The Taylor Frigon Advisor

The TFCM Blog Has Moved!

noreply@blogger.com (Michael Frigon) — Wed, 14 May 2025 22:36:00 +0000

Dear Reader,

We are writing to inform you that we have decided to move the Taylor Frigon Advisor blog to the Substack platform, which will be its home going forward. This will improve the functionality and aesthetic of the blog, while also giving you the ability to subscribe to receive blog posts directly into your inbox as soon as they publish.

If you wish to subscribe, please click on the link below and access the website.

https://taylorfrigonblog.substack.com/

If you do not yet have a Substack account, creating one is easy. All you need is your email address.

Here is the direct link to the latest blog post, titled “Winning Concessions,” which published today.

https://taylorfrigonblog.substack.com/p/winning-concessions

Thank you for being a valued reader!

Investment Climate Mar 2025: Tariffs, Tariffs, Everywhere!

noreply@blogger.com (Taylor Frigon Capital Management) — Fri, 25 Apr 2025 16:44:00 +0000

The fear of tariffs set markets in a tizzy in the latter half of the first quarter of 2025, particularly hitting hard our growth companies as fear of higher inflation and interest rates once again drove a frenzy of underperformance for the fastest growing companies just as they had been gaining their footing through 2024. As April progressed and the effects of “Liberation Day”--the day Trump’s tariff plan was announced--unfolded, markets accelerated to the downside and have been on a rollercoaster ride ever since.

Interestingly, our income-oriented companies' stock prices held up relatively well and were essentially flat in the first quarter. While we are glad to see our income names do well in this environment (as they are designed to do in uncertain times), we believe that the outperformance of growth-oriented company stocks by income stocks is unsustainable. We are likely to see a significant move in the market in the coming months that will boost the performance of growth companies. In fact, it is our view that this may be one of the best buying opportunities in growth companies we have seen in four decades!

Why?

Our mentor, Dick Taylor, often would use the phrase “we get by in spite” when times were difficult due to actions taken in Washington. What he meant by this was that policymakers will make mistakes -- more often than not -- and in spite of this reality, well-managed companies in front of fertile growth fields will find their way through bad (or unfavorable) policy and ultimately do well. For the bulk of the 21st century, we have been arguing that there are many things the government has been doing that has put roadblocks in front of businesses. We won’t rehash them, but it suffices to say that they primarily relate to the heavy hand of government in the form of regulation. For example, the government’s COVID response was absolutely off the charts in its insanity; we need say no more on that!

Today, regardless of how one views Donald Trump, the whirlwind of the fist 100 days of the Trump Administration has brought forward the most aggressive, meaningful, and potentially impactful set of plans to rein in government overreach we have witnessed in our time in the business (now almost 40 years). It is the first time in such a tumultuous period that we can honestly say that we will not just get by in spite of government actions, but that we will actually come out much better off as a result of government policies. We are certain that if Dick Taylor and his mentor, Thomas Rowe Price, were alive today, they would say the same. And while we are not fans of protectionism, we take the view that this seemingly chaotic approach to global trade will ultimately result in a much freer world trade order that will greatly benefit the entire world, especially American business and workers.

Needless to say, if we are proven right, by that time there will be no time to react to take advantage of this opportunity because by that time markets will have violently reset growth companies’ valuations to the upside. It’s been a rough few years for growth companies, but our message is to hang in there and, if you don’t have positions yet, buy!

Steve and Steve Have A Great Idea

noreply@blogger.com (Gerry F) — Wed, 09 Apr 2025 21:21:00 +0000

What a day today in markets!

More on that later, but as a follow up to the blog article we published last week about the market missing the big picture about tariffs and the economy, we wanted to highlight some recent commentary by two very notable economists, Steve Moore and Steve Forbes, regarding tariffs and the tax system. Last December, Moore and Forbes published an op-ed in the Wall Street Journal that argued in favor of reducing the personal-income and corporate tax rates to a flat tax rate of 15%. In the article, they detailed how by eliminating wasteful business deductions and loopholes, the simplified low rate will supercharge the economy. They even claimed that this measure to keep more money in the pockets of Americans could ironically end up causing the “rich” to pay even more (not sure that is needed since the highest earners already pay the vast majority of taxes, but...).

