process progress · d work with a fiduciary wealth advisor to assess your portfolio and progress...

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NEPSIS, Inc.8674 Eagle Creek Circle, Minneapolis, MN 55378(952) 746-2003 • Fax: (952) 746-2006www.InvestWithClarity.com I Blog: www.InvestingWithClarity.com

©Copyright 2020. Advisory services offered through Nepsis, Inc.: An SEC Registered Investment Advisor.

THOUGHTS FROM THE FOUNDER: “Process before Progress™”: This is a phrase I often use when discussing the portfolio management here at Nepsis, Inc. While many investors focus on fees and short-term returns (which are historical and have ZERO guarantees in the future), I rarely get questions from clients that focus on our investment process. In my opinion, the most important aspect of investing is the “Process”. When we talk about “Process”, we are referring to our buy discipline, sell discipline, appropriate asset alloca-tion, flexibility, transparency, and active portfolio management. At Nepsis, we believe that understanding the investment process is paramount and often enhances an investor’s ability to accomplish their long-term goals.

While the media and many experts focus on the idea of “passive” investing or “index” investing, as the best solution for investors, 2020 has demonstrated that one never knows when an event will happen that will change not only the world but the investment world as well.

The events of 2020 could be one of the greatest examples of why “active” portfolio management is so much more beneficial than sitting on one’s hands and hoping one’s portfolio will rebound. THANKS TO FLEXIBILITY & TRANSPARENCY, active portfolio management provides opportunities for investors to take advantage of buying one or more businesses for the long-term, at a deep discount.

At Nepsis, we don’t view volatility as risk, we view it as opportunity. I would encourage our clients to take a look at their portfolios between March and May of this year and look at the adjustments that were made. Frankly, we made more adjustments during this very short period than ever before because the opportunities were tremendous for our clients. We should all be saying, “THANK YOU FOR VOLATILITY!”

One question I like to ask investors: “Don’t you want to take advantage of every possible opportunity which may potentially enhance your portfolio?” The answer of course is, “YES!” The adjustments made in portfolios a few months ago are a great example of this type of – FLEXIBILITY & TRANSPARENCY.

CONGRATULATIONS TO OUR CLIENTS THAT HAVE STUCK TO THE “PROCESS”.

While we are LONG-TERM investors and understand that one does not make or lose money until an investment is sold, we are obviously quite pleased with the portfolios’ performance so far in 2020. I continue to believe that portfolios are well positioned for what I sense will be a new era in investing. That said, we do and will continue to monitor the companies our clients own and make decisions based on our PROCESS & LONG-TERM BELIEFS.

Please enjoy the rest of your summer, stay safe and of course as always, Invest With Clarity®.

MARK PEARSONPresident & CIO

“PROCESSBEFORE

PROGRESS.”

– MARK PEARSON

2ND QUARTER 2 0 2 0 U P D A T E

PROCESSPROGRESS™BEFORE

www.nepsiscapital.com

www.InvestingWithClarity.com

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The old saying “Ignorance is Bliss” may be good for the ostrich sticking his head in the sand, but it certainly should never apply to investors. When asked what their number one holding is, many investors mention the name of a fund or ETF.

After doing so, when pressed on the individual holdings within that respective fund, they unfortu-nately have no clue. Furthermore, they also have very little idea on the construction process of the fund and who actually chooses those holdings.

The default mechanism then simply becomes the analysis of past returns. In doing so, they are mistakenly placing Progress before Process despite the fact that we must place the disclosure that Past Performance is not indicative of Future Results.

Often investors succumb to this mentality because they are ignorant of the actual process used to achieve the desired results. We believe that the biggest risk taken by many investors is their inability to fully understand the investment process used by their advisor or money manager. Client portfolios built of individual stocks based upon a stated investment philosophy and strategy provide investors a greater level of clarity than an ambiguous index construction methodology process. This was confirmed by the most recent Dalbar QAIB Study released in 2020.

The report cited as one of its top suggestions to advisors in how to deliver a calming message to their clients is to make them aware of their own behavioral biases. This awareness includes knowing what holdings they own in their portfolio and the process by which they are chosen.

In times of market stress and turmoil, clarity is paramount in battling fear and unrest. Advisors who have a structured investment selection are better equipped to counsel their clients by relying on sound judgment and eliminating emotion in the decision-making process.

