The Journey of Ryan Krueger

On  today’s blog post, we talk with Ryan Krueger, Co-Founder Chief Executive Officer of Freedom Day Solutions. He shares his journey from the Wall Street Mail Room to his own Financial Advisory Firm.

 

One of the reasons why I want to have Ryan on is that Ryan I started in the business together, I got started in 94 and Ryan in 96, we were both at the same firm and it was a different culture back then it was it was just different and one of the things that I've always thought set us a little bit apart is that we were surrounded by people who at least pretended that they knew a lot about the markets and let us know on a regular basis how much more they knew than we did about the market conditions that's always one of the things that I always remember we had it was a when we got started it was a bullpen, so picture cubicles and we're all sitting in these cubicles and there were computers on a Lazy Susan and you have to spin it around between different people and so I'd be sitting there and the person on the other side of that would make a lot of money.

 

They spun that computer around all day long, I'm just relishing at you stating how much older you are than I am and you're immediately reminding me you know there wasn't quite as much training as a lot of investors would like to believe it was a lot of self-taught, yes it was for our sake thank goodness a lot of voracious reading and talking and that's probably where we started to cross paths and we were the last ones there and the first ones in an office of 70 some odd advisors, I was so young and green Brad

 

Brad - I vividly recall after first being turned down to the job then agree to start in the mailroom for the minimum wage, grateful to our mutual friend Doug who took a chance on me and hired me, I’ll forever be grateful because mostly they wanted somebody with a network of some sort I did not, I didn't come from money, I had no network I had my only instruction heading up to trading was to take my training materials and all that I learned and make sure nobody saw me because if they saw how young I was I would be fired and you will for sure be fired.

 

It wasn't a different environment back then and you're right, it is kind of a shame they didn't teach as much the fundamentals of the market as they taught you how to sell and they were set and I understand it, but setting up a sales force, we spent probably two weeks in New York going through how to overcome objections on the phone and they gave us these scripts it was hysterical and what I could not see myself saying these things they do so like I've already got a broker on does he have the monopoly on all the great ideas out there and just think it was just craziness.

 

That was true of Wall Street at that time I do think it's changed quite significantly since then, absolutely you and I are you know we're the only two knuckleheads at the time, I just didn't know anything different than I assumed when you got this industry people wanted you to figure out how to invest and unwind the stock market and figure out how stocks and bonds work and when and why and you know I look back now and it's comical that we decided that you were going to manage money and ask for everybody's discretion and trust us to do for them as we do for ourselves and we never considered all these different outside complicated complex products.

 

I'm grateful for that day as we were learning and focused and not distracted and we survived and thankfully we still serve some of the same folks who trusted us all on the way but yes those were those were different times, did you remember these little stories and remember we used to say we're going to write a book called tales from the pen and I'll never forget we were calling in back at these times interest rates were extremely high and so it was very in tax rates were also higher than they are today so a lot of people would buy tax free muni bonds but at that time you could get a AAA rated insured muni that was yielding six and a half 7% tax free that is monstrous now I could I wish I had a hundred of those that never matured but I'll never forget dialing away this is all I did is dialed the phone calling people who were hopefully retired and have some money.

 

In all seriousness I gave you and folks who count on you kind of tested this to this day 25 years later I constantly give you credit I look back you were super rare and you know everybody talks about unicorns and how much you can effectively multiply your money and  the fact that you were humble enough to know that right before I know as much as I will now as we're sitting here today how about I start with something I can't lose.

 

I give you such credit for that everybody knew they could trust you, you weren't trying to impress them and to this day I actually think it might be the best kept secret off Wall Street, if you ask nine out of 10 people listening to this right now would they rather pay fewer taxes they would shake their head no if they go ask ten of their neighbors who don't know you do they own an individual tax free bond in their own account they would shake their head the other way why is that that I think there's a lot of conspiring reasons and Wall Street didn't get paid a whole lot to do and that that part is never changed.

 

I do think that when rates go back up we'll see more of them again I think it's also sometimes I want but go back I'm going to ask you only go back in,

 

I'm calling about formative years and then the business when we were learning a lot of good things a lot of not so good things what were some of the biggest lessons in general that you learned from maybe was from another advisor just working on Wall Street maybe from a client during those particular years when I thought back about this a lot and if you folks that really do stick out that were willing to talk to us when we went in and ask questions and I'm optical drive people crazy to this day my wife included.

 

I never stop asking questions and a humble desire to learn the problem is there's not that many humble mentors willing to share so a lot of it in hindsight and those and those futures mentors you know who you are and we both are remain grateful a lot of it was processed by elimination I mean when I started literally in the mailroom packaging these giant slip product pitches and all these confusing products I thought at the time man you're just not smart enough to understand these I know now yes I was smart enough not and let's go put it.

