Early on, a rim man on the copy desk of a publishing house, all six of us were confirmed horse players. The guy who took our coffee orders also placed our bets. My favorite nag was Buddy Bones, a late closer who mostly finished in the money.
But, in a start at Belmont, BB threw his jockey coming out of the starting gate. Bones hugged the inside rail from start to finish line, but riderless. Obviously, no payoff. This cured me as a horse player. I graduated to stock picking, but wouldn’t ever own a stock that couldn’t make a come-back.
Stocks, like Polaroid, and later, Xerox, made me healthy and wealthy (on margin). My parents were too poor to own dollar-cost IBM, so suffered with the Generals, GE, GM.
Later on the Street, our research floor got one of the first Xerox 914 copiers. I counted the meter, daily as secretaries from all floors lined up to make copies on plain paper. Then, the overhead partner shut down our 914, as copies cost at least a nickel. I bought more XRX, and it took me to the moon.
In 1961, the open endedness of jet aircraft travel turned sleepy Hawaii into a major tourist destination. I didn’t carry the gelt to buy up half of Bishop Street Honolulu but carriers like United Airlines, Eastern and then supplier, Boeing, had issued convertibles that I margined on 10 points, using money brokers, who marked me to market, daily. Such bonds carried to triple par or better before I got off the bus.
Sam Zell, then a small Chicago operator in real estate tax shelters, never put me in a bad deal. Sam was a great rag picker. Aside from Mike Milken, Sam had a nose for turnarounds and their financing structure.
Then, I met Rupert Murdoch when he owned just an Australian newspaper. Murdoch unfolded his plans for entering the U.S. publishing scene. His concept initially was to concentrate on sports publishing and broadcasting because Americans were sports nuts.
Later, Saul Steinberg thirsted to be a newspaper mogul, too. Saul bought up a bunch of New York Times common stock, but his lawyers failed to break the Salzberger family hold on the company’s “B” stock. I bought Saul’s block as a low pressure investment which inched its way ahead for 20 years.
Saul wasn’t exactly my investment model, but neither was Warren Buffett, whose sixties portfolio of media stocks and banks bored me. Geico was just another insurance property that came back from the depths of its foolish rate cutting to build market share in the fire and casualty sector.
Saul later bought up Reliance Insurance as his operating base. With his dark eyes, Saul made a play for Chemical Bank of New York when still in his twenties. The establishment rose up as one and denied him deal financing. The spigot was shut tight.
Later on, Sandy Weill, who ran his Wall Street brokerage house with research based acumen, bought up Chemical Bank and ran it impeccably. Jamie Dimon was his 27-year-old assistant before leaving to join JP Morgan.
What I learned from Saul was never bet the farm on one property. Saul was then disclaiming, seated, while spooning out chocolate ice cream from a quart container. He was explaining that he had specific utilization in mind for each of the 24 rooms in his Park Avenue triplex. Previous owner was Lawrence Rockefeller.
We were discussing the contemporary art market, and, how if early in your picks, valuations could soar 100 to 200 times. This is better than venture capital returns. Saul was early on Francis Bacon, while I missed Bacon’s outrageous, figurative work.
But, now is not the time to be too expansive or over your head on margin. I keep telling myself this market is too expensive at 20 times forward earnings power.Let it tick closer to 16 times. It’s 20% overvalued. Ask for a bullish pundit’s tax return before following his advice.
I am 40% long. I do own Apple and Microsoft, but no banks, Meta Platforms, Amazon or Alphabet. If I can’t construct a credible 3-year earnings model on a stock, I’ll pass. Banks are still too dangerous while basic industrials like GE, GM, Deere and Caterpillar Tractor seem to discount too much ahead.
Consider, I’m still pulling my hair out as the spread between 2-year and 10-year Treasuries widens. The positive spread favoring, 2-year paper is at a 30-year high, The 2-year yield is pushing 5%. What can also hurt you is being too conservative at the wrong time.
Light in growth stocks, I keep repeating to myself “nothing is forever.” The average life of growthies is just five years. Wars, epidemics, and business cycles intervene. Remember, the banks practically destroyed themselves in their 2009–2010 meltdown on home mortgages. No Federal loan assistance for Bear Stearns, Lehman Brothers. Merill Lynch merged forcibly into Bank of America.
After their long runs the religion for Polaroid and Xerox floated out to sea. Their technology was challenged successfully by Sony and Nikon. Edwin Land, once considered a God, floundered helplessly, in X-ray technology. Xerox management even bought a brokerage house in a diversification effort. Management outside their special competence hung helplessly stupid. Even IBM floundered, after creating too many layers of management to deal with rapid change in computer technology.
What did Buddy Bones, Saul Steinberg and me, the young horse player, have in common? I’ll give away my theme here. Lack of discipline is a killer.
If something bad can happen, it will happen and leave you in ruins. As for wealth? Just an abstraction of entrepreneurial energy.