In Moore’s newsletter, the Unleash Prosperity Hotline, he recently doubled down (and more) on this proposal in the context of the recent tariff announcements by the Trump Administration. He argued that higher tariffs must be offset by pro-growth tax cuts if we are to restore investor confidence and return to growth in the stock market. Moore believes that this would in effect pay for the cost to taxpayers that the tariff represents as Trump goes about trying to reshape trade relationships around the globe. He suggested a "15% plan": 15% tariffs, 15% corporate tax, 15% personal income tax, 15% capital gains/dividends/death tax, etc. Our only counter is that maybe it should be 10%!

We have been arguing for a tax cuts and a simplification of the tax code to a flat tax for years, and we have our blog articles here, here, and here to prove it. As we argued last week, these Trump tariffs can be even more effective if they are bolstered by fiscal measures that allow Americans to keep more of their hard-earned money—and invest more of it into dynamic companies.

The good news is that Trump already has made comments that indicate he is headed in a positive direction in terms of fiscal policy, such as when he proposed reducing the federal corporate tax rate to as low as 15%. We suspect President Trump will not read our blog, but hopefully he will listen to smart guys like Moore and Forbes in this tense moment in the markets and take these economy-boosting measures.

Given the announcement today that he was pausing the reciprocal tariffs on the entire world x-China, for 90 days, it appears that the trade issue is far from over but that the President clearly has a long-term plan in mind. It is likely wise for investors to let this play out as the wild recovery in the market today demonstrated how dangerous it is to be a trader.

Our nation’s government has a real opportunity here to make a very positive impact in favor of economic growth. Regardless of what happens, we will be here using our blog to add to the chorus of those calling for the right actions to unleash prosperity.

https://nypost.com/2025/03/09/opinion/tax-cuts-then-tariffs-why-trump-must-put-us-economy-first/

https://www.bizpacreview.com/2025/04/09/stephen-moore-big-beautiful-tax-cuts-should-offset-any-tariff-increases-1535032/

Seeing Beyond The Tariff Storm

noreply@blogger.com (Gerry F) — Fri, 04 Apr 2025 19:22:00 +0000

In light of the extreme volatility and market reaction that the markets have displayed in response to the Trump Administration’s new tariff regime, we want to emphasize that the market appears to be shooting first and asking questions later. While the magnitude of the tariffs was higher than expected, which resulted in a very violent and negative reaction in markets, we emphasize that there is much more to this story than just simply tariffs—as we referenced in our blog post on March 11. We believe the market is yet again missing the forest for the trees.

Historically, we have not been proponents of the use of tariffs to the extent that they represent protectionism that can harm free enterprise. However, we recognize that for decades, the United States’ trading partners have not been as favorable to free trade as we would have liked, and that even the United States has engaged in protective trade behavior in the era of globalization. Clearly, the Trump Administration is trying to use these tariffs in order to level the trading playing field. Trump views U.S. relationships with its trading partners holistically—considering everything from non-tariff trade barriers to defense relationships to U.S. aid—and he is hoping these partners will come to the table to negotiate better terms for the United States. We believe that if this strategy is successful, it could ultimately lead to a more effective trade system that benefits both the U.S. and global markets.

Putting aside the tariff issue for a moment, Washington is also taking other actions that are clearly positive for the economy, yet the market does not seem to want to take these into account. These measures include significant progress on regulatory relief for businesses, reductions in government spending, and the pending legislation in Congress to make existing tax rates permanent and offer further tax relief. Lower regulation and taxes are the keys to unleashing free enterprise in the United States.

The twin pillars of free trade and free enterprise are the necessary ingredients of a strong U.S. and world economy. Many of the more libertarian commentators who are shrieking about the Trump tariffs are failing to see how these measures could actually lead to a freer trade system on both sides of the equation. The market is understandably distracted by all this negative news and is thus ignoring the positive economic developments underway.

Unfortunately, we are experiencing yet another period of market overreaction, where the bears are having their day. However, our message is that we are bullish on business in America. Now is the time to be centered and still amidst the storm and hold fast to what we know to be true: that owning well-managed companies through these mad market cycles is the best way to invest in our future. And to the extent possible, this is an excellent time to diligently add to portfolios, or begin if one has not done so already!

The Hissy Fit Returns, Again

noreply@blogger.com (Gerry F) — Tue, 11 Mar 2025 20:28:00 +0000

Over the last few years, we have purposely paused writing intermittent posts and decided to rely solely on our Investment Climate and "Long Only" podcast as the means to communicate our views.

