In the good ol’ days, 1950s, growth stocks were barely acceptable. There were a few exceptions, like Polaroid and years later Xerox, which had traded OTC as Haloid Xerox, a chemicals producer. Once a stock broke over $200, management considered a stock split to $50 or so to attract broader investor notice.
Later on, Warren Buffett’s Berkshire Hathaway soared into the wild blue yonder. Buffett was adamant that stock splits did nothing for shareholders. But, even he devised a second stock class for outside investors, now trading in the hundreds.
Of late, thousand-dollar properties are receiving haircuts, either willingly or pushed into the hundreds by their demise in the market. Past 12 months BlackRock has been cut in half, caught in the pincers of a diminished asset base and rising expenses. Likewise, the market has haircut diverse properties like Netflix, Tesla and Biogen.
Meantime, eye-catching stock splits have taken down jitterbugging Alphabet and Amazon closer to par than a thousand bucks. What’s cooking herein is managements obviously no longer care to exhibit the lengthiest schlong in town. Why attract regulators or prompt more eyes to scan their proxy statements?
Proxy statements are written by lawyers whose intent is to make them as unappetizing and inscrutable as possible, particularly when discussion must cover all forms of management compensation. Not just a straight-out bonus, but mucho dinero linked to half a dozen obtuse categories.
How did Elon Musk become the richest operator in the world? Yes, he’s earned his place in battery operated motive power, but outsized stock grants over successive years have provided big wherewithal. We pure-slob investors have been methodically taken advantage of and substantively diluted.
I won’t own a stock where I can’t build a detailed model for, at least a couple of years ahead. Secondly, the management compensation issue. Salesforce.com is another aggressive example on both counts, particularly excessive options grants. There are times when I wish I were just a computer nerd, responsive to macro indicators and nothing else. But, the market can’t just run on what a handful of geeks respond to. After all, there is the long term. I measure cycles covering 5 years. But, Buffett’s span of measurement ranges over decades. Warren’s richer than I and sports a bigger foundation.
There’s a subliminal message thrown off by thousand-dollar stocks. Maybe, everyone who thirsts for growth is already involved up to his eyeballs. I was that way with Polaroid and Xerox. But once their technological base looked shaky, I got out. Our market simply destroyed Netflix. General Electric is no longer a blue chip and ethical drug houses like Biogen that didn’t deliver a fresh stream of new drugs get crushed.
Morgan’s portfolio is the outstanding example of money management excess. All these stocks got crushed in the recession coming in 1973 – ‘74. Morgan then changed its spots and became a value play for a very long time.
Contrast the shortening life of a growthie with a $10 piece of junk that everyone has learned to despise because of less than pristine balance sheets, operating losses and downward trajectory in price that looks like an expert’s black diamond ski trail.
Consider, from 2021 lows, stocks like Halliburton, U.S. Steel and Freeport-McMoRan doubled and tripled. Recent months, this paper collapsed as commodity prices softened amid macroeconomic worries surfacing. My iffy paper now embraces Teva Pharmaceuticals and American Airlines. They’re no longer giving away bank stocks or American Express, now fairly priced barring a long recession, which few of us see in the cards.
And, yet, the Street’s music sheets, starting with Goldman Sachs, are still too bullish on earnings and put too high a price-earnings ratio on the market in a world filled with pain.