Can Financial Memory Sort Out Market Chaos?

Long historical memory can distort the present or focus it brilliantly. What’s coming next? I once terminated a very bright 50-ish technology analyst because his image of IBM and Texas Instruments was formed too long ago. He was late tuning into changes at the margin, particularly for IBM and later on he missed Apple and the personal computer.

If an historical sense helps you understand the here ‘n’ now, use it. Otherwise, toss it in the waste basket. I’ve been known to take entire corporate files a foot thick and dump them as impediments to perception.

In America, at least over the long run, optimism pays off. Ask Warren Buffett. The stock market has outperformed all other assets despite its Black Mondays. If you run billions, staying invested can be more fruitful than moving into or out of markets. I’ve learned not to forecast too definitively on interest rates and the valuation structure of the market. It’s better to seek out properties that are moving into phase and stay with them for 5 years or more.

Never fall in love with a stock that goes up and makes you feel smart, like the old Xerox and Polaroid. You’ll regret it. Both sold at price-earnings ratios in the stars. Today, Apple still sells at a reasonable valuation but not Tesla, Alphabet or Amazon. Alibaba has been cut down to size along with Meta Platforms.

Before Jack Ma spoke up against his regulators, I saw Alibaba headed to $500 a share, not today’s $92. Regulators punished Alibaba and I sold out early on. I thought Boeing also had $500 written all over it before its horrendous plane crashes.

Boeing trades above par, but peaked at $450 couple of years ago. When Boeing introduced its 707 jet early sixties, I bought their convertibles on 10-point margin using local money brokers. Management provided me with a bicycle when I toured their factory floor. I found they were early users of titanium fasteners which led me to investments in titanium-based producers.

Never expect a stock or its management to love you back because you were so intelligent to buy their piece of paper. The real world does intervene and it can destroy you. Carl Icahn got it right: If you want love, buy a dog. Toni and I live with 5 poodles: 4 toys and 1 standard. In the old days when we were competitive exhibitors our kennel controlled around 100 toys and standards. You do what you have to do to stay competitive, breeding for specific points in tail set, dark eye color, rounded paws and bushy well-hung ear leathers.

The historian, Frederick Jackson Turner had ingrained in my head his “frontier” thesis, that you wanna go west to seize the golden ring. Milt, one of my partners, wrote into his passport that he was a professional speculator (in the grain markets). He claimed that end of cycle in grains the same handful of guys ended up with all the money. When people asked me what I did, I’d tell them I’m a security analyst, a generalist who fluoroscopes anything and everything that walks.

Apple started its run from low thirties, first peaking out at $700, then shuffled back into the pack before it came on gamely with its cell phone offerings. Biotech properties like Gilead Sciences tripled over a couple of years. Citigroup came back from the ashes of 2009, a buck a share then, before its reverse split of 1 for 10.

The market ain’t as fleet as Secretariat. After emerging from the vicious recession of 1973 – ‘74, it compounded unevenly over 40 years at high single-digits. You work hard to stay in sync. I remember how Mike Milken by 9:00am had already taken 3 breakfasts with wannabe operators and his banking clients. I was his 8:00am appointment. Mike lugged around 2 lawyer-briefcases filled with “deal” paperwork. The market pushed away from boring pundits who saw nothing but downside at yearend, 2013.

Short of entrepreneurial genius, options leverage and skimming off 20% of the profits from a private equity partnership, the individual investor must put together a long string of felicitous plays and skirt blow-ups. Nearly impossible to achieve, decade after decade.

Get a chart service, but not a stock market operator’s daily music sheet. Subscribe to a monthly stat service that goes back decades. They track interest rates, inflation, stock market valuation, unemployment, corporate tax rates, pre-tax operating profit margins, investor sentiment, industry capacity utilization, corporate cash flow and capital spending as well as federal spending. This chart on GDP growth proves that nobody ever gets it right all of the time.

I could go on and on, but the objective is to define historic norms in the financial world. Daily newspapers and weekly publications don’t deal with historical nitty-gritty, but merely report on monthly published numbers with no historic perspective. Worthless ciphering.

Grunt work earns you the right to consider and call inflection points, critically taking a contrarian point of view from tireless punditry. Thoughtful investors coulda made calls on tsunami events like the Cuban missile crisis, Black Monday, the Lehman Brothers bankruptcy and 2008 – ‘09‘s financial meltdown. You had to relate market panic lows to comparable historic valuation yardsticks in the dark days. Then, you’re ready to stand in and swing for the fences.

Nobody ever mentions the “courage” factor in investing, but without it you’re just another stat in a broker’s ledger book. I own a ton of 2-year Treasuries because it’s premature to be bullish. My big longs rest in MLPs that most investors barely know exist. I’m talking about Enterprise Products Partners, Energy Transfer Partners, Magellan Midstream Partners and Williams Companies. All yield over 6% which is tax protected as a return on capital. As of this writing they’re all at new highs.