wall street journal at large." thank you for joining us, and have a wonderful long labor day weekend. ♪ ♪ ♪ ♪ jack: welcome to "barron's roundtable" where we get behind the headlines and prepare you for the week ahead. i'm jack howe in for jack otter. coming up, investment specialist rob around naught on why it's time for investors to shift away from high fliers like apple and tesla. later, the pandemic is scrambling plans for some investors approaching retirement: what to do about it.

but we begin with what we think are the three most important things investors should be thinking right now. the u.s. stock market plunged this past thursday and swung wildly on friday. was it just a hiccup or a sign to take profits? big banks are weathering the economic downturn better than feared. why it's time to size up their shares. and billionaire warren buffett just went on a shopping spree for stocks in japan. how u.s. investors can follow his lead. on the "barron's roundtable", my colleague, ben levisohn, carlton english and al root. ben, the stock market actually fell late this past week. i had forgotten it can do that sort of thing. what happened and how worried should i be? >> well, ask three wall street strategists, and you're going to get at least five different answers about why stocks fell. but really this had to happen. stocks just had an amazing august led by tech stocks. they just kept going up and up

and up, and they started september the same way. and it needed a cleansing. stocks had to drop. and so whether it was because some disappointing guidance or something else out there, it needed to fall, and they did. they got hammered hard on thursday, got hit again on friday though they did bounce back and finish well off their lows. jack: so tech has been tumbling, and some stocks that hadn't been doing well have been working better than some of the others lately. is this the beginning of that long-awaited rotation in the value stocks, or is it just one more head fake before apple triples in value and splits 12 different ways? >> this is one of those moments where i wish i could come on and say i had the answer. i don't. what i do know is that at some point tech is going to tumble for good. and so this is the time to start thinking about moving out of your hot tech stocks and into the stocks that haven't been doing well.

it's the stocks like apple, zoom, tesla, sales forest, these stock concern salesforce, these stocks have done so well, time to take profits on them. if you don't want to, do something else. i was talking to a strategist who said sell some high-yield bonds and buy stocks with high dividends, 3m, chef -- chevron, dow. they could do well if that continues. jack: you can't fool me with the humble approach, ben, i know that you know everything. carlton, for investors who want to shift into value, banks certainly trade cheap lu, but you say there's more to life beyond just the prices. tell us about out. >> yeah. so you're going to have to bear with me. i've got to talk some accounting first. beginning of the year there was this new accounting guideline called the current expected credit loss. that means, basically, the banks have to build reserves for their losses up front rather than as they're incurred, and that hurts

profits. now, that standard was going in at the beginning of the year anyway, but then it went into effect, we're hit with a global pandemic and a recession. basically, investors on wall street are trying to figure out how serious is this loan-loss issue going to be. but now as economic draw that has improved and, you know, it's been better than what a lot of the banks feared going into the recession. there's a possibility that we're going to start to see some of those reserves released maybe in 2021, 2022, and that's eventually going to help banks profit. jack: so if we hi the bank results will be better than wall street expects, better than investors expect, give us a few quick stocks that we ought to be taking a look at here. >> yeah. three came out to us. it's jpmorgan, citigroup and regent financial. all of them talked about being more cautious in building their reserves in the second quarter. and the portion of their reserves to total loans is a little bit higher than peers' so any improvement in the economic outlook is going to have an

outsized effect on those banks. jack: okay. al, warren buffett bought share of five japanese conglomerates. my confidence in the pronunciation, mitsubishi, mitsui, what do you think buffett likes about japan here, and do you think he's right? >> news job on that pronunciation, although i don't know either. you know, for warren i think that it's fairly consistent with his playbook. these are all value-oriented plays. they trade for about ten times earnings so, you know, most famous value investor out there, that's -- check that box. the other thing is this is a play on the global economy. these things are far-flung conglomerates. they do everything. the business description for mitsubishi is like 250 words. they do chemicals, logistics, they do everything. and that is sort of consistent with some of the big purchases buffett has made too, right?

it's a bet on the global economy. so in that respect, it's comforting. but these are wholesalers. these are trading houses. so to some extent, it's a bet on inflation, and it's a bet on the continued recovery. jack: so if you want to follow buffett, you could certainly buy an exchange-traded fund. our pal andrew berry has a story in this week's issue of "barron's" he mentions toyota and air-conditioning maker dykan. coming up, reasonable affiliates chairman rob arnaut on why he's all in on value investing, next. ♪

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jack: you know, by some measures the valuation divide between those go-go growth stocks and the beaten down value stock, it's as wide as it's ever been, and that's supposed to mean that it's a good time to buy value stocks. the problem is we've been waiting approximately forever for investors to fall out of love with those high fliers and into love with the bargains. joining me now is research affiliates chairman rob arkansas not. rob, we touched on this at the top of the show. rob arnott. is this latest wobble in the stock market the sign we've been wait for to tell us values day has finally come? >> well, the short answer to that question is, who knows? anything can happen on a short-term basis. longer answer is value is extravagantly cheap, growth is extravagantly expensive, and in time bubble burst. bubbles burst. so whether this is the break or whether the break has yet to come remains to be seen. it will happen.

