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  • Martin Sosnoff

Yellow Brick Road’s Ahead

I keep my 1960’s pocket slide rule on my desk, a reminder that numbers, not words, finally govern stocks. Courage, alas, is a seldom mentioned trait of a winning money manager who believes in his numbers, poised to buy and sell, buy and sell.


You sense when to go against the grain of sentiment, and what everyone thinks, they know. Judy’s prancing partners on the yellow brick road got it right. Gotta have heart, brains, and courage.


Since the year 2000 the market endured the internet meltdown both in 2001 and currently. The S & P 500 touched down at 800 (yes 800) in the initial internet fiasco of 2001, and later on in the financial meltdown of 2008-09. Fortunately, Bob Rubin was then Treasury Secretary, an alumnus of Goldman Sachs, who endured panics.


Bob and the Federal Reserve Board saved the banks and the country from utter ruin. Merrill Lynch and Bear Stearns no longer exist. Lehman Brothers is gone, too. Years later, we took out the right side of the market’s W, the old high made in 2000.


Net, net, violate conventional valuation yardsticks, and get washed out with scant wherewithal to resume as a serious player. The market’s treacherous undulations, particularly in the 2000-09 period, is best captured in thes chart on the NASDAQ Composite Index. Below 1000 in 2002 and then it shot up, over 4000, in 2014. NASDAQ currently trades well over 11,000, heavily weighted in tech house paper now bouncing off past year’s lows.





Nobody talks much about volatility in banks, but in the 2008-09 meltdown, the sector turned into Niagara Falls. From its peak of 120, the KBW Bank Index

plummeted to 20, in a 12-month interlude. In hard times, not just tech gets schmeissed in half or worse.


Market pundits never catch an impending downside move. Nor does the analyst fraternity considering the likes of Tesla, Meta Platforms, and Amazon. It’s not good for brokerage commissions to preach for caution. Nobody ever urges big cutbacks in equity concentration, despite obvious non-delivery. Nobody now urges change in their 60/40 ratio of stocks to bonds. Piechart investing, long in place, but another year of negative returns could change all this. Now it's impacting earnings of major banks where wealth management became a major profit center. Comfortable families, passive investors, may think about taking risk off the table.


I’ve bought a huge tranche of Treasuries where I’m in the red. But, coming back into Alibaba is a big winner. The bet here is Chinese regulators ease up and allow BABA to build out their major holding of Ant Financial into the size and scope of a BlackRock.




Tech’s great 5-year run, 2015 to 2020, is captured in this table. If not overweighted, you probably underperformed the market which rose 50%. Stocks like Microsoft and Amazon went through the roof, advancing nearly 400%. The present rally in tech is a bet on a resurging economy just around the corner. I’m playing Apple and Microsoft which I can understand and model out for a couple of years. Their price -earnings ratios don’t dwell in the clouds.


Focus is on operating cash flow, wherewithal for management to build out its footprint in their businesses. Because I don’t believe a major turn in the market is at hand, I’m focused on assured yields for a sizable chunk of my invested assets. Initial foray into Treasuries now looks foolish, but at least I’ll recover my principal if I hold to maturity on 2-year paper. I can live with opportunity costs lost, by using leverage.


In stocks, craving for a solid 5% rate of return is satisfied with Exxon’s future yield capacity. Actually, I have increased energy investments to 15% of assets with adds to Occidental Petroleum and strongholds in MLPs like Enterprise Products Partners, yielding over 7%. Management's niggardly dividend bumps of a couple of pennies is a trial.


On 9/11, like the Tin Man, I coulda used a heart, too, but nothing to do with investing and everything to do with staying alive. I was attending a board meeting

at NYU, its business school, and was stubborn about leaving the scene adjacent to Twin Towers. My wife, Toni, got me out while I mused Twin Tower, never shoulda been built. But, the New York Port Authority had a capital surplus and this troubled the board. The property leased up slowly, offices and interior design mediocre, uninviting.


Sam Zell once cautioned me, Never inhabit a space that is publicly landmarked. Too dangerous. The Big Board reminds me of Twin Towers. A thunderous throbbing presence, inherently dangerous and uninviting.


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