Hard to know who’s the smartest guy in the room anymore. Renaissance Capital, its rooms filled with numbers crunchers, flamed out while day trading morons in GameStop crash and burn. Meanwhile polite paper players in Coca-Cola and Pfizer have nothing much to show.
If your portfolio doesn’t capture the reflation thesis, chances are you’re an underperformer. The market is fixated on the concept of leveraged earnings power, wherever you find it. Airlines still bleed profusely but draw players. Copper is now considered a growth metal for years to come. Same goes for steel, aluminum and drilling rigs activity.
How did independent, high intensity players handle themselves this past quarter? Anything to learn from their buys, sells and holds? It wasn’t like 1969 when the New York Mets won the World Series and America had landed its first astronaut on the moon. The issue was personal survival and asset base stability.
Tiger Global Management barely outperformed with largely a growth stock portfolio starting with Microsoft, Amazon and 12% of assets in JD.com ADR. I haven’t changed. You’d do better owning the NASDAQ 100 Index. After rifling through a couple of dozen portfolios of high intensity operators, I was struck more by what they missed than what they owned. Cyclical plays in industrials, energy and oil services hardly got any notice. Same goes for financials, steel and aluminum.
Stocks like Freeport-McMoRan, Halliburton, U.S. Steel and Alcoa sprinted around the clock several times. Low-priced plays like Macy’s tripled while General Electric doubled. Goldman Sachs sold at book value past September around $200, but ended the year at $250, currently edging over $300.
Where find moxie to play leveraged earnings power? Nowhere! E-commerce and internet houses showed little late foot. Amazon, practically unchanged for the December quarter. The NASDAQ 100 Index did better than the S&P 500 which levitated just 10% for the quarter, but few homeruns.
Sooo… many multibillion-dollar hedge fund operators showed numbers up 10% to 15%. Major stock positions stayed in place with no dynamic change in sector concentration. Tesla practically doubled in the fourth quarter. I don’t own what I can’t model in detail over a full cycle. Almost all of us missed it, but there was no excuse to miss General Motors or Freeport-McMoRan and Goldman Sachs. That is, unless you don’t believe reflation is the critical investment variable today. How else rationalize $60 oil, roiling copper futures and the changing upward rate slope in the money market and 10-year Treasuries?
Berkshire Hathaway’s portfolio still holds 23% of assets in financials. This has been whittled down some, maybe too soon. I don’t understand Apple at 43% of the portfolio, but that’s what rich people do. They concentrate assets. Diversification is for everyone else who invests and is frightened of serious financial risk.
Except for no Apple, Appaloosa Management looks like the NASDAQ 100 Index. You can duplicate this portfolio for practically no fee incurred, using the index.
With 15% of its portfolio in Microsoft, Duquesne Family Office is akin to my deployment. I see a 4.4% position in Freeport-McMoRan, an oddity among these players. I’m at 12%, but largely from price appreciation past 12 months.
Pershing Square, now a $10 billion asset house, gets my respect with almost all its assets in 7 positions starting with Lowe’s, the handmaiden to Home Depot, a pure play in the home repair sector which should do well in years to come. But, they make you pay up front, Lowe’s at a price-earnings ratio around 20 times earnings. This is a huge winner, a low pressure play that has tripled from its year ago low of $60. I shoulda had it!
I was surprised to see a low static ratio of 2.4% for Lone Pine Capital. It’s major position Shopify at 7.2% is too rich for my blood, selling at an enormous price-earnings ratio which keeps me from even an attempt to understand its business model.
Renaissance Technologies with $92 billion showed an uncharacteristic loss for its fourth quarter. This house, run by quants, shows total turnover and an $8 billion quarterly loss. I wouldn’t even take a shot on trying to understand what they do. I’m like a confirmed worm fisherman who baits his hook with a nightcrawler and casts out into the waters. Simpler, the better.
When I looked at Glenview Capital it reminded me of how I’ve drifted away from the defensive side of investing. Glenview’s portfolio is totally in healthcare. Its major position Tenet Healthcare is 17% of assets. A lot of portfolio activity but good performance. Consider, Pfizer and Merck are sluggish performers that seem to dwell in definable trading ranges. Not my cup of tea.
How do big money houses operate differently from you and me? Well, look at T. Rowe Price Associates, a trillion-dollar asset house. Amazon, Microsoft and Apple comprise 12% of their portfolio. I don’t understand why there’s so much portfolio turnover, almost 100% with their performance nothing to write home about. For me, Amazon and Microsoft count up to 22% of assets.
Finally, Carl Icahn’s portfolio, which always shows a comparatively low turnover ratio, remains heavily weighted in energy specs like Occidental Petroleum and Cheniere Energy which have rallied big off their lows. Carl was premature on Occidental which overleveraged itself on an acquisition. Who knows how this story plays out?
I prefer MLPs, also grossly leveraged, but they pay out returns on capital of as much as 9%. Enterprise Products Partners is my lead dog here.
All in, nobody’s cornered the market on brains in money management. Stay within your zone of comprehension and hope for the best.
Sosnoff and/or his managed accounts own Microsoft, Amazon, Freeport-McMoRan, Halliburton, U.S. Steel bonds, Macy’s, General Electric, Goldman Sachs and Enterprise Products Partners.
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