 

It's like the best chefs in a restaurant it's the fewer ingredients sourced really well that you know and do by hand it was really every cycle with the brochure rule if it's got abig glossy brochure it's meant to be sold down that's what I learned and I wouldn't trade a single day or we talked about how bad Wall Street and big firms are.

 

I don't there's every single day I'm not grateful for that time that training ground those absolutely I don't think anybody starting out on their own now that's on their own or blogging and saying sharing different opinions I think it's wonderful I think it's great information but I also think it's OK to work your tail offonly just be learning before you should say anything we had we didn't have anybody we didn't have a blog or pocket nobody wanted and I do think that to help that I'm grateful for it was it wasn't in it was a different time I mean remember if you walked in an office you get a phone thrown at you from some of these people there but there was always tide to accord packed him in that coral saying at least pull it back under one of the lessons that I learned in an African we talked about this the other day and it was the guys name was Tony Nunziato, Tony was a commodity trader he's retired but hewas just brilliant and I don't mean Harvard educated brilliant but he knew how to keep things simple he knew how to trade and one of the things that he said he talked about his trading philosophy and making money and you worked with minibonds he said the first shot you made needs to be a layup end score on the layer then go back if you have any extra from the layout you can speculate, by speculate I mean buy a stock whatever with that money 'because guess what happens if you lose 100% of that money you're back even because you scored on lab continue to score on the layups and you can't lose in this business.

 

I remember him so he was absolutely one of those mentors that we both look back fondly on, he was going to finish that conversation and no better than anybody on the planet that day what was going to happen with crude oil or natural death yes and then he was one of the few that would take us in after the markets closed and talk and I think probably in his as impressed or thankful that somebody was asking him questions that took because I think he was probably like me now he's very off-putting like I don't bother him but he had giant heart wicked smart and I'll never forget one of the best compliments you can get in this business is he's talking to him and the two of us and is this client said you know the reason I wanted to find guys like you and when they called him squirrely or nerdy or whatever the great term I'm never going to bump into you at my fancy social parties that was like that's the compliment I want to get in.

 

He got started with next to no money under management and on his terms at the top of his game at the top of everyone's game payment he was absolutely fantastic so there were a lot of different lessons and you know you mentioned I think one of the benefits is getting to work around all these different people because people in our business have pretty strong opinions and they if you did ask for them you would from most people they would give them to you and so we were able to.

 

One of the biggest lessons that that I learned has had it with work ethic, there was a woman named Lynn Shriver who I had an American amount of respect for number 1 to get started and she goes in the late 70s early 80s to get started at that time as a woman and succeed says something about your number one number two what I can remember about when is that she had children she didn't come into the office until after she took her kids to school and then she left around 2:30 to go pick them up and yet still managed to be successful because she hustled she worked hard and that spoke volumes to me about getting there get your work done instead of sitting around and see the Rockets game last night you watch Seinfeld good work and if the people who sit there and go to work they succeed and probably my favorite thing about the business because the flip side is true also nobody's going to tell you, you can't come in six and a half days a week either good point and that was me because I didn't have the family I didn't have this right why I love that and that's not for everybody I mean the ability to manage time like you're talking about which is huge because she could do more in that small amount of time yes regular day you know you and I liked after hours we liked extra work and then we like going I mean some people that have asked what do you think about going in this business I mean I can't imagine going home with that much stress and risk and all of that and I think they're probably right it's not for everybody I couldn't imagine any other way I love the idea of being able to work as long as you choose yes I agree that's well said.

 

 So what are some of the lessons you think onhow you manage money today what was some of the stuff that you picked up and I'm not saying like through training or whatever but I know you've picked up some gems along the way that you are still using in your practice today case maybe deeply informed simplicity I think is the holy grail of deeply informed simplicity one she power like this yeah that and since you are both get old Texas sports fans and the last time I coached actually every single week and by the end of it we went from 70 plays to we ran six plays that final day in your random welding it really lucky in that lesson in our business.

 

I think it's powerfully true everything we have a real thing around here got just for polio but for business and I'd like to apply it to my life I can one page if it's important  it should be able to be expressed on one page I should be able to hand it to my wife and she should be able to understand it you were saying that you're talking about the financial plan you talked about the goal anything and I'm glad you said go will go back and forth I'm hard to keep up with and here even harder right I apply that one page rule to as much as I possibly can.

