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  • Martin Sosnoff

Lemme Take You Back 50 Years

Arthur Schlesinger said after President Kennedy’s death, when he left the Administration, that one of the sidelights of his stay was that he could never again believe anything he read in the newspapers.

If our political press is so overmatched by any Administration on major issues, the financial press is even more overmatched, reporting on business cycles. Reporters never delve back more than a year or two. Nobody refers to charts on dated cycles or makes comparisons with what’s happening currently no matter how relevant.

To attain some perspective, comparisons cycle-to-cycle keep me from panicking. I dug out my first book “Humble on Wall Street,” published nearly 50 years ago by Arlington House, priced at $8.95. The inflation in book prices is outrageous. I am out of print, but you can get me from used book dealerships for $309.

When I told my old old friend, Gerry Goodman, I couldn’t make a living by writing, so I hustled down to Wall Street, he looked at me as if I was nutsy whutsie. Gerry’s “Money Game” sold millions of copies. When I told Bennett Cerf, Chairman of Random House, that I could’ve written the “Money Game,” he said “Yes, but you didn’t do it, did you?”

My book contained charts and tables dating back to the mid-fifties, that adumbrate even today a speculative fever even for banks, utilities and basic industrials. There were no tech houses then, IBM manufactured sexy electric typewriters in the 50s.

Probably, the raciest story of the sixties was the offshore mutual fund business built by Bernie Cornfeld. It took a team of London Times investigative reporters working a year to unfold and detail all the chicanery and self serving misuse of its investment capital. No exhaustive reporting on our side of the ocean, although the cast of characters was mainly U.S. operators.

My cohort running U.S. based money was hard-working and honest, but they proved out crazily speculative. The Oppenheimer Time Fund’s 10 largest positions sold at premiums to book value, ranging up to 1,900% in the case of Sony. The average premium over book ran at least 500% . Many aren’t around currently or were merged out. Today, if a company selling at 10 times book fouls up, its haircut can run to 90%, nearly overnight. During the bear market of 1973–’74 there was nobody left to buy your mistakes.

10 LARGEST HOLDINGS

OPPENHEIMER TIME FUND

SEPTEMBER 30,1972







In 1972, American Telephone rose 67% in just nine months, yielded 6% and sold under book value. Hardly anyone cared. Comeuppance for the Oppenheimer Fund came in 1973 when it dropped 48%. Leon Levy, an old friend and astute investor, wrote his shareholders: “ No one is always right about the stock market, and we are no exception. “


I love meltdowns and remember taking a huge position in American Express after it fouled up by leasing salad oil tanks to an operator who filled them with 99% water. In the sixties Geico sold at 4 bucks after cutting premium rates too sharply to gain market share. Unlike Buffett, I didn’t hang onto Geico for 50 years or more.


Consider the portfolio makeup of the Dreyfus Fund, yearend 1974, the recession’s bottom. It showed solid investment perspective, double-weighted in energy at 30.7% of assets and owned practically nothing in utilities and underweighted in basic industrials. These days, the only major operators, overweighted in oils are Buffett and Carl Icahn. I don’t remember when Dreyful banged out Polaroid, which proved a total disaster when Sony and Nikon took over camera making and film distribution

The Two-Tiered Market of Early 1973




Nothing is forever. “The average life for a growth stock is five years' ' I keep repeating that to myself. But the two-tiered market early in 1973 showed performance disparity between growth stocks in the S&P 500. Leaders like IBM, Fairchild Camera, and Burroughs attracted money and pension funds were the players, but by 1974 nothing held up in the deep recession.

Past year, the conventional ratio of 60/40, that is 60% in equities and 40% in bonds, proved a disaster for conservative investors. Serious money lost at least 15% as stocks and bonds declined in tandem. Investors need to reduce their equity, content and shorten bond duration to 5 years. I don’t see deep recession ahead, so 5– year BB Debentures get my money. Can’t explain the wide negative yield curve for 2-year Treasuries over 10-year paper. Today, my reserves go into 2-year Treasuries yielding over 4.5%.


Consider, in early postwar years, stocks sold at 6 to 7 times earnings and for a few weeks in early 1974, too. I expect to see legit growth stocks selling at 15 times earnings before long. Always be a handful of stocks attracting Footloose spec money.


Analysts can’t build detailed and reliable earnings models for the Meta-Platforms of the world. In the 60s, I could build tight models for Fairchild Camera, Motorola, and IBM. But, I got off the Xerox and Polaroid busses before their collapse. Luck of the Irish.



Now looking for sizable dividend payout capacity. I do own Microsoft and Apple, analyzable and not selling in the clouds. My memory is still too elongated to own bank stocks, which screw up, decade-to-decade. No harsh cyclicals like U.S. Steel, and Alcoa, but I own plenty of General Motors, a better operator than in the old days of starched, white shirts. Short capital goods cycles then crushed profits for industrials.


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