CONSUELO MACK: What is your other mantra, your new mantra?
DENNIS STATTMAN: It’s a very simple one, and it’s really as much for clients as it is for me as a portfolio manager. And that’s for us to think about returns in real, after-tax terms. We think that’s always important but especially important today because the tax laws are likely to change, and they may change a great deal, and they’re more likely to be adverse changes than positive changes.
CONSUELO MACK: In other words, taxes are going to go up.
DENNIS STATTMAN: Taxes are going to go up. So we have to keep that in mind as we position ourselves as investors. Then secondly, because policies are inflationary in terms of monetary policy and the debt financing of the federal government, we have to provide ourselves with at least some insulation against the possibility that inflation will increase. And while I’m very worried about this over a longer period of time, it’s less of an immediate worry.
CONSUELO MACK: So how do we get real returns? How do we protect ourselves against future inflation?
DENNIS STATTMAN: This is a big challenge. Some of the tools that we’ve used in the past such as Treasury inflation protected securities are not as attractively priced today as we might hope. And so we’re not using as much of those as we used to. We’ve put a little bit more emphasis on resource-related stocks, in particular energy stocks, which have not moved up as sharply as the price of oil and where they’re quite attractive valuations in terms of price-to-earning ratios, dividend yields and price-to-cash flow ratios. So that’s an area that investors could be looking at today.
CONSUELO MACK: And in the future, things like real estate investment trusts, I don’t know if you invest in gold.
DENNIS STATTMAN: Real estate investment trusts historically have been a hedge against inflation. The problem is that they’re up a great deal off the bottom, and there are a lot of issues left in U.S. real estate. There are a lot of empty office buildings out there, and so I’d be careful with REITs at this particular moment. We think it makes sense to have some gold.
CONSUELO MACK: The metal or gold stocks?
DENNIS STATTMAN: We like both the metal and the miners. And we like the metal for a variety of reasons, but essentially there’s a growing clientele of gold investors, Western individuals and Eastern central banks continue to demand more gold, and despite the price of gold going up a lot, it’s more than quadrupled in the past nine years, gold mine output is not moving ahead. So there is not the normal supply response one would expect because it’s hard to find new, high-quality reserves, and they are increasingly expensive to produce. So we think investors can have a small portion of their assets in gold.
CONSUELO MACK: Dennis Stattman, great to have you here for WealthTrack. Thanks so much again.
DENNIS STATTMAN: It’s a pleasure.
CONSUELO MACK: I also asked Dennis for his One Investment choice for a long-term, diversified portfolio. He chose Johnson & Johnson for its diversified portfolio of products, triple-A balance sheet, rising earnings, history of dividend increases, plus attractive yield and conservative valuation.
Next week, I’ll be talking with a Financial Thought Leader. Energy analyst Bill Paul will tell us why he believes alternative energy will finally pay off. He calls it the greatest investment opportunity of our lifetime. Would you believe bigger than the internet? He’ll share his list of companies participating in the so called power revolution. And that wraps up this edition of WealthTrack. To watch this program again, please go to our website, wealthtrack.com, to see it as a podcast or streaming video. Thanks so much for visiting with us and make the week ahead a profitable and a productive one.
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