Can Core Holdings Do The Job?

After Microsoft’s haircut, some 55 points, I wondered if the old “buy ‘n hold” formula of investing still worked. Long ago, I owned American Express after it sustained the client swindle in salad oil. Buffett held on for 50 years and AXP made him super rich. I held on only for a couple of years. Just a good trade, not a mind- blowing cha-cha-cha.

Early 1960s, I cottoned onto Polaroid and Xerox which made me comfortable. I loved these managements for super productive research in instant photography and document reproduction. But Edwin Land’s research in the end game failed him. It never rose past picture-in-a-minute capacity with great definition. 

For Xerox, core products in document reproduction never rose above its 914-copying machine. After maybe a decade of dominance, Sony and Nikon took copying to a higher level at a lower cost. I remember, Edwin Land would show off his new products at open air meetings held in a Boston park. Finally, innovation failed Polaroid and it faded fast into the sunset. 

Hard not to assume that nothing is forever for almost all growth stocks. Yes, there are exceptions in the ethical drug industry where operators like Eli Lilly continually field major new drugs. But, consider blow downs like United Health which dropped dozens of points, overnight on a shabby quarterly report. UNH for years was considered a prime growth stock in healthcare. 

These days, I own no more than half-a-dozen stocks.  Being 30% invested has saved me from serious shrinkage in net worth, but it hasn’t of late made me richer either. My overweighted holdings consist of Amazon, American Express, Boeing, Eli Lilly and Goldman Sachs. Macy’s, I bought years ago, is my low-priced spec in retailing. Now a 3% weighting, a pure luxury and acting buoyantly.  

Look what just happened to Saks, a chapter 11 bankruptcy filing for a luxury retailer that has been around as long as I can remember. I never owned a stock that overnight collapsed 40 points, but Eli Lilly just did it. Make it a hundred points down before its snap back. 

My mother was a loyal customer at Macy’s a century ago. Remember the ballad’s key lines “Give My Regards To Broadway. Remember Me to Herald Square.” 

I carry half a dozen low priced ragamuffins. My list still carries Macy’s now around 20 bucks. Other ragamuffins include Cleveland Cliffs and Hawaiian Electric. 

The challenge in growth investors is whether historically huge premiums in price-earnings ratios are sustainable. Already, we’ve seen corrections in a bunch of growthies like Eli Lilly.  Not just tech houses, but financials, healthcare and industrials. The list grows longer. GE is a great recovery play in aerospace while Boeing did languish. Banks have see-sawed in a wide trading range. Your entry point is crucial. 

I bought more Boeing. Then, I dug a hole in the ground and whispered “ I bought more Lilly after its 100-point schmeis. Next day, Lilly rallied back 100 points. I’ve never seen such volatility, ever. 

My major positions entail Goldman Sachs, Amazon and American Express but patience runs short on AXP while Boeing has been brought back. Keep paring back your holdings and you’ll soon find yourself 30% invested like me. I’ve bought loads of 30-year Treasuries with new cash reserves. The 4.8% yield is good enough for now. 

Leading indicators on inflation in consumer prices and housing now seem benign. I’m not expecting commodity inflation or rising prices for housing. With massive lay offs in the technology sector, employment costs in the country rest containable. 

Net, net, I’m still looking for the macro indicators like low commodity pricing and flattish employment costs that can keep price-earnings ratios from slipping below mid-teens. As for the “buy and hold” investment precept, it’s still under challenge. At my back I hear price-earnings ratios still seem too high. 

I carry Eli Lilly which just shed some 70 points. Never held a stock that so readily did the flop. So far, I’m hanging in. 

Coca-Cola was ahead a point, a new high. Meanwhile, I remember flirting with Coke for the past 5 years, but I didn’t touch it. Eli Lilly now is 80 points below the high of a week ago. Helluva fast track.