Monday, March 25, 2013

The Best Stock-Picker I Ever Knew


 The best stock-picker I ever knew died last week.  
 You never heard of him.  He did not yack about his picks in Barron’s annual Roundtable or chat up his latest buy with the talking heads on CNBC, and he certainly wasn’t posting anything on message boards—he actually didn’t use a computer.
 In fact, he still used a rotary phone in his house.
 The way he picked stocks was also from the dark ages: he combed the stock tables in the Wall Street Journal, looking for a very specific thing he liked to see in a stock.
 When he found that thing he liked to see—and only when he found that thing—he bought the stock.
 And he never sold it.
 So when he died last week, he was sitting on a portfolio of stocks like ExxonMobil, Altria (the old Phillip Morris), Verizon, and all kinds of blue-chip stocks that your average CNBC stock promoter doesn’t much care for, at cost-bases that would make your head spin, with dividend income that paid for the houses and antiques and gee-gaws and other things he collected besides stocks.
 What, exactly, was the thing he was looking for? 
 It was simple: it was a high dividend yield in a company that had a long track record of paying good dividends.
 By buying companies with safe, high dividend yields, Norman assured himself of getting only companies that had solid financial characteristics (after all, they couldn’t have been paying dividends for many years without a good underlying business model and strong cash flow), at prices that were usually—in hindsight—ridiculously cheap, because Norman generally bought them during a hysteria that was causing Mr. Market to offer that particular stock at a particularly attractive price.
 Picky as he was, Norman bought maybe one new stock every year or two, at most.  (He made Warren Buffett look like a day-trader.) And he was loyal to his investments: he never, ever sold.  
 He bought what is now Altria back when the government was trying to put Phillip Morris out of business around 2003-4 and the stock was being given away.  He bought Mobil back during the market collapse in 1987, when everything was being given away.  And he bought things that became Verizon back before Verizon became Verizon, when those things were being given away because nobody understood who needed a regional phone company in their investment portfolio.
 Idea-for-idea, Norman was the best stock-picker I have ever known: he almost never bought a clunker. 
 But he was more than a stock-picker.  He bought houses the way he bought stocks—when they were on saleand he rented them to people who often became his friends, like we did.  
 And he bought the antiques and gee-gaws that eventually filled almost every square inch of his house and garage the way he bought stocks and houses, although he splurged a little on objects of great beauty, because, at the end of the day, he saw beauty where others didn’t.
 Now that I think about it, Norman picked his friends the same way he picked stocks (and bonds) and antiques and gee-gaws, and like those stocks (and bonds) and antiques and gee-gaws that he bought and never, ever sold, Norman kept his friends all his life, and they stayed with him in return.
 Our daughters first met him long ago in a dark Victorian living room with dim lighting and old furniture and a fire in the fireplace and hot tea on the coffee table even though they were too young to drink tea (although they did eat the biscuits he set out), and despite the fact they only saw Norman a few times after we moved away from next door to him ("away" being three blocks, which was still too far away for Norman), they miss him.
 We all miss him.



Jeff Matthews
Author “Warren Buffett’s Successor: Who It Is And Why It Matters”
(eBooks on Investing, 2013)    $2.99 Kindle Version at Amazon.com

© 2013 NotMakingThisUp, LLC              
The content contained in this blog represents only the opinions of Mr. Matthews.   Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.  This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever.  Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored.  And if you think Mr. Matthews is kidding about that, he is not.  The content herein is intended solely for the entertainment of the reader, and the author.

Tuesday, March 05, 2013

“The New JCP”: Insider Sells, Chumps Buy


 The most inadvertently amusing rumor we’ve heard since—well, since the rumor that Richard Schulze had plenty of backers to lever up Best Buy (reported repeatedly, and wrongly, by the Minneapolis Star-Tribune, as detailed here)—was today’s breathless rumor that JC Penney was either going to be put up for sale, or its CEO Ron Johnson, who lost his considerable Apple-related mojo trying to turn around the aging department store chain, was going to be fired.
 Here’s how Briefing.com reported it at 3:11 p.m. E.S.T.:
 J.C. Penney seeing pop higher on volume  (15.35 -1.38)
Move being attributed to speculation that directors could push for sale of company or push to replace CEO.
What made this rumor so amusing is the fact—apparently oblivious to the rumor-mongers trying to pump up their stock—that one of the very same directors supposedly pushing for sale of the company had just sold 10 million shares of his company’s JC Penney stock in a “get-me-out” kind of trade you don’t see very often, especially from insiders. 
 According to Bloomberg, Deutsche Bank handled the block after market close last night for Vornado, whose CEO, Steven Roth, is one of the JC Penney directors most responsible for bringing in Ron Johnson in the first place.  (And they handled it very well, at that, getting $16.40 for shares whose last trade on today’s close was not quite $15.)
 What makes the Vornado sale even more interesting than just being a honking big insider sale is that Roth’s presence on the JC Penney board provided support to JC Penney’s shares through all the ups and downs (mostly downs) of its turnaround.
 After all, with Vornado one of its biggest shareholders and Roth one of its biggest-mouthed and most money-making directors, Penney shareholders could ignore $4 billion of annual sales and $2 billion of gross profit dollars evaporating while customers fled to Macy’s and Target, by daydreaming about a happy ending: to whit, that JC Penney would turn itself into a high-P/E REIT like Vornado, and shareholders would live happily ever after.
 One more thing that made the sale interesting is that Vornado didn’t need to sell.  This wasn’t a margin call like the Bass Brothers’ sale of Disney stock a couple decades back (look it up, kids), or, more recently, Aubrey McLendon’s 2008 margin call in Chesapeake.  No, Vornado appears to have wanted to sell.
 Now, we here at NotMakingThisUp don’t think the whole story at JC Penney (or “JCP” as its new overseers mistakenly took to calling it in ads despite the fact that the target JC Penney customer has no notion of stock tickers) is that Ron Johnson alienated a whole bunch of customers, many of whom may never come back.  We think the whole story would also take a hard look at what happened before he arrived, and how, exactly, the previous management team ran the thing before Ron Johnson even walked in the door (big on share repurchases for Wall Street types, short on reinvestment in the business for the customers).
 Still, the idea that JC Penney will now be sold—after a key insider, who would probably know if something was brewing, takeover-wise, blew out 10 million shares of stock—makes this the most amusing rumor we’re heard since the Best Buy nonsense.
 What we really have here is a case of massive insider selling, and what looks like chumps buying.  
 And a whole lot of ‘em, at that.

