Nancy Tengler On The 5 Essentials for Smart Investing

An Interview with Jason Hartman

Be wise. Be prudent. Be bold. Be wary. Be clever and determined and focused on your end goal. Don’t be swayed by the crowd; rather be loyal to your well-thought-out discipline.

As a part of my series about The 5 Essentials of Smart Investing, I had the pleasure of interviewing Nancy Tengler.

Nancy Tengler’s career as a portfolio manager spans 40 years; she is currently the CEO and Chief Investment Officer of Laffer Tengler Investments. Nancy is a passionate advocate for women’s financial literacy and she leads the firm’s Women & Wealth initiative. Nancy is a sought-after TV and print financial commentator on local and national media outlets, and the author of the book The Women’s Guide to Successful Investing: Achieving Financial Security and Realizing Your Goals, out September 29, 2023.

Thank you for doing this with us! Our readers would like to learn a bit more about you. Can you tell us the “backstory” about what brought you to the finance industry?

I was born into a lower-middle-income family. My father left when I was 12. My mother received one child support payment from him, got a job, and then a second job. Consequently, money (or the lack of) was very important in our home. I pet sat, cleaned the houses of school friends (awkward), and then got a job at two department stores and waitressed on the weekend. And I was an epic saver.

Eventually, I learned about investing and have never looked back. After college, I chose between being a fighter pilot (I took all the tests, secured a recommendation, and then saw Private Benjamin. Hell no!) and the investment business. I loved the daily metrics and the life of learning investing provides. In my four decades in the investment management business, I have never met a wealthy person who got there by saving. They achieved wealth by saving to invest.

Can you share with our readers the most interesting or amusing story that occurred to you in your career so far? Can you share the lesson or takeaway you took out of that story?

I was 25 flying from NY to SFO. I was upgraded to first class. I was wearing an Albert Nipon blue dress with white inset and cuffs. I had no luggage because I had red-eyed in the night before. I found my seat and was getting a pillow out of the overhead when my soon-to-be seatmate asked me to get him a pillow. Kind of rude I thought, but I complied. Then the man across the aisle asked for a pillow. The man in front of him asked if I could put his briefcase up in the overhead. I finally got it. They thought I was a flight attendant! So I asked if everyone was OK and then took my seat on the aisle. You could have bowled them all over with a feather. I learned that in the investment business being underestimated as a young woman was a gift. I had just closed a $100K fee deal. My take was $25K. Our competitors had underestimated us. Never take offense. Get the job done. Be respectful and kind…then WIN!

Are you working on any exciting new projects now? How do you think that will help people?

I am working on a book for women left behind by death or divorce or who never got married in the first place. There are so many potential pitfalls they face on top of grief (for those who lost a spouse) and a general tendency exhibited by women to — for the most part — excuse themselves from the investment conversation. The research shows that the trends have not improved. Baby Boomer women participate in the process slightly more than Millennials. That is discouraging since women will control the majority of the world’s assets — trillions of dollars — in the coming years. I meet women all the time who are now responsible for the family wealth and they have no relationship with their advisor, no trust. 2/3s of women fire their advisor after inheriting (if you will) the relationship. That is disruptive and expensive. I want them to get involved in the process well before the life-changing crisis. The book interviews women who made good decisions and bad to serve as a virtual support group for all single women.

We just launched our very own actively managed ETF: TGLR. I want investors large and small to benefit from our expertise. It is NEVER too late to invest. One of my favorite stories is of a woman who didn’t begin investing until she retired on a fixed income (in the book) and died with millions of dollars.

Ok. Thanks for all that. Let’s now jump to the main core of our interview. According to this report, nearly a quarter of Americans can’t pass a basic test of financial literacy. In your opinion or experience, what is the cause of these unfortunate numbers?

We don’t teach economics in schools — it’s that simple. In Arizona, it is now a criterion for graduation but most schools avoid the topic. I taught basic finance at the college level and was appalled at the lack of knowledge and awareness as to why this subject is important. And, worse, families are not teaching basic financial principles to their children. We used to sit around the table in my home and discuss these ideas. Every trip to the store was a lesson in economics and investing. We also taught our kids how to manage their income (no matter how small) and to give back.

If you had the power to make a change, what 3 things would you recommend to improve these numbers?

I served on the board of the Arizona Council of Economic Education. There are chapters in almost every state. In that role, I spoke to grade school and high school students about investing. I also spoke to Title 1 schools (those were the most rewarding) And to teachers on how to teach the stock market game. These young people do excellent research, build portfolios, and compete nationally. We are underestimating and under-educating our youth. The stock market game should be taught and practiced in every school.

Read my book and get a copy for all the women in your life. Interestingly many of the reviews on Amazon are written by men. The advice is sound and accessible and not necessarily gender specific. Just written from a woman’s point of view. Heck, get a copy for all the men in your life, too.

That’s only two but if my book were made into a movie I would want Sandra Bullock or Meryl Streep to play me and make investing cool.

Ok, thank you! Now to the main question of our interview: You are a “finance insider”. If you had to advise your adult child about 5 nonintuitive essentials for smart investing, what would you say? Can you please give a story or an example for each?