jack: and you said, you know, obviously a good time to shift money into value stocks. you also say it's a good time to shift money outside of the u.s., particularly into emerging markets. why do you like merging markets, and what's wrong with just investing in u.s. companies that sell into emerging markets? >> if you buy coca-cola or apple or any of the other big companies in the u.s. that to a ton of business outside of the u.s., you're paying u.s. multiple for access to those markets. why would you want to do that when you can buy them on the cheap in their home markets? now, that doesn't mean buying coca-cola, doesn't mean buying apple, it means buying emerging markets companies that are based in e.m. and that are priced at levels reflecting i emerging markets values. the u.s. is at 32 times its trailing 10-year average earning. that is husband to haveically

high. -- historically high. it was a little higher at the peak in 1929. it was quite a bit higher at the peak of the tech bubble in the year 2000, but that's expensive. that's only twice in the last century that it's been more expensive than this. and when you're looking at international markets, you're paying about 18 times, in emerging markets you paying 14 times, better than half off relative to the u.s. and if you don't capitalization with bought the stocks so that you aren't fairing the most extravagantly expensive companies, if you fundamentally weight the stocks, you wind up paying about 9 times earningsing for an emerging markets portfolio. buying half of the world's gdp for 9 times earnings. jack: do you think warren buffett picked a good time to buy shares in japan? >> yes. there have been better times,

and japan is not overly cheap. but it's cheap relative to its own history. it's quite cheap relative to the u.s. and so, yes, us ill say that it's a good -- i would say that it's a good time to buy japan. better time to buy europe which is profoundly out of favor especially in the wake of the covid mess and better still to buy merging markets. jack: i want to circle back to something you said a moment ago because it's so important for many investors out there who have s&p 500 funds, you feel like the cap-weighted approach to indexing is fundamentally flawed. but those funds have done very well. so what's wrong with that a approach? >> basically capitalization-weighted indexes do very well in momentum-driven bull markets. we've had a momentum-driven bull market for the last decade. so this has been a splendid time to be capitalization weighting. now, the problem with cap

weighting is that the more expense i a company is, the bigger the bought it get in the portfolioful apple is a wonderful company, great products, great management, very well positioned for a world that's increasingly reliant on technology. what a great idea to have money in that kind of a company. but at what price? at its peak apple was worth more than the entire foot is city in-- ftse index meaning that apple, one company, was worth more than the publicly-traded british economy. well, is apple going to produce more profits for its shareholders in the decades ahead than the entire british economy? i don't think so. if you believe it, then it's fairly priced. if you don't believe it, it's a wonderful company that's overpriced. tesla's even more extravagantly peculiar on its pricing. jack: i had a feeling you weren't going to tell me to put

it all in tesla. rob, thanks for coming by to share your views. coming up, what investors nearing retirement should do now to shore up their finances. that's look limu! someone out there needs help customizing their car insurance with liberty mutual, so they only pay for what they need. false alarm. only pay for what you need. ♪ liberty. liberty. liberty. liberty. ♪

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♪ ♪ jack: well, despite this week's stock drama, the market has made a rapid recovery from its covid-19 crash. and housing is riding high too. but we're still down millions of jobs. finish that gives investors nearing retirement a lot to think about. barron's senior writer joins the round table. reshma, you wrote this week's cover story for barron's. give us a sense how the pandemic has upended some retirement plans. >> yeah.

the peak earnings, peak savings streak for a lot of people. with the u.s. still down 11.5 million jobs -- [inaudible] job loss. typically, unemployment rate for folks in their late 50s is 15-20% lower. so this time around we're seeing a narrower gap, and that has ramifications for retirement security which in itself wasn't so great even prior to this crisis. then you add into it furloughs and perhaps, you know, the additional financial support giving their adult children or to their elders, it really puts a strain on their finances. it's typically what you would have done if you needed to shore up your retirement security or deal with unexpected expenses would have been to work longer, and that could be hard to do out of this pandemic. jack: okay. so in that situation you say that one of the most important things folks nearing retirement can do is to raise cash.