PROCESS BEFORE PROGRESS™

Chuck Etzweiler, MBA, CIMA®, CFP®, CMT, Senior Vice President of Research

IN CLOSING, THE OSTRICH MAY FIND SOLACE IN STICKING ITS NECK IN THE SAND TO APPEASE ITS FEELINGS OF FEAR; HOWEVER, ADVISORS SHOULD COUNSEL THEIR CLIENTS TO DO JUST THE OPPOSITE. USING AWARENESS OF PROCESS AND A KEEN UNDERSTANDING OF THE ACTUAL COMPANIES THEY HOLD AND WHY THEY HOLD THEM IS A VERY STRONG TOOL IN COMBATING DESTRUCTIVE BEHAVIOR THAT IS OFTEN SEEN IN TIMES OF PERIL.



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1. Beginning in 1980 or the modern era of investing (development of 401ks and IRAs), there have been a total of six Recessions. This includes the one that we are in.

2. Official Recessions are not defined as two consecutive quarters of negative GDP but by a subjective and arbitrary set of economic data points as determined by the NBER (National Bureau of Economic Research.)

3. In each instance going back to 1980, there is a significant lag between the declared date of the beginning of the Recession and the date of announcement, the average being nearly 8 months or 234 days.

4. This is key because astute investors are almost always aware of economic contraction much before the official declaration.

5. As a matter of fact, if we look at the previous five recessions and use the official starting date, collective equity prices based on the S&P 500 Index perform better from the date of announcement and going out one year than they do under periods of expansion.

6. Over the last five Recessions and using these aforementioned dates, the median return of the S&P 500 from the announcement date and going out one year is 18.28%. This is twice the average return of that index over the last 80+ years.

By no means are recessions a time of celebration when we are struggling through one. However, the fact of the matter is, by the time they are made official; they are usually either over or close to it. Astute investors who operate with unfettered clarity realize that when equity prices drop without the long-term fundamentals in their view changing, they can find “Diamonds in the Rough” if they look hard enough. Conventional wisdom suggests we cower during periods of economic contraction and sell sound businesses at discounts to someone else. For many who follow this pathway, they sell low and only buy back companies at higher prices when the coast appears to be clear.

Many of us have used this ubiquitous phrase when describing a situation where we found something good hidden amongst many things that appear on the surface to be bad. The Merriam-Webster online dictionary defines “A Diamond in the Rough” as; “One having exceptional qualities or potential but lacking refinement or polish.”

Unlike many investment pundits, we see Recessions as opportunities to find companies selling at discounts to their fair value. Will the current COVID-19 Recession be one of those? We can’t be certain until this time in history passes. Instead of interpreting what is likely to be some of the worst economic data on record and using that as an investment decision-making tool, we believe it better to review past Recessions and how equity prices of companies performed in the midst of the storm. Here is what we found:

RECESSIONS & FINDING DIAMONDS IN THE ROUGHNepsis Research Team



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SPOTLIGHT - VMware (NYSE: VMW) The Investment Committee

When society finds itself in the midst of a Crisis, whether it be rebuilding from a natural disaster, war or a pandemic, it is hard to see the proverbial light at the end of the tunnel. Yes, we certainly empathize with others who themselves have or may know of a loved one who has suffered from Coronavirus.

That being said, we would be shirking our duties as a fiduciary if we were not adamant about looking past the Crisis and pondering what a post-COVID-19 world may look like. Obvious areas include the following: Teleconferencing and remote working tools, Medical supplies and medicine and of course companies that make disinfecting products. We will add one more to the list: Cloud Data Storage. With society now forced to operate remotely and at the same time be as or more productive, preserving information will be critical in how we conduct business in the future. It is for that reason that we searched the landscape of individual businesses that operate in this area. After seriously vetting several, we chose a company by the name of VMware.

KNOW WHAT YOU OWN & WHY

YOU OWN IT

LASTLY, AS VMWARE CONTINUES TO BUILD OUT ITS ECOSYSTEM, CONNECTING BUSINESSES ON ANY SCALE WITH THEIR CUSTOMERS ON A GLOBAL BASIS, ITS GROWTH POTENTIAL IS ENORMOUS, IN OUR ESTIMATION. IT IS OUR HOPE THAT AS VMWARE DEEPENS ITS FOOTPRINT AND WIDENS ITS MOAT, IT WILL BECOME ONE OF THE GREAT SUCCESS STORIES OF MODERN AMERICAN ENTERPRISE AND A WORTHY POSITION IN OUR CLIENTS’ PORTFOLIOS.