 

Some lady just today said what in the world are those thousand rocks on your table floor and there's three that just so happened to fit perfectly in this giant jar with 1000 small rocks and a second jar is the exact same number of rocks but the three big ones don't fit because first things first and that's the lesson I try to remind myself up everyday the same amount of stuff the same amount of time First things first so one OK to me is yeah every plane OK it has to be on one page our operating system if it's something new in our business insert whether we're hiring somebody if it's an awkward expressed in one page I don't want if I get a contract of 15 pages I'm nervous or confused I want to be able to trust somebody frankly I want to be able to do a handshake dealbut as far as it relates to financial plans and portfolios I don't want to own more than I can't keep up with on one page whether it be the stock portfolios or actually the whole entire planets everyone at least an executive summary on one page agreed OK that makes a lot of sense.

 

So a stock that is yielding 2% if that dividend payment is growing itself so forget the price right no appreciation if the dividend itself is growing at 8% per year which is a very conservative number now so they're increasing the size of the dividend by 8% a year yeah eight years later your dividend yield on cost is 5% per year in growth so you start with two if you can grow that at 8% and so that's where the work comes in can you find a roster that's at least growing an average of 8% and that's conservative in our world but I'm just using that math to make it simple then if you're 8 years from retirement

 

I'm glad I learned it the long way but didn't stocks aren't born well 25 years ago I might have thought that and that would have been a mistake hey you know get rich and then play it safe you know what you have increasing free cash flow those back then those reviews to board right in the 90s and 10% golly if all the sudden just using that simple 285 math that 5% as your dividend you yeah that goes back to the last greater than any withdrawal rate matter that 4% that we were talking about that's what that goes back to so you're erased right so you're getting you're giving yourself a raised income annually to therefore adjust for any rise in income you may need because of the price of bread going up what have you been to your point on the two being underrated and taking those layups that 2% is often viewed as only 2% and I would encourage folks to think or wait a minute if there is a three or even 4% dividend yield currently that looks better than the two but if it's not growing it's stagnant yeah it's gonna get passed and that is where our opportunity I think there's a lot of dividend products there's a lot of dividend funds a lot of people can do this on their own and by the way I think they can do it on their own very well or our special sauce would be who's going to grow their dividends better so that you can actually end up exceeding those higher dividend yields where it matters most in your pocket.

 

So here's the list that's a good way for me to lead into this question then when you're going through the roster let's say you pull up why charge whatever it is that you're using and you're looking at all the different stocks out there that pay a dividend if you're looking to add to your portfolio what are you looking for what are some of the ingredients that you're looking for in the individual security that says OK I'm going to narrow it down tothese three names or whatever so couple keys and of the dozens of variables we use we measure stocks every single month and you remember that way back in the day add column Saturday stock tournament yes ever change I won't win the ticker stop there's no opinions TV's and radios off all you have is math which is my favorite subject so you put all 7000 tickers in this tournament and I whittled down and there's only about 1% that we're going to want to seriously consider.

 

The biggest primary filters are no different than when you're dropping back home they're driving by operating businesses I think that's a big confusion this shouldn't be what kind of stock do you like it yeah on a business operating yes this is so don't tell me the manufacturer reporting earnings to appease Wall Street tell me what the operating revenues are and the best example I always remember is you know thecompany that has a hamburger joint that sells a little piece of the real estate outback to report his earnings order is a lot different than just tell me how many hamburgers were sold right at cost of goods works how much the employees are being paid what the free cash flow is so the operating revenues I want to know the free cash flow how much cash is being kicked off we're going to measure the dividend but the yield is actually a dimension here that's our last thing I will look at I want to know how much cash is behind what they're paying and do they have a history of rewarding their stake holders at above average rates so are they paying you can tell a lot about a company and where its interests are aligned no different than that sign no card your partner how are they treating their partners how is a stakeholder treated.

 

Price isn't what you want to pay so that's a great car and I'd love to have that car would you pay me $200,000 for it?No, it's overpriced so with this end finding so the way that when I'm looking at companies now on screen and Ryan I mean I've got a list of what I own and then I have what I call my wish list and these are all companies that I like but I don't like the price tag that's on them right now and so I'm waiting for something to happen that will kind of move them into a range or then I could say now I'm comfortable buying XYZ or ABC into the portfolio so it now once you were at least me too so you took your process you go through the numbers you whittle it down and now you have a roster that makes the cut so you're obviously not buying all them it's taking the board portfolio are you then waiting on an opportune time are you investing part of the money now.

 

What is your process once you've identified a set of companies that could make the cut?

A few guys in my life I could go I don't know how long without seeing and then go right back into blind passes behind your back so you just anticipated perfectly so price prices go final step after operating business after the dividend after the direction of the advantage what's the price and the beauty in my opinion and you and I arevery odd in our business and believing in active management you could take the in our business part out I think a lot of people would say we're very odd but go ahead but what is wrong and I just have never and I respect immensely folks that have nothing but passive index I just want to own the whole market because I can't beat it and for most folks that is better than a lot of the other shady alternatives that we have both seen throughout our career.

