Shed Your Red Suspenders Market’s Crazy, Dangerous

Good ole days, rocky traders wore red suspenders. The standing bet was with my head trader who’d call the daily market, heads up or heads down. End of the year,  we’d settle up. He invariably owed me money.

Now is not the time to sport red suspenders. I’ve a huge position in Microsoft and watch passively as it pops 10 points on Monday and drops eight on Tuesday. Like Buffett, I learned to ignore such swings.

Unlike Warren, I haven’t learned how to hold a position for 40 years or so like his American Express. Warren has more capital than yours truly. I also owned Geico at $3 and then sold it at 9 bucks two years later. Warren owns the whole shebang.

Traders do end up with shiny pants seats from their ins and outs. I look for good entry points into market sectors.  If I can’t fully understand a stock or a sector, I won’t play. I do own some Apple, Eli Lilly, and Amazon, as well as Microsoft. That’s as racy as it gets for me.

Because I don’t hold that the business cycle is about to collapse, just meander, I am looking, finally, at consumer cyclicals, in energy and commodity plays like aluminum. I x out steel like U.S. Steel, because it was an old world player who didn’t hire Jewish boys like me from a city college.

I did go for an MBA at NYU, where everyone entering Wall Street earned his stripes. Yes, there were Jewish firms on the Street like Goldman Sachs, and Waspy outfits like Smith Barney. Late fifties, the Street was still in its infancy in  terms of security analysis and money management.

Lots of traders, left-overs from ‘29, couldn’t cope with emerging growth stocks like Texas Instruments, Fairchild Camera, Xerox et al. Everyone focused on the Dow Jones ticker which rang a bell on what their editors deemed notable news. 

Currently we’re in a wishy-washy market setting. Cyclicals like Ford yield over 9% and sell at 10 times earnings.  Nobody cares?

Well, I care that we don’t head into recession. Ford is a cheap stock. Same goes for Alcoa, even Freeport McMoran, which I never studied. I may probe such stocks that I’ve never looked at. After all, you can’t just own Apple, Microsoft, Eli Lilly, and Amazon. Or, can you?

Ford’s dividend in a recession could get halved, maybe eliminated. Consider what happened to NASDAQ Index from previous peaks. Growth stocks  a decade ago lost believers. Nothing specific occurred, just the feeling this paper was too rich.

NASDAQ from its peak in 2000, plummeted 90% next couple of years. Start-up tech houses turned to dust. They never should’ve got Street financing. It’s always good to know what’s out there against you, namely valuation excesses. Today, the market ticks at 20 times forward 12 months projected earnings. Historically, this represents peak valuation past 50 years or so. 

I review a couple of dozen quarterly 13F portfolio reports to the SEC from large money management organizations. What I look for is specific stock concentration,  sector concentration, and quarterly turnover ratios. Nobody’s as stay put as Berkshire with its low turnover ratio. Buffet is in the business of making money, not managing money to look good. Investors shouldn’t imitate professional money manager’s sector concentration and stock selection. Too haphazard.

Portfolios of several operators, running as much as $100 billion in equity assets leave me cool. Their asset turnover can run as high as 100%, quarterly. Using a mathematical formula intraday trading tries to catch eighths and quarters in stock price fluctuation.

Looking at a specific house like Millennium, you see nearly total quarterly turnover of assets. Stock positions of its biggest holdings total just 11.5% of assets. Thereafter it’s totally diversified with positions around half of a percent. Microsoft is grossly underweighted at 1.7% of assets. Think of Apple's concentration by Buffett. That’s courageous. 

There’s no theme to Millennium’s portfolio barring diversification.  Turnover is too high, raising the question of why so, and where’s the edge? Nobody’s going to the moon here. For me, it’s like holding a frozen package of carrots and peas. Dullsville on the Hudson.

I’ve put 17% of my assets in 3 MLPs, namely, Enterprise Products Partners, Energy Transfer, and Plains Group Holdings. Wish me luck and pesetas.