According to their official website located at https://ir.vmware.com/websites/vmware/English/1/overview.html, and the CFRA Business Summary located at https://advisor.marketscope.com/#/stocks/details/236904/VMW/Qualitative/powerSearch:

“VMware is a global leader in cloud infrastructure and business mobility. Customers rely on VMware to help them transform the way they build, deliver and consume Information Technology resources in a manner that is evolutionary and based on their specific needs.” “VMW develops and markets virtualization software, solutions and related support services for use in information technology (IT) infrastructure. Its infrastructure virtualization platform, VMware vSphere, enables enterprises the ability to aggregate multiple servers, storage systems and networks into shared pools of resources that can be delivered dynamically. As a result, enterprises can build a computing infrastructure using building blocks of inexpensive industry-standard servers while obtaining high levels of utilization, thus reducing the total cost of ownership. VMW defines its vision of a software-defined data center, in which the entire data center infrastructure will be virtualized and delivered as a service. This goes beyond what server virtualization software has done for the operating system and extends that to storage pool, networking, security, and management systems. The company’s key product is VMware vCloud Suite. It simplifies the management of data center operations by analyzing the service requirements and automating the control of the data center hardware resources in meeting those service requirements. VMware vCloud Suite is based upon the VMware vSphere virtualization platform and is designed to work for private cloud, public cloud, and a combination of both, and hybrid cloud computing platforms. VMW generates revenues through license and maintenance fees and professional services for its virtual infrastruc-ture and management software. VMware markets its products through both a direct and indirect sales channel, which consists of distributors, resellers, system vendors and systems integrators. The Business Summary further states: “Virtualization technology allows the separation of IT software from IT hardware. Traditionally, a specific operating system and related application software ran on the physical hardware. Currently, virtualization software allows multiple virtual machines with different operating systems and application software to run on a single physical machine. The benefits of this method include lower equipment costs, physical space, energy bills and labor costs. In addition, the productivity of computing resources increases dramatically with virtualization.”



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FOUR WAYS SAVERS MISCALCULATE RETIREMENT

You only get one chance to retire, so it is critical you get it right. However, a significant challenge is that it is not possible to fully understand the retirement experience until it actually happens. This inevitably leads to miscalculations in planning and preparation. In order to mitigate these retirement missteps, you must first understand what they are.

Miscalculation #1: Not understanding the impact of taxes in retirement.Income sources typically change from an employer paycheck to some combination of pension, Social Security, and retirement savings. The tax treatment of each source may vary, and the discretion of choosing how much of your savings to spend and when can cause further complications. Each part of your retirement income impacts how others are taxed and the total amount you end up paying.

For example, a portion of your Social Security may be counted as taxable depending on the total of certain categories of your income -- called your “provisional income”. Taking withdrawals from retirement savings can cause a higher provisional income, which results in more Social Security being taxable, which may force additional savings withdrawals to meet your spending needs, which in turn results in further taxation.

It is important to understand the cause and effect of each component of your retirement income and have a proactive plan for tax efficiency. This planning should begin well before you reach retirement to allow you the time and flexibility to optimize the tax treatment of your portfolio.

Miscalculation #2: Underestimating the impact of healthcare costs.A compelling issue affecting retirement is that the population of people age 65 and older is growing faster than all other age groups. In the U.S., 10,000 Baby Boomers reach retirement age every day and will continue to do so until 2030. Not only are more people reaching advanced age, they are living longer as well. There are many positive aspects to this, but one consequence is a higher occurrence of healthcare needs, including long-term care.

According to the U.S. Department of Health and Human Services, nearly 7 out of 10 people will require some form of long-term care services during their lifetime. The current average cost of this care can be as high as $8,517 per month, or $102,204 per year per person. It is easy to see how this can devastate a retirement portfolio in a short period of time.

Human nature can tend to downplay the idea we will ever experience this ourselves, but the statistics make it clear each of us needs to contend with the possibility. It is vital to analyze your situation and determine the best contingency plan for you. As this issue is so prevalent, there are now numerous ways to prepare for the cost of extended healthcare, sometimes by simply optimizing assets you already have.

https://www.genworth.com/aging-and-you/finances/cost-of-care.htmlhttps://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html

THE NEPSIS RETIREMENT CHECKLIST Financial firms and the media produce an endless amount of content each year about the topic of retirement, yet it's surprising how many people are still confused about where to begin. The Nepsis Retirement Checklist provides specific steps designed to help you have clarity about retirement.

While much of the Nepsis Retirement Checklist is pretty self-explanatory, we strongly believe the retirees that experience the most success are ones that work with a qualified financial advisor. At Nepsis, we specialize in helping our clients attain Clarity in their financial lives so they can truly Retire with Clarity®.

