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Northwestern Mutual CEO Hasn't Given Up on the Stock Market

August 03, 2019 00:00 AM UTC
- Updated September 02, 2020 11:35 AM UTC

Sure, there was a selloff. But the underlying signals are still strong.

John, these are such confusing times. People don't know what's the next financial move, my financial planning I should do, what should I do with my investment portfolio. What are you telling your clients? First of all, manage for the long term. It's very difficult for any individual, let alone an institutional investor, to really know what's going on in the market. So know what your risk tolerance is, know what you're trying to invest for, stick with it long term. The two biggest enemies for investment performance are fear and greed. And people tend to let those drive their investing more than the actual sort of the rational process. So we like to tell people, take your emotions out of it. Don't get scared when the market goes down and don't get greedy when the market goes up. And just sort of maintain that disciplined approach to the markets. And then the third thing I'd say is really know what you're investing for. So if you don't really know what you're trying to invest for, it's hard to know how to maximize that investment. Well, let's talk a little bit about what you're investing for. Before you became CEO at Northwestern Mutual, you were in charge of all the wealth management investing at the company, which now manages nearly $400 billion of client money. What is your investment strategy right now? We're long term investors. We're willing to take liquidity bets. So we're willing to buy things that aren't liquid, because we know we won't have to sell them in tough times. We're willing to take more risk, whether it's the stock market, junk bond market, real estate, mortgages. Because again, we know if we underwrite those investments properly and can hold them for the cycles, the long term, we're going to get paid at the end of the day. So to put it in those simple terms-- are you bullish or are you bearish right now in the markets? Bullish. You always have to test your theory on what might happen with sort of the opposite, which is, is there something going on that would make us bearish which would be a recession or a slowdown? And I don't see that at all. Monetary policy's easing globally. You've got no major bubbles to worry about. The yield curve was inverted briefly, but it's not a big cause for concern. Earnings are strong. Companies continue to have positive cash flow. The consumer in the US is strong. We look at about 15 leading economic indicators-- there's only a couple that are even yellow. The rest are green. So all in all, there's nothing that would make me think not to be bullish. Let's go back to your point about the recession, because there are many economists and market strategists that a recession is coming. Why is it that you do not see a recession right now? Well, recession is coming. We don't know when. I just think it's further out on the horizon. I don't think it's going to happen in '19, and I doubt if that's going to happen in the first half of '20. I think that the consumer in our country is strong. They've de-levered, more or less. They've got spending power, full employment economy. Wages are growing a little bit. The tariffs have been a little bit of a tax on family income growth, but generally speaking, consumers are going to good space. So it's just reason to be optimistic. We're seeing headlines like trade tensions with China, war talk about Iran, oil prices on the rise, complications with Brexit. What impact do those events have on your investment strategy? So I think the world's always a dangerous place, and I don't think you can let the threat of war with Iran or something like that materially affect the way you position your portfolio. Because those things can happen, but they can also not happen. And if you're trying to always guess, you're getting it wrong more often than right. So this is why you have to have a good portfolio strategy and maintain it regardless of some of those external shocks. So I don't think right now I would say it's any-- it's probably slightly more likely than it's been, but not enough for us to somehow become in a risk averse posture or anything like that. So what is your best advice to individual investors? My best advice is to save a lot and invest for the long term. And I think that's the way anybody acquires wealth. That's how we operate the company, that's how I invest my own personal money, and I would encourage everyone to do that.