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'Complacency' is setting into the market: 6 Meridian CIO

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Yahoo Finance’s Julie Hyman, Myles Udland, and Brian Sozzi break down the market action with Andrew Mies, 6 Meridian Chief Investment Officer.

Video Transcript

JULIE HYMAN: Let's bring in Andrew Mies. He's 6 Meridian Chief Investment Officer. Good to see you, Andrew. So as we watch the setup this morning, of course, there's still a lot of attention being paid to the Reddit trade, and now what's happening to Silver, although we're also seeing some action in the heavily shorted stocks like GameStop. So we've been starting most people there.

We should probably start you there as well, just to see how you're incorporating this or not into your strategy here. But something else you said in your notes to us, which kind of maybe keys in with this, is that the market doesn't seem to be worried about anything right now. I mean, last week's drop not withstanding, things still feel pretty Teflon.

ANDREW MIES: They do. And thank you for having me. I can tell you this weekend when I saw the few people that I did see, there weren't many people asking about anything other than GameStop and how to do short squeezes. And so I think, to your point, this can continue for a while. But eventually, it probably does burn out, as these things do over time.

But it goes to that point I was talking about, the concern or the wall of worry. And I think back to last September and October. And when we talked to clients, people were worried about the virus, because at that time, we didn't know anything about the vaccines. People were very worried about the election and what the outcomes we're going to look like from that.

We didn't have anything in terms of a stimulus deal passed. And so there were a lot of things that investors were worried about. And today when we're meeting and talking to clients, there's very few things. Everybody's absolutely certain that '21 is going to be a complete bounce back from what 2020 saw. And there's no doubt that the vaccine is going to work. And so I do think that there are a little bit of complacency setting into the market.

BRIAN SOZZI: Andrew, among other things you focus on at your firm, you do have a focus on small cap equities. Have you traded a GameStop? Have you traded at cost? Have you traded a BlackBerry? And if you haven't, why or why not?

ANDREW MIES: We have not. So our models are pretty quantitative in terms of telling us what we should buy and what we shouldn't. I will tell you that we have in our small cap strategy, we owned MicroStrategy, not because we thought that they were going to go buy a lot of Bitcoin and the stock would go up a lot. But there were other reasons that we owned it. But that's been a big driver.

And I think that if you look at the S&P 600, the return it saw last week, which was driven significantly by its position in GameStop, and the Russell 2000 as well, it's just not what we do in terms of chasing into that. We look at things on a more fundamental basis. But there are residual impacts that have helped some strategies, no question about it.

We had one client who did own GameStop. It was a remnant position they had from a long time ago. And when we called them and told them about it, they were pretty excited. I think they ended up selling it.

MYLES UDLAND: You know, Andrew, I think everyone's trying to figure out what role retail is going to play going forward after this is all over. And we've seen retail come back in the market in 2020. Or we saw it come back in 2020.

But it was really, like, a two decade break between retail being a big part of this. I mean, have you started to think about what a more retail heavy market could look like, not today-- this is kind of crazy-- but in five years, seven years, even 15 years?

ANDREW MIES: Yeah, you're exactly right on the timing. One thing that's been interesting for me is I have a six-year-old son. And he and his friends on his cross-country team, when they run, they used to talk about music or friends or girls. Now when I asked him how his run was, he comes back and he tells me they were talking about stocks and what stocks they should buy.

And I think that that's actually a net positive, is getting more people informed and knowledgeable about investing, and also trying to explain to them that the long term benefits from being a consistent investor can be significant over a lifetime. So I think that there's some net positives for the retail investor getting more engaged and more involved.

JULIE HYMAN: You know, it's funny. That's actually something that Myles has been saying as well. And I just wanted to mention, we've got the opening bell there happening. And as trading gets underway this morning, do you think that lesson is taking, though?

I mean, I guess if you use your son as an example, because there is so much noise around the sort of quick pop, get rich quick nature of the meme stocks and of trying to chase that trade, do you think people are going to be more scared by that lesson, or will learn from that lesson, or are they going to try and duplicate that to their peril?

ANDREW MIES: Yeah, you're exactly right, because right now, people want to know what stocks are going to double tomorrow, not what company or industry can I own and in 10 years or 15 years made a reasonable return.

But anything that sparks interest in the financial markets and causes people to be more educated-- I was talking to somebody over the weekend, a niece of mine, and she was explaining to me all the research she's done about short squeezes and what shorting means. And so more education and more knowledge I do think is a benefit.

But you're right. Right now, everybody's focused on what is the next stock that-- I mean, to put it simply, what is the next stock that I can own that's going to make me a lot of money quickly. And that we know ends up fading. We know that that's going to pass, because at the end of the day, everybody all those GameStop shares have to be owned by somebody.

And the people who own them today probably aren't looking out five years from now and doing a discounted cash flow model and saying I really am excited about the prospects. Eventually somebody has to own the stock because that's why they want to own it.

JULIE HYMAN: Yes, indeed, and we'll see who those people are. Andrew Mies, good to see you. Thanks so much for your time this morning, 6 Meridian Chief Investment Officer, appreciate it.

ANDREW MIES: Thanks for having me.