how much cash are we talking about, and how should they raise it? >> so, you know, typically we talk about how you should have a 6-9 month emergency cash reserve. for those 5-10 years out of retirement, advisers are -- [inaudible] that higher end is really in industry that have been harder hit by covid, small business owners may have a lot of their retirement wealth tied up in their businesses. but it's intended as a bridge until you can replenish your income and a reserve to draw on if -- drops from your portfolio. jack: i think al has a question on sos. >> i do. huh, reshma, and thanks for the 6-9 month advice. i'm a little short of that at the moment. one of the things you say not to do is tap social security early. you can cap it -- tap it, i

think, as early as 62, but i'm curious why that isn't such a great idea. >> yeah. it's a thing many people think about, but there's a good reason not to if you're in good health. it's one of the -- inflation-impacted lifetime incomes you can get, and for every year that you delay, you know, not just -- full retirement age until 70, you're getting an durable 8%. and so, you know -- additional. half of americans over the age of 65, the majority of their income is retirement. so you want that to be as big as it can be. as long as you can to talk you there. >> so i'm just kind of curious, so much of the economic recovery has gone against norms, i'm wondering if there's any of this retirement advice that would be different than we would normally advise. >> sure. we always hear about don't raid

your 401(k) accounts. much better than taking social security early. and the government has also kind of opened the door to that with the cares act which allowed folks to take up to $100,000 out of their retirement assets, their 401(k)s without a penalty if they were under 59 and a half. and they could spread it over three years. but if you actually pay it back within three years, you'll get a credit. so it's almost like a loan. and you could also take a loan out of your 401(k) of up to 200,000, five years to pay that back. people like the loan angle because that withdraw you are more likely to pay yourself back. the other thing is debt. usually we tell people to take down their debt going into retirement. still good advice, but if we really need to free up cash with the property market holding up so well in parts of the country, some say it's not a bad idea

to -- [inaudible] getting a little bit of extra cash or opening up a home equity line of credit that you can draw on perhaps if you lose a job next year or if the market turns ugly and you need some cash. jack: i just want to drill down on that point real quickly because i think it's so important. i hear about social security, the payment is such a big asset for many people. you saying for folks who are 62 and they're tempted to take that cash now, those new options available to take money out of a 401 is k -- 401(k), you might not have recommended that in the past, you think that a makes sense now for folks to dip in there in order to hold off on those payments, and are you thinking they ought to hold off as long as they can, potentially, until age 70? >> yeah, exactly. i think that no matter how you do it for folks in the 65 and up group, you know, we hear about social security reform and possible benefit cuts. but for those -- window, it still makes sense to hold off.

and the cares act allow you to tap that retirement as set. jack: ben, time for one more quick question. make a it a real hard one. >> so the market tumbled. if you were in stock, you lost a third of your portfolio, but now it's bounced back. what should i do if that scared me? >> yeah. so this is a great time to rebalance normally, but it's especially a great time to free up cash. asset allocations are really going to determine where you go to rebalance and free up cash. if you had an aggressive portfolio, it'd be a good time to take some gains there. it's also a good time to sort of look at your portfolio, reassess risk. you know, we're in unprecedented spending here, taxes could be going up. you want tax diversityification with -- diversification and also some inflation hedges. gold and real estate as we sort of rebalance a little bit. and the other thing is you really look at that bond portfolio and make sure it's offering some balance and

diversification. there's been a lot of risk piped into that portion of what we consider safe money in our portfolio. jack: thank you, reshma, always great to talk with you. up next, round table members give their investment ideas for the coming weeks. stay right there.muck jean, did you know geico is now offering an extra 15% credit on car and motorcycle policies? that's great! that's 15% on top of what geico could already save you. so what are you waiting for? john stamos to knit you a scarf? all finished, jean. enjoy! thank you. i give. the stitch work is impeccable. it's just a double fleck pattern with a reverse garter stitch. no big deal. is your hair this soft? softer. geico. save an extra 15% when you switch by october 7th.

♪ jack: let's end with some actionable investment ideas. al, let's hear your bullish -- since you're bullish on ibm, tell me what you like. >> well, you know, i was listening to ben talk about dividend yields and the tech route, and it got me thinking, listen, i know there's no i in fang, but ibm has a 5% dividend yield. it was down about 4 or 5% at the

worst of the tech rout. i'm warming up to ibm. i think it's worth a look, and you can get paid to wait. jack: warming. okay, ben, you like small caps. you've got an et, if you think investors ought to consider. why to you like them here? >> well, because they stunk. the russell 2000etf has small cap stocks that are small, and it jumps towards value. investors like big and thaw like growth. when the rotation final lu takes hold, small caps are going to do pretty well. jack: and carlton, you talked earlier about banks and some stocks that you like. what if i'm too chicken for individual stocks? what should i buy? >> i've got an etf for you, it's a spider bank etf, and it's just for that reason. this is a beaten-up sector as the economy recovers, this gives you broad exposure today. jack: those are great ideas and

thank you very much. to read more, check out this week's edition at barron's.com. and don't forget to follow us on twitter@barron's online. that's all for us. see you next week on "barron's >> from the fox studios in new york city, this is maria bartiromo's "wall street." >> welcome to the program that analyzes the week that was and helps position you for the week ahead. maria's off this weekend. i'm charles payne. coming up in just a few moments, maria's one-on-one with blue apron's ceo, linda kozlowski, on the growing interest in home cooking during the pandemic, and later saul khan on remote learning. but first, another solid jobs report as the recovery from covid-19 pandemic shutdown continues. the u.s. economy added more than 1.37 million jobs in