The reason for this is that we felt we were being repetitive with the primary theme we found ourselves writing about since this blog’s inception in 2007. That theme is that government spends too much money, is too intrusive in its regulation of business, and continues to abdicate its responsibility to "promote the general welfare", instead attempting to "provide for the general welfare" of citizens of the United States. Simply, it has been, and continues to be, too BIG!

It had been our view that administrations from both major political parties had contributed to a massive increase in government over many decades with a few respites here and there -- Reagan tried, but spent a lot in the effort to win the Cold War; Clinton and a Republican Congress post-1994 balanced the budget, albeit only briefly. Yet, for all practical purposes, the spending has been relentless. In the fourth quarter of 1989, US Government debt stood at $2.9 Trillion; by Q4 2007 it was $9.2T; Q4 of 2019: $23.2T; and by Q4 2024 it hit $36.2T! (US Fed Bank of St. Louis).

A full assessment of the growth in debt would be misleading if we did not consider the asset side of the balance sheet. A quick look at US total gross assets in Q4 2007, according to Federal Reserve data, shows roughly $190T in total gross assets in the US; a debt to asset level of 4.8%. By Q4 2024, the total gross assets in the US reached roughly $200T; a debt to asset ratio of over 18%. Notwithstanding that asset values in 2007 were bloated due to a richly valued real estate market, it is notable how much debt levels have grown versus asset values over the last 15-plus years.

We have long been believers that the level of U.S. national debt was not as important as economic growth, the idea being that if the economy grows fast enough, it can absorb higher levels of debt service. However, the acceleration in deficit spending in recent years (we may have forgotten to mention that the government has been running fiscal deficits since the mid-1990s) has coincided with a growth rate in the economy, post-2008, that has only grown 2% per year as opposed to the average 3% in the years since WWII. Any doubt that government spending crowds out private investment and leads to lower growth need look no further than that record of sluggish growth. It is as if the US were trying to copy the European Union in how to stultify economic growth. They have been growing at those lower levels since WWII.

The real issue, as we previously stated, is the growth of debt. More specifically, the rapid increase in government spending—and consequently, debt—has weighed on the economy. This remains the primary issue.

So, what has changed? What is the reason to resurrect the "blog"?

It's the hissy fit we are currently seeing in markets, particularly the market for high growth businesses (our income-oriented business have held up well), that has garnered attention and prompted the return to intermittent blogging.

We have spoken of the "hissy fit" in markets multiple times before, such as in this blog post here.
Just to recap, the hissy fit is defined as the market acting like a petulant child that is mad because their parents say it's time for bed. Or, in this case, the market that doesn't want to take the medicine of cuts in spending and a reduction in the size of government for fear of what it may temporarily do to the economy. The new administration that came into power in January of 2025, fueled by the "DOGE", or Department of Government Efficiency (perhaps an oxymoron), is on a mission to reinvent government. And we say "go for it"! By the way, we have been in a growth recession for over fifteen years, so maybe we should try something different!

For sure, the tariffs that the Trump Administration has ushered in are another reason for the recent sell-off. We have historically been against tariffs due to the disruption they can cause for businesses that do business globally. That said, we understand the myriad reasons the Administration wants to use tariffs to spur global actors, who have not necessarily been acting in good faith with the United States, to change their ways. Why do our first world trading partners charge us tariffs at all? There are various issues involved in the tariff debate that would require a much more extensive post on its own merit. Suffice as to say that it is causing consternation in the short run, but we believe it will sort itself out over time. In fact, there have been some suggestions to use tariffs in lieu of the income tax to finance the government (the way the US did up until 1913). To this,we say again "go for it!"

Even more important than tariffs is the need for the extension of the 2017 tax cuts that are due to expire this year. It is crucial that those cuts get extended, or better yet, made permanent—and soon. This may be the issue that is causing the most amount of uncertainty and angst in the market.

Lastly, we would argue that the weak economic growth of the last fifteen or more years was primed by horrible policy dating back almost 25 years now. We said it at the time and we still believe that the over-regulation in the wake of the dot.com bubble (Sarbannes-Oxley, Regulation FD), 9/11 (Patriot Act), the 2008-9 Financial Crisis (Dodd-Frank) and virtually everything about the way the U.S. government (and others around the world) reacted to COVID in 2020 and beyond, has resulted in the 21st century being characterized by significant constraints on business formation that impede real innovation from getting proper capitalization. We point yet again to the "8000 to 4000 problem" (roughly the shrinkage in the number of public companies) over that same 25-year period. We can think of very little that better encapsulates the ramifications of this terrible policy we have witnessed for a quarter century!