1 O+ Years to Retirement - The Pre-Retirement Stage

D Write down your vision for retirement. Rather than focusing on narrow specifics, it may be helpful to simply note ideas and values that will be important to you, e.g. "Spending time with children and grandchildren;' or "Travel to Europe."

D Ensure you are maximizing any employer retirement benefits, such as a 401 (k) match. D Evaluate your opportunity to utilize Roth IRAs for tax-advantaged retirement savings. D Consider saving some retirement dollars in non-qualified accounts for flexibility in your plan. D Check your Social Security benefits projection at www.ssa.gov. D Work with a fiduciary wealth advisor to assess your portfolio and progress toward your goals.

5 Years before Retirement - The Preparation Stage

D Update your written vision for retirement. List as many specifics as you can, including age to retire, where you will live, etc. Although you are not locking into firm decisions yet, this is the time to assess the viability of your plan and expectations for retirement.

D Ask your HR department about all retirement benefits available and the process for utilizing them. D Check your Social Security benefits projection at www.ssa.gov. D Run a hypothetical retirement scenario with assumptions for retirement age, income, spending amount, savings rate,

investment returns, and inflation to test the viability of your expectations. D Work with a fiduciary wealth advisor to assess your portfolio and progress toward your goals.

6 Months before Retirement - Final Planning & Preparation

D Make your retirement decision. D Determine your employer's process for filing for retirement D Review your employer's policies for unused vacation payout. D Request a pension benefit projection and review your pension collection options. D Review your available health insurance options, whether employer retiree medical, private insurance, or Medicare. D Review your 401 k/403b plan for withdrawal options, including consideration of whether to rollover to an IRA. D Check your Social Security benefits projection at www.ssa.gov. D Meet with a fiduciary wealth advisor to complete a Retirement Policy Statement outlining your expectations and

plan for cashflow in retirement.

(952) 746-2003 • Fax: (952) 746-20068674 Eagle Creek Circle, Minneapolis, MN 55378www.lnvestWithClarity.com I Blog: www.lnvestingWithClarity.comRadio: www.lnvestingSuccessForYou.com


Nepsis Financial Planning Team

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FOUR WAYS SAVERS MISCALCULATE RETIREMENT

As Nepsis, Inc. continues to grow, we appreciate your continued confidence and support. We believe successful investing requires Investing with Clarity®. We look forward to continually providing you with the Clarity needed to be a successful investor long-term.

Respectfully,

Mark PearsonPresident, Founder & CIONepsis, Inc.

CHECK US OUT ON SOCIALNEPSIS INC. NEPSIS, INC @NEPSISINC @INVESTWITHCLARITY

Continued from last page

Miscalculation #3: Not knowing what you own in your portfolio and why you own it.All the rules change when you retire. Everything shifts from accumulating assets for a future goal to utilizing what you have accumulated to support your retirement income needs. In other words, it’s time to start spending instead of saving. Just as the focus of your portfolio must adapt, your strategy likely needs to shift as well.

The problem is that most investors don’t really understand what they have in their portfolio to begin with. The financial industry tends to push cookie cutter solutions designed to meet the needs of the masses rather than address your unique situation. The result is a homogenized portfolio with little flexibility or transparency and little connection to how it serves your retirement needs.

A further issue is that many become singularly focused on certain aspects of their investments, such as dividend yields, rather than looking at the big picture. This can lead to portfolios with undiluted risks. It is critical that your income sources and assets work together in order to achieve your retirement goals. Understanding what those assets are and why you own them is an essential part of your retirement plan.

Miscalculation #4: Not being prepared for disenchantment in retirement.So much time is spent looking forward to retirement that we tend to envision things going a certain way. Many of us picture living the “golden years”, but the reality is more sophisticated than that. Robert Atchley, PhD, a professor and gerontologist, developed the idea there are stages of retirement. These include Pre-retirement, Retirement aka “the honeymoon”, Disenchantment, Reorientation, and Routine. Retiring is not as simple as punching the timeclock one last time and then going on vacation.

It is important to expect a time of disenchantment as you adjust to life after work. It is normal to discover that parts of retired life do not match up to expectations that may have been years in the making. Disenchantment, leading to Reorientation, is a necessary period of reevaluation, adjustment, and balance.

Successful retirements are those that are meaningful and filled with what matters most to us. This can include leisure, volunteering, mentorship, or even more work. As clichéd as it may sound, retirement is not merely a destination; it is part of the journey.

http://www.aifg.org/atchley.cfmhttps://news-archive.cfaes.ohio-state.edu/news-release/family-fundamentals-retiring-expect-go-through-different-phases-december-2009



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