June 23, 2024

Peter Mallouk, president and CEO of Creative Partners, spoke with Quartz for the latest installment of our “Smart Investing” video series.

Watch the interview above and check out the transcript below. The transcript of this conversation has been lightly edited for length and clarity.

ANDY MILLS (AM): Target missed on earnings. The market reacted pretty strongly. The stock was down 9% initially. What’s going on?

PETER MALLOUK (PM): It’s easy to overreact to Target and say, well, all of the consumer goods are struggling. The consumer is struggling, they’re not buying anything. But if you look at Walmart, Costco, they’re holding up really well. They’re positive on the news. So it really appears to be more relative performance to its peers and Target lagging the group.

AM: Inflation has been a lingering issue. Is there any way out of that for them?

PM: If you look at inflation, the Fed’s been very concerned about it. We know it’s decelerating, but we know it’s remained high. It’s crushing people that are struggling as grocery prices have rocketed, fast food prices have rocketed, basic needs have rocketed, housing rocketed, oil has rocketed. So if you look at the people that are going day to day on a salary, the average American is finding it very, very hard to get through. The affluent are doing well, but you see it reflected even among the affluent. Walmart says one of the reasons they’re doing so well is the affluent people that don’t normally go to Walmart are now going there and they’re cautioning investors, like, Hey, whenever the economy gets a little bit better, these very affluent people are gonna go back to other stores and our company profits may suffer.

AM: Yeah, Walmart’s got a premium food line that they’re kicking off and then, and they make a lot of money on groceries. Target, on the other hand, is lowering prices. Do you see that as a way that they can win this thing?

PM: Yeah, I think if you look at Target, Walmart, Costco, one of the issues here is what are people buying that are groceries and what are people buying that are just goods that they may need? You can give up on the goods and I think that’s one of the things that’s impacting Target. But you can’t give up on the groceries and I think that’s why you see Walmart hanging in very strong.

AM: Are you a buyer of Target stock right now? What do you think?

PM: I’m a big believer in large US stocks and owning a very big diversified basket of that. I think that companies like Walmart, Target, Costco, they’re going to do well as a group. You know, they’ll be relative winners and losers over time. These three are companies to own for the long run.

AM: So given all the hoopla over Dow 40K, is it too late for investors to jump in?

PM: So this might surprise people, but if the Dow just did what it historically has normally done in about 2033, the Dow would be at 80,000. So basically about every seven years or so, the Dow doubles. It’s never too late for a long-term investor. Even if you’re 60 years old, your life expectancy is 20, 30 years, you are still a long-term investor. Don’t feel like the train’s, you know, left the station. It’s too late to get on. Today is better than tomorrow. Get in as early as you can. Don’t worry about the next year. The Dow’s got another doubling to go.

AM: What sectors or industries are you looking at right now?

PM: If you’re a long-term investor, you can’t ignore tech health and especially artificial intelligence. So people ask me, well how long is artificial intelligence gonna run? Artificial intelligence is a generational boom. This is a sector that’s gonna go on for our entire lives. Now that doesn’t mean that it’s not overbought at present, it probably is, especially companies like Nvidia that are shattering records for sales to earnings ratios, especially companies like Nvidia where you’re looking at sales to price ratios that are unprecedented in the space, but over the very long run, tech is gonna be where, where it’s at.

AM: I wonder how long that run can last at the rate it’s going. It seems like in the last year or two things have skyrocketed.

PM: The tech run can last our entire lives. The question is, which companies can continue to run? So can Apple double and double and double? It probably cannot, right? It’s probably got more steam in the engine. It could go a little further, but is it gonna double 20 more times? Unless it’s gonna take over the entire global economy the answer is probably no. But there are always gonna be other companies coming. I think we’re gonna see massive growth in tech and the thing is, if you’re a diversified investor in tech, every now and then you get the Apple or the Google or now the Nvidia that goes up a thousand, two-thousand percent. That’s enough to pull up that basket of securities. That as a group might be averaging eight to 15, but you get that one or two or four or five that are really rocketing. The sector that’s gonna have that one or two or four or five going forward is gonna be tech and that’s how it’s gonna be for the rest of our lives.

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