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  • Martin Sosnoff

Plays For Cowardly Lions

Bert Lahr as the Cowardly Lion in The Wizard of Oz

Even for a passive investor who dozes while reading his Wall Street Journal after dinner, there’s plenty to consider on positioning your capital.

There’re long-cycle growth stocks that rarely make the front pages of the financial press. Why put up with the louche behavior of Jeff Zuckerberg at Facebook or try figuring out what the right price-earnings ratio should be for Amazon and Tesla?

When ahead of the game, you’re entitled to a couple of gut plays, but not a portfolio filled with imponderables. Leave that to day traders and dreamers who end up with shiny pants and wilted collars.

UnitedHealth Group is now numero uno in the Dow Jones Industrials list and flows along like “Ol' Man River.” Same goes for Zoetis which I bet you mispronounce. This is in animal healthcare producer. Change the corporate name to International Animal Healthcare and the stock would add multiple points to valuation.

Microsoft is easy to understand but you pay for such visibility. Management lays out their business sector by sector. If you’re afraid to own Amazon just for its cloud computing division, there’s Microsoft, divisions humming with high R&D spending. Walmart, Costco and Home Depot are great franchises, maintaining primacy in the retail sector. I own Macy’s but over $25 it’s richly priced. Sold in single digits a year ago.

Warren Buffett had it right when he played great franchises like newspapers, city by city. Warren holds a ton of American Express, over 50 years, still viable. Walt Disney’s franchise continues to be built out in the media sector and pretty soon their game parks will see great attendance, again.

The concept for passive growth stock investors is align yourself with powerful companies with hefty balance sheets and cash flow. Own ‘em so long as management never rests complacent.

To paint with a broad brush, put the NASDAQ 100 Index ahead of the S&P 500, because there’s too much dead wood in traditional indices like the Dow Jones Industrials. Consider, the make-up of the Dow has changed markedly with substitutions past couple of years. Looks more ‘n’ more like the S&P 500. UnitedHealth Group is the hefty-weighted stock in the Dow, added recently.

When I look at 5-year charts on stocks like Coca-Cola, I see stodgy performance so pass ‘em by. Everyone who invests should review 5-year performance for stocks under consideration. Coca-Cola, incidentally, plunged from $60 to high thirties early last year.

Hardest thing is determining price quality of properties you own. A great company that’s overpriced can be cut in half in a dicey market setting. Look at the 5-year chart on General Electric, for example, which was the leading market capitalization when everyone thought its headman, Jack Welch, walked on water. But, Jack overpaid for mediocre companies that still need rationalization by present management.

Early sixties, as a young analyst, I pressed to disabuse the custom-tailored anachronisms, whose dated perceptions on the stocks they grew up with had turned into faded wallflowers. Think of General Motors, Sears, Roebuck and International Harvester, all near basket cases. Managements went through the motions of running their businesses, pretty much blind-sided by what was happening around them.

After all, Toyota and Honda thrived because U.S. car makers’ costs became bloated by excessive wage increases. Sears couldn’t deal with Walmart’s everyday low prices. There should never have been a Home Depot which I remember as a tiny start up.

Passive investors coulda seen such goings-on in domestic markets, just as readily as securities analysts stayed focused then on high-tech properties like Texas Instruments, Fairchild Camera and Motorola.

When wrong, I check out of properties, like Boeing, which I viewed as untouchable in aircraft construction. It was no longer 1961 when I walked through Boeing’s assembly floor for their 707 aircraft that changed the world. I had learned to love Boeing’s convertibles, financed through a money broker for 10 points, marked to market, daily.

I got rich on leverage, but I can’t recommend such for armchair players who need their sleep.

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