 

I'm heavily biased by math and patience to say what is wrong with the idea if you are willing to wait in that hunting blind for that rare animal that we just described that is growing at a better clip with an increasing advantage you know you can also find those trading at below market valuations sometimes two so rather than growth or value they are two sides of the same coin in my opinion so our roster that they were requirement will be not only better underline growth but also we were not overpay for its that final patient the price that to me is the second most important part of active management the first part.

 

You are almost describing that it is not growth it's not value but truly growth at a value would that be a good way to kind of summarize just whether it be if you're looking for appreciation or in our opinion you're looking for free cash so the price is going to set what you're yielding but the key ingredient took all of that and one of the things that to quote you it's math plus patience is having the patience to wait for the market to give it to you don't force it but wait because there will come an opportune time to invest in it.

 

It is not linear thinking in terms of there is a price target that we fix that and we will wait forever for that exactly it's an appreciation that things change too yeah you know people aren't the only ones that change I think one of our other advantages and I've learned and then probably had the most fun in the business watching companies change too, so back when we were together in 99 I'll never forget we're sitting literally at the epicenter on the edge of the needle of the tech bubble I will never forget it's 99 I'm in a Waffle House in California, we both give a ton of credit who knew the semiconductor industry better than anybody in the business.

 

I didn't know that the lessons that I learned from that day where were so powerful 22 years later that on it one he walked in and he looked like that homeless right Texas overalls kind of by and the hardest Silicon Valley not there to impress anybody in this the restaurant by the way where the original Tesla prototype, lot of these technology companies were born on napkins in there and all he wanted to do that day was I have enough I want to make sure I always have enough let's start diversifying number one what I really will never forget is the company that later bought his that was in the biggest run of that bull market turned out 22 years later as we see here today to be a cash generating completely transfer business dividend paying companies so companies can change too and that that day I say episode that day was the largest transaction and private real estate market history.

 

I'll never forget the humility it took that was the lesson and then companies they can change to here's what I remember about that sitting next to that guy eating blueberry pancakes I'm eating all that I can he was drawing on a napkin explaining to me how optical routers work and what I remember is my face going Oh yeah, I get that I don't know what in the world he's talking about so it was galaxies over my head but I'm just not wrong OK yeah that makes perfect sense get out of here this Stanford I was so over the top I'm so glad he didn't notice you just staring at the surface right that's all I could focus on was insert but he was trying to describe optical routers to us so when it gets too and you're going through these different ones you find him you find the price do you have any sort of a breakdown that you say OK I'm going to have a certain amount of only large cap or midcap or small caps set up any like that.

 

The three areas I want to ask you were size capitalization, is it US based only and then I was going to guess that if you had to be classified because you're going to be classified in this business they have to put you in a box that they would most likely put you at a value just because you're buying even in stocks for somebody that just means value in today's world so can you can you get to those as far as size and US based and yeah absolutely it tilts larger so it's technically large and midcap most of the dividend payers are going to yeah little bit longer align in their life cycle and be a little bit larger companies it's not always the case with some of the best opportunity would be fine which your next question hits on also is some under looked midcap companies that are not in these big dividend paying funds that are early in their site I love findings but it is so you're not screaming just for I mean you you're running a wide net and absolutely I think by design I want to be in all sectors at all times I never want this to be about what I think should happen I never want this to be about a sector call people be surprised to learn that there are technology companies that pay dividends people have surprised that we don't own utilities because they're not growing so across the board will be in 10 sectors at anytime I want to leave it up to advisors and I want to repeat that across the board you're going to be in 10 different sectors so I as a planner that's pretty allocated I absolutely do not want this to be accepted back yeah we are balanced and whatnot will be a few more than another but there's not a rule that says we need to be all the one all another but it's also position sizing so we'll never start with more than in since we start at one or two or three percent any outsized position in anybody's portfolio not just mine in my opinion probably one of the best lessons you take from any of this stuff how to sell this one and then any outside his position should be a result of the output as opposed to your input yes how much price in other words the growth so all sectors large and mid I would rather the advisors use satellite like we talked about earlier have a small cap have international right manta and that's where a lot of the custom work that you're so good that can come into play, it's a little bit surprising and a little bit different lot of dividend strategies we have both growth and value so to answer your question you would think that and they're absolutely are a lot of value yeah companies in there.

 

I've never understood I mean wall street's labeling on anything as you might guess the two of us will put you in a box they just they have to so there are growth companies that are surprisingly paying small dividend yield that are free cash flow generating machines like we talked about earlier they end up becoming giant dividend pairs you shouldn't overlook those any more than you should run to a big dividend yielding value stock that's not growing i don't want that i want at any yield i want dividend pay raises.