And now, perhaps for the first time in decades (some of our lifetimes), we may actually have a chance to right the ship. It may be painful for a while, and the hissy fit may continue, but it must be tried. When the communities around Washington DC are some of the richest in the world, a region which produces virtually nothing, there is a problem. Could it be there is corruption in DC?

We have spoken for some time about the fact that we believe the best path to long-term wealth accumulation is the ownership of well-run businesses in front of fertile growth fields, through multiple market and economic cycles.In today’s volatile world, we adhere to that concept more than ever. We have always believed that and stuck to it even when we saw silly government policies. Now, we see the potential for real policy adjustment that could get us back to 3% growth and beyond. It can unleash the innovative, entrepreneurial American spirit like nothing since the 1980s with advancements in computer processing (artificial intelligence) unleashing ever more efficient business processes and functions, advancement in medicine extending the productive lives of the citizenry, and industrial automation freeing up humans to work on more and more technological advancement.

We have an opportunity here to change course in a major way. It will be choppy, but we believe it will be worth the wait.

Investment Climate for 1st Quarter 2025: Positioning for Success

noreply@blogger.com (Taylor Frigon Capital Management) — Wed, 12 Feb 2025 20:08:00 +0000

Cautious optimism reinvigorated the stock market in the fourth quarter of 2024, fueled by hopes that we are turning the corner on inflation. Additionally, the prospect of new leadership in the White House and Congress, potentially resulting in policies more favorable to economic growth, also buoyed markets. However, Jerome Powell’s hawkish commentary following the Federal Reserve’s final meeting for the year on December 18 reversed that bullishness. This resulted in the worst end of year decline since 1952 with the S&P 500 falling 2.6% from Christmas to year-end as investors grew skittish at the possibility that further interest rate cuts will be pushed out.

Smaller companies continued to lag, as the Russell 2000 grew just 0.34% in 4Q24 compared to an increase of 2.41% for the S&P 500. However, it is worth pointing out that the Magnificent Seven (Apple, Nvidia, Microsoft, Amazon, Alphabet, Meta Platforms, and Tesla) continued to have an outsized impact on the S&P 500, accounting for more than half of the index’s gains in 2024 overall. We believe that this is ultimately unsustainable, and we continue to prioritize ownership of innovative, well-managed companies that are in (or are about to enter) the prime of their respective growth stories, rather than behemoths whose best growth periods are largely behind them.

Even if the Federal Reserve decides to be conservative with additional interest rate cuts in 2025, we remain confident that the companies we have decided to back are the best positioned to navigate the challenges ahead.  We will continue to diligently optimize our portfolios by adhering to the same long-term approach we have always held, as we firmly believe there is no substitute for a high-conviction ownership mentality. The incoming administration has made bold promises to reduce government bloat and regulatory overreach. If its leaders can deliver on these promises, it could unleash a period of economic prosperity on which we believe our companies are well positioned to capitalize.  
Over the past few years, we believe growth companies became severely undervalued relative to their fundamental performance due to a shortsighted, “risk-averse” mentality that many market participants adopted. Signs that this began to change have appeared over the last year as growth companies actually outperformed the broader market, albeit just slightly.  Nonetheless, contrary to the fickleness of many current market participants, we remain convicted in our favorable view of the companies in our portfolio and have refused to be shaken out of our highest-conviction positions by this extended volatile turbulence.  We believe we will ultimately be vindicated in our approach as our growth companies reach market valuations more commensurate with their true potential.  
Stay tuned. 

Episode 95: The Two-Income Trap

noreply@blogger.com (Taylor Frigon Capital Management) — Tue, 02 Apr 2024 03:57:00 +0000

The boys discuss the governments hand in inflation and the fact that the full effect of if have been masked by many household simply having two wage earners.

Episode 94: Don't Retire!

noreply@blogger.com (Taylor Frigon Capital Management) — Mon, 25 Mar 2024 18:13:00 +0000

At least, don't retire completely. People need to work and a lot of our assumptions about retirement might need to be re-thought as longevity and productivity get extended.

Epsiode 93: Return of the IPO?

noreply@blogger.com (Taylor Frigon Capital Management) — Mon, 18 Mar 2024 19:35:00 +0000

Gerry breaks down the IPS market and is the economy actually good? Then Doug talks about why your family shouldn't build your coffin.

