course and so all my kids are good golfers. A couple of them are avid. A couple of them are just, as they call themselves, Sunday afternoon golfers. But that’s our way to kind of escape the world that we’re in today.



CHAMBERS: What are you streaming, podcasting, reading these days? Any of those?

WINTER: From a pod cast wise, I’m fairly new to it, to be honest with you. I’m still much more of an old-fashioned reading books and – and various publications, so I do – I do admit though now that – that I’m getting into the podcast that there’s a – it’s fascinating. It’s a whole new world.

CHAMBERS: Yeah it is. Well, what are you reading? Is there any one book that you’ve read lately that’s kind of interesting?

WINTER: Well I’ve been trying to understand modern monetary theory from – just from the perspective of – of, you know, Stephanie Kelton who is probably the forefront of it. I am an old school where that – I – it doesn’t make sense —


WINTER: — that you can run as much as deficit as you want. I mean, you take it to the extreme. Why do you even have taxes then? You take it to the next extreme, why not just give everyone a million dollars? I mean, at some point the – the logic falls off the rails and I am – I’m just trying to understand it deeper in the context where they’re coming from.

MIHAJLOV: Do you have, I should have asked you this earlier, but do you have any commentary on this whole, you know, capitalism is bad, socialism is good, movement that’s kind of bubbling under the surface and probably a little bit more than just bubbling, but –

WINTER: I – we have not published anything that I’m aware of. I can inquire with Bill O’Grady. So, but I’m not – I do love some of the quotes out there but at the end of the day, you know, you can’t solve poverty without wealth.


WINTER: So, and capitalism has lifted more out of poverty more than any other system combined so yeah, that – I’ll see if we can’t find something for you.

MIHAJLOV: All right. Any great restaurants in St. Louis?

CHAMBERS: Yeah, we –

MIHAJLOV: Anybody eating out?

CHAMBERS: Yeah, I just want to hear that. If you wanted to give a shout out to any local restaurant or something, I always like to include that in these.

WINTER: So, locally here there’s a family of restaurants called Cyberds. They’re much more of a –

MIHAJLOV: (Inaudible).

WINTER: — chicken wings and beer but they have a chicken wing and it’s fascinating. I’m good friends with the family and have been forever but it’s like a honey mustard sauce and what happened is the chef, Dennis Cyberd was making some chicken wings and the mustard accidentally fell in the bowl. And so, he decided just to fry them and see what would happen and they are – they’re just unique and they’re very good. In fact, my wife and I were there last night, so.



CHAMBERS: And how do you spell the name of that place? How do you spell it?

WINTER: Sybrergs. S-y-b-e-r-g.

CHAMBERS: All right.

MIHAJLOV: They’ve actually been there – I did training with A.G. Edwards in 1983 and they were there then. That place has been around forever.

WINTER: Yeah. They had the little bar there right across the street from A.G. Edwards. Yeah.

MIHAJLOV: Oh yeah. Yep.

WINTER: But they have, they now have probably have seven to ten restaurants around St. Louis.



MIHAJLOV: Do you – what was the custard place that was everybody liked?

WINTER: Ted Drewes is the St. Louis


WINTER: — place.

MIHAJLOV: And they – does everybody still love that?

WINTER: It’s – yeah, it’s a St. Louis thing.

MIHAJLOV: Cool. Listen we really appreciate your time. It’s great to see you. We would love for you to come visit us in Raleigh when things clear and chat with our clients. We’ll open to this up to them to catch up with you guys. We appreciate the good care you give our clients and we appreciate you guys.

WINTER: Well, we appreciate your support and happy to do it and can’t – I look forward to being able to travel again. So.

CHAMBERS: Yeah, sure you do. Hey man, thanks. Thank you so much. Have a great weekend and say hi to everybody at Confluence.

WINTER: You as well. Take care, guys.


MIHAJLOV: All right. Appreciate it


Background Information:

Alex Mihajlo – Full Bio
The arch of his career has now landed his firm, Olde Raleigh Financial, to become a fee-based, Independent Advisory firm. Prior to that Mr. Mihajlov was a branch manager at A.G. Edwards, Wells Fargo and Raymond James. His career has been an evolution and, in turn, his perspective on service has evolved.  “My team and I have experienced the large brokerage houses and banks. While they have carved out their spot in the marketplace, I can say it is not for us. We have evolved and we tend to attract those who have evolved away from cookie cutter to a world of customization. They want collaboration. They wanted to be listened too. They want a relationship and we want them to be excited about our relationship.”

Trevor Chambers – Full Bio
Trevor joined Olde Raleigh Financial Services in January of 2015 and his primary role is new business development and marketing.  Prior to joining the firm, Trevor spent 12 years working at his family’s restaurant, Raleigh’s Bella Monica Cucina & Vino. “Exceptional service, no matter the industry, is paramount and we attract clients who value and take comfort in being taken care of.”   

Dan Winter – Full Bio
Chief Investment Officer – Value Equities
As Chief Investment Officer–Value Equities, Dan Winter chairs the firm’s Value Equities Portfolio Management Committee. His responsibilities include directing the strategy implementation and trading execution for the firm’s value equity portfolios. Dan, like all portfolio managers at Confluence, is also an analyst. His primary areas of coverage include the Financials and Information Technology sectors.