I started off reviewing quarterly investment portfolios of the honchos with trillion dollar asset funds. Where were the guys managing trillions with low turnover ratios, excepting Warren Buffett?
Aside from Warren, I found instead hyper active portfolio turnover and mindless diversification. I couldn’t find logical portfolio diversification or concentration. Mistakes elevated rapidly.
Renaissance Technologies’ portfolio held just a handful of positions above 1% weighting. Is it my fault that I couldn’t recognize Vertex Pharma or Palantir Technology? Yes! Apple exists here as a 1% position which gives it no meaning as a high tech play.
There’s some Microsoft, too, but then we go to a succession of ½ % holdings I can’t recognize. Am I a leftover from the 1960ies? Maybe so. I fought to understand Fairchild Camera, Motorola and IBM in those days.
The number of questions to ask yourself are few but weighty. Should I go for growth stocks or value segments? Do I live by the sword and overweight technology? Why not construct a value portfolio where nothing sells for more than 15 times earnings and where 4% yields aren’t too rare?
I’m thinking of paper like General Motors which has doubled over the past 12 months. Duke Energy, a staid utility, has risen nearly 40%. There was no fear holding them. Yet there’s Microsoft up moderately from its 12-month low. The amount of energy expended in Microsoft research is unending but unfocused.
Microsoft rose just 30% from its 12-month low of $363. Mark me down, as MSFT is a major portfolio holding for me. I turned up my nose on broadly based electric utility Duke. Mark me down as foolish. To hell with the Magnificent Seven.
We shoulda learned from JP Morgan’s bruising over the Nifty Fifty. When I watch a down day I see MSFT off 9 points, Eli Lilly’s off 30 and Meta down 3 percent or 14 points.
Yes. I know. This isn’t a Patrick Henry situation where you need to choose between Liberty or Death. But being on the wrong side of a trade is painful. Deal with your own failings. Forget the also runs.
Next, I found a billion dollar portfolio where I didn’t recognize a single position. I’m talking about Jana Partners Management where there was also a high portfolio turnover ratio in the portfolio. In Renaissance, see complete turnover of holdings during the third quarter. Hey, fellas. What’s the name of your business? Is it really money management or making your brokers rich?
When I ran my eye down the list at Jana, its top 5 holdings were Greek to me. What is Trimble, a 17% holding? Follow this with Mercury Systems, Lamb Weston and Treehouse Foods and we’re over 50% of portfolio holdings. The rest of the portfolio a strange concoction. What am I missing? What is Blackline and Fortrea Holdings? Am I obsolete as a money manager?
I finally got to a $15 billion portfolio where there was some name recognition, namely, in Farallon Capital Management. It came with a higher static ratio at a reasonable 40%. Keep in mind Buffett’s static ratio mainly rests in the teens.
Before you run out and buy BRK, consider Warren is paring down banks, Apple, too. His overconcentration won’t be blessed in MBA programs which preach diversification, name recognition and reasonable price-earnings ratios. I’d like to see tax returns from editors of books on security analysis and money management. Are they in the game?
How do academics compare with what Carl Icahn and other operators do with personal assets? Who’s right or wrong? Carl owns a bunch of secondary oil plays that could go down for the count in a troubled energy market where nobody can get good prices for their inventory. I own lots of airplane paper which in deep recession would turn into single digit paper.
Everyone needs to decide what kind of player they are and implement accordingly.
The next table shows the extreme overvaluation of JP Morgan’s equity portfolio, end of ‘72. Their stocks sold around 2 times the market’s price-earnings ratio going into 1973’s recession. Walt Disney and Polaroid sold at 3 times the market. Just Sears Roebuck, and Procter & Gamble sold at a discount to the S&P 500 Index. Flee grandiosity or get cut in half.
See the market as the ultimate “Great Humbler”. Look what happened to the JP Morgan list. Morgan bought the biggest and best properties in sight. When recession hit, early in 1973, earnings collapsed with no natural equity bottom in sight.
Then, the Great Humbler took over and crushed everything in sight.
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