Episode 92: Knowing Stuff Is Overrated

noreply@blogger.com (Taylor Frigon Capital Management) — Sat, 02 Mar 2024 22:43:00 +0000

Gerry and Doug comment on the red hot crypto markets and then take a shot at the experts.

Episode 91: It's Nvidia...And Everyone Else

noreply@blogger.com (Taylor Frigon Capital Management) — Wed, 28 Feb 2024 15:27:00 +0000

Nvidia blows it out of the water, but is this just another example of the uneven stock market?

Episode 90: Rapid Fire

noreply@blogger.com (Taylor Frigon Capital Management) — Tue, 20 Feb 2024 12:50:00 +0000

Doug tosses some quick-hitter questions at Gerry about the economy, the stock market and cryptocurrency. He even gets him to actually make predictions (even though that isn't what we do!)

Episode 89: Make Business Matter Again

noreply@blogger.com (Taylor Frigon Capital Management) — Wed, 14 Feb 2024 22:49:00 +0000

For a long time, the markets have primarily cared about what interest rates are doing. As we take a pause and try to figure out the next move for rates, Gerry discusses the current positive earnings season and a possible return to fundamentals.

Episode 88: When To Pull The Trigger

noreply@blogger.com (Taylor Frigon Capital Management) — Mon, 05 Feb 2024 16:16:00 +0000

Are small caps (still) at an inflection point and should first time homebuyers wait for lower interest rates?

Episode 87: It Just Doesn't Matter

noreply@blogger.com (Taylor Frigon Capital Management) — Mon, 29 Jan 2024 16:09:00 +0000

The guys discuss whether politics matter, the pitfalls of overplanning around taxes, and "what are fertile fields of growth?"

Episode 86: Who Makes The Law?

noreply@blogger.com (Taylor Frigon Capital Management) — Tue, 23 Jan 2024 13:40:00 +0000

Gerry and Doug discuss the pending Chevron Deference court case and 2 essential qualities in a good investment.

Episode 85: Crypto Thaw

noreply@blogger.com (Taylor Frigon Capital Management) — Tue, 16 Jan 2024 16:31:00 +0000

In the wake of crypto's rebound, Gerry discusses an actual case for a token and then dispenses advice on budget friendly dinner dates.

Episode 84: Backing and Filling

noreply@blogger.com (Taylor Frigon Capital Management) — Mon, 08 Jan 2024 18:27:00 +0000

-Will lower interest rates buoy the market in 2024? -Gerry quantifies the Latte Effect. -Should you pay off your mortgage?

Episode 83: Relationships and Money

noreply@blogger.com (Taylor Frigon Capital Management) — Tue, 26 Dec 2023 14:43:00 +0000

Gerry and Doug look at 4 relationships that are key to succeeding financially and using it wisely. You relationship with God, with yourself, with your spouse, and with your network of friends.

Episode 82: A Rally, Really?

noreply@blogger.com (Taylor Frigon Capital Management) — Sat, 16 Dec 2023 18:14:00 +0000

The Fed "kinda sorta" gives the market permission go up, a surprising defense of whole life insurance and a primer on derivatives.

Episode 81: Suffering-You've Got To Embrace It

noreply@blogger.com (Taylor Frigon Capital Management) — Mon, 11 Dec 2023 14:47:00 +0000

There is no reward with risk, which is basically another word for suffering. Plus, the Latte Effect and what do do with cash.

Episode 80: Hold On

noreply@blogger.com (Taylor Frigon Capital Management) — Wed, 06 Dec 2023 15:25:00 +0000

More confirmation of a market inflection point, compound growth, get an estate plan and this a complex person who had both some good and not good ideas.

Episode 79: No, Really, This Time It's For Real

noreply@blogger.com (Taylor Frigon Capital Management) — Mon, 27 Nov 2023 18:35:00 +0000

Could the market have actually found a bottom? Plus, short selling (and why Gerry hates it), company sponsored retirement plans and our Free Enterprise Saint (or Sinner) of the week.

Episode 78: 30 Minutes Or Less

noreply@blogger.com (Taylor Frigon Capital Management) — Tue, 21 Nov 2023 13:03:00 +0000

Have interest rates peaked? Plus, Gerry's favorite savings plan, mutual funds basics and a little bit Domino's founder, Tom Mongahan.

Episode 77: What Is Truth?

noreply@blogger.com (Taylor Frigon Capital Management) — Mon, 13 Nov 2023 15:05:00 +0000

Gerry discussed the role of truth in investing and, at the end, gets back to basics as he breaks down what stock is.