Jeff Matthews
Author “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett”
(eBooks on Investing, 2012)    Available now at Amazon.com

© 2013 NotMakingThisUp, LLC
                                   
The content contained in this blog represents only the opinions of Mr. Matthews.   Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.  This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever.  Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored.  And if you think Mr. Matthews is kidding about that, he is not.  The content herein is intended solely for the entertainment of the reader, and the author.

Saturday, March 02, 2013

Buffett’s Lament; or, Don't Let The “Uncle Warren” Stuff Fool You


  Well Warren Buffett’s latest chairman’s letter is out, and it is, in a word, boring.
  But boring in a good way. 
  Unlike two years ago, when a supposed successor to Buffett’s throne flamed out (spectacularly—ed.) and last year, when Buffett finally announced that there was indeed an identified, board-approved successor (for more on this see “Warren Buffett’s Successor: Who It Is And Why It Matters,” just out on Kindle—ed.), there are no dramas this year.  Just a lot of good news.
 He tells us the biggest profit engines at Berkshire—the railroad and the energy utilities—are growing nicely and sucking up a lot of cash destined to earn a very decent return, which makes Buffett happy.  (Anybody else notice the railroad now carries “15% of all inter-city freight in the US,” according to Buffett—distinctly higher than the 11% figure he quoted two years ago?—ed.)
  And most of the smaller businesses—from boxed-chocolate maker See’s Candies to McLane, a distributor of everything from beer and wine to gum (it also happens to be the largest tobacco distributor in the US, despite Buffett’s revulsion towards that product—ed.) seem to be doing fine, too, although Buffett says next to nothing about them.  
 Rather, he can’t wait to talk up his two eventual replacements as Chief Investment Officer at Berkshire, Todd Combs and Ted Weschler, who each beat the S&P 500 by over 10% in 2012, which “left me in the dust,” Buffett complained (in a humorous way—ed.)
 Also, the insurance businesses, which constitute the heart if not the soul of Berkshire Hathaway, “shot the lights out,” in Buffett’s words.
 Plus he gives the usual shout-outs to various Berkshire managers, not to mention the usual self-reproach for seeming ‘bad’ news—which in this year’s letter starts with the disclosure that Berkshire didn’t outperform his standard measuring stick, the S&P 500, resulting in the bizarre circumstance of a CEO whose company increased its after-tax net worth by $24 billion calling the numbers “subpar.”
  He predictably griped about not bagging any major acquisition “elephants” as hoped (although he did snag Heinz after the year finished—ed.) and gave his standard and oft-repeated “America’s best days are ahead of us” cheerleader pitch (including the normal sniping at lesser CEOs—ed.).
 There is also a classic Buffett primer on the merits (actually, in this case, demerits—ed.) of paying dividends; as well as a long and unconvincing defense of his recent, renewed foray into newspapers (to paraphrase, ‘it isn’t costing us much, and by gosh it’s good for America’—ed.).
 But the best part of the letter—the part that gives the reader the greatest insight into the mind of Warren E. Buffett—is not the railroad stuff or the insurance stuff or even the invitation to host “a credentialed bear on Berkshire, preferably one who is short the stock,” in order to “spice up” the Q&A session at the Berkshire shareholder meeting (poor bastard—ed.).
 No, the best part of the letter is Buffett’s lament that his record of beating the S&P 500 over five-year periods, which he first brought up in the 2011 letter, is endangered:
 “To date, we’ve never had a five-year period of underperformance, having managed 43 times to surpass the S&P over such a stretch… But the S&P has now had gains in each of the last four years, outpacing us over that period.  If the market continues to advance in 2013, our streak of five-year wins will end.”
  The fact that a guy who, with the help of Charlie Munger’s key insight on the importance of buying good businesses rather than cheap stocks as well as the hard work over many years by a lot of smart managers who could have made themselves far richer working on their own, has compounded the net worth of a company 19.7% a year for 48 years (when you compound something nearly 20% a year for 48 years, it adds up to a lot…like, 586,817%—ed.) worries about a 43 period “streak” of five-year wins against the overall stock market, tells you everything you need to know about what it takes to create a track record like Warren Buffett (a flat-out competitive instinct that never quits—ed.)
 So don’t let the “Uncle Warren” veneer fool you.  He set out to be the richest man in the world, and he made it, but not by sitting back and spouting homespun pearls of wisdom: it was by outworking—and outthinking—everybody else.
 And doing that every day, of every week, of every year.

Jeff Matthews
Author “Warren Buffett’s Successor: Who It Is And Why It Matters”
(eBooks on Investing, 2013)    $2.99 Kindle Version at Amazon.com

© 2012 NotMakingThisUp, LLC              
The content contained in this blog represents only the opinions of Mr. Matthews.   Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.  This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever.  Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored.  And if you think Mr. Matthews is kidding about that, he is not.  The content herein is intended solely for the entertainment of the reader, and the author.