My book is filled with these examples. The biggest mistake most investors make is they don’t take enough risk. Especially older investors. But here are five critical lessons from the book:

Five Critical Lessons and Warnings: Don’t Touch a Hot Stove, Don’t Talk to Strangers and Other Lessons for the Ages

As with most things in life you will quickly acquire your own investing experiences, both good and bad. And you will likely develop your own lessons and warnings; perhaps a list of “dos and don’ts,” or “never agains,” or even “next time I’ll try.” That is as it should be. But, for now start with the lessons and warnings in this chapter. Modify them as you see fit, add your own, and remain firm in your determination to avoid as many investing pitfalls as possible. It is much wiser to exercise caution in your investments, to get on base with singles and doubles rather than to swing for the fences. Smart women take informed risk. Doing so increases the odds we will keep out of trouble, avoid big losses, and protect our hard-earned and carefully saved money. Our Intelligent Investing Rules will keep us focused. These warnings will keep us out of the weeds.

If you are depending on the dividend for income and valuation information, make sure it’s not too hot nor too cold, but just right.

It is first and foremost important that we understand the power of the dividend as a component of total return. As is often the case, we need to be wary of too much of a good thing. Since yield is good could a really high yield be even better? Not necessarily, as the research has shown. If life has taught me anything, moderation is certainly at the top of the list. Years ago, my dermatologist prescribed Retin-A for my skin. I figured if a morning dose was good, a morning and evening dose would be twice as good. Wrong. Two weeks and a cortisone shot later, the scaly red bumps — my skin’s reaction to the Retin-A overdose — finally disappeared. Painful lesson learned. The same is true of dividends. Too much of a good thing can sometimes be a signal of pending disaster.

There was a time not all that long ago when dividends didn’t rise with the surety of a helium balloon on the end of a loose string. Because earnings were lethargic, dividend payments stagnated as well. That is as it should be. But when earnings are lethargic and the dividend continues to rise, we need to become suspicious; the dividend should not increase faster than sustainable earnings levels for an extended period of time. We should also become suspicious when a dividend payout has reached a level that is no longer supported by earnings. We measure this by calculating the **payout ratio. **The payout ratio is simply the annual dividend payment divided by the annual earnings. Each company will determine the proper ratio based on their business and future earnings prospects. But when a company’s payout ratio approaches or exceeds 100 percent of earnings we can be sure there is risk of a dividend cut. High payout ratios can mean dividend risk and when the dividend is at risk, we lose our rudder and a good portion of our total return. Bank stocks in 2009 were forced to cut dividends; auto companies and airlines are notorious cutters because of their cyclical earnings. Many companies during the COVID economic shutdown eliminated dividends; companies like Walt Disney Co., Southwest Airlines, and The Boeing Co. Be wary. A high relative yield is a positive — think Heartland’s quintile 4 — but a very high yield can carry risk, which is one of the reasons why the stocks in Heartland’s fifth quintile underperformed.

In recent years as company management teams have improved their balance sheets and increased free cash flow (by living within their means), the opportunity to provide a return to their shareholders via the dividend has increased. As of the end of 2022 more than 400 of the companies in the S&P 500 pay a dividend which is roughly in line with the number in 2013. But, importantly, in 2022 S&P 500 companies paid out record dividends of $565 billion to shareholders, an increase of 10% over the previous year. That compares to a payout of $339 billion in 2013 when I wrote the first edition. A real-life case study of dividend growth.

The combined payout ratio of the companies in the S&P was 31%. (When I entered the business in the early 1980s the payout ratio routinely came in around 50%.) Robert D. Arnott and Clifford S. Asness published a research paper entitled. “Surprise! Higher Dividends= Higher Earnings Growth.” Though the results were published in 2003, the conclusions are still relevant. The author’s found “evidence strongly suggests that expected future earnings growth is faster when current payout ratios are high and slowest when payout ratios are low.”44 Historically investors assumed low payout ratios forecasted strong future earnings growth as management reinvested earnings into growth initiatives. But, in fact, what Arnott and Asness have concluded (supported by the data) is that within a reasonable payout ratio range of, say, 25–30 percent, these higher levels are forecasting stronger future earnings growth. Further confirmation of the power of dividends as a valuation tool. Because of its importance to value investors, we want to make sure that when we buy a stock for the dividend income and valuation information that the dividend is safe and reliable — not too high, not too low — and we do this by considering the sustainability of the dividend when compared to earnings via the payout ratio.

Don’t talk to strangers; taking stock tips from people whose investing prowess is unknown to you is like gambling.

My high school US government teacher had a policy that students could take every test three times and keep the highest score. His experience showed that rarely, if ever, did a student do better on the second or third try. And he told us that. Still almost every student tried their hand at taking the test three times, including me. When I did manage to eke out a good grade after the third effort it was sheer luck that propelled me. The same is true for investing. If, by chance, you buy a stock in which you have no knowledge or have not done the research and you succeed you will have learned nothing of value and may wrongly conclude you can repeat the serendipitous success. Buying a stock without knowing anything about the underlying company usually doesn’t turn out very well. I know because I had to learn this lesson the hard way.

Many years ago, on a flight from San Francisco to Houston, I met the charming CEO and CFO of a telecommunications company called SmartTalk. They had been touring the country touting their public offering of shares and were on their way home. By this point they had their pitch down pat. And I took the bait. Though they were perfect strangers to me, I didn’t bother to do the research on their company and bought 100 shares each for my children’s education accounts based solely on our airborne conversation. In less than two years, I  is the Founder and CEO of Empowered Investor. Jason has been involved in several thousand real estate transactions and has owned income properties in 11 states and 17 cities. Empowered Investor helps people achieve The American Dream of financial freedom by purchasing income property in prudent markets nationwide. Jason’s Complete Solution for Real Estate Investors™ is a comprehensive system providing real estate investors with education, research, resources and technology to deal with all areas of their income property investment needs. Through Jason’s podcasts, educational events, referrals, mentoring and software to track your investments, investors can easily locate, finance and purchase properties in these exceptional markets with confidence and peace of mind.*