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  • Martin Sosnoff

Unmuzzled, Unleash Hungry White Fangs

I miss the old Goniff Exchange. The ASE, where a bunch of ne'er do wells ticked under 10 bucks. You could even trade Saturday mornings from your easy chair. I know I’m showing my age, but there’s nothing wrong with a 9 in front of your name. After all, Buffett’s got one too.

Probably Buffett who once remarked that stock splitting was for Rubes. It did nothing directly for shareholders unless dividends get elevated at the same time. Even Warren carries two stock classes in BRK. A very high priced piece of paper is held by Buffett while his shareholders can trade in a lower priced stock still in the 4 hundreds BRK/B.

My Bloomberg screen is populated by 42 symbols trading over par and 10% which tick over $400. Sole properties I own trading under $20 consist of PAGP and ET, MLPs with high yields. Macy’s just traded back over 20 on a good quarter. 

But American Telephone hangs at 17 with no story. You can take on Rivian, the electric car maker still far from profitability. Ford, too, trades at 12. Who cares?

Conversely, high priced stocks with good stories can trade into the thousands, like Chipotle (CMG), which practically doubled past 12 months. Whoever said it was harder for a five dollar number to double rather than a thousand dollar number was sadly mistaken.

Nobody talks about it, but the sting of manhood creeps into management’s quest for a high priced stock selling at a market multiplier more than 20 times forward 12-month its earnings projection for the S&P 500.

The problem with such high multiple quests, is unraveling haircuts are awesome.  Look at Tesla. Peaked around $400 but presently trades at $175. For every good acting Eli Lilly, there’s a floundering Pfizer. I own Microsoft, which trades near its high of $432. But,  I deceive myself that I can create at 3- year income statement, that’s on the money. 

Contrastingly, I remember when Mike Milken came in with his Chrysler story. The stock ticked at 4 bucks but Lee Iacocca  was coming on board to turn it around and so he did.  I sold my position in the twenties. Today, Ford, at $12 can’t get out of its own way. The profitability for its electric car still possible. Never forget that a stock that trades around 10 dollars has plenty of good reason for its cellar dwelling. 

I divide stocks into two categories. There are my 10 buck nasties that can slide into bankruptcy. Then there’s the double par or better paper that can make or break you in half.

If I could project which sector does outperform, I’d be a rich man, not just comfortable. 

Fifty to 60 years ago, there was Xerox, Polaroid and IBM, all of which floundered later on. Some of my prime low priced 

paper included Reliance Insurance, Chrysler, American Motors and Nextel bloomed. Apple, American Airlines and Lehman Brothers.

I took a reportable  position in Caesars World under $8. Milk Milken sold me Saul Steinberg‘s block of the New York Times under $20 while Goldman Sachs block traders gave me Geico around 5 bucks. This Buffett stock tripled over a couple of years, just staying in business and no longer cutting premium rates did the trick. 

I remember calling The Pennsylvania Insurance commissioner who told me he had no interest in putting Geico out of business. That’s all I needed to satisfy me of its worth as a recovery speculation.  Today I own AIG, American International Group. They needed massive Treasury infusions to stay in business. So did Lehman, which was denied such, succumbed. You need several baskets of eggs, not just one nest.  

Unless you can explain away our substantial negative yield curve of 46 basis points between 10-year and 2-year Treasuries you don’t belong in stocks, neither ragamuffins nor growthies. A pie chart ratio of 60% S & P 500 stocks and 40% in fixed income securities won’t save you either. Markets now at 20 times forward 12-months earnings already, pushing  into overvaluation. 

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