Early forties, when I was 11 or 12 years old, I’d “borrow” my elder brother’s 28-inch bike, but my problem was legs as yet not long enough to touch both pedals. I needed to wait for one pedal to rise up before pressing down with my foot. It was manageable and I’d trip to the LaGuardia Airfield through heavy East Bronx traffic.
I gazed entranced as Pan Am’s flying boats in the bay tuned up for the Atlantic crossing, motors sonorously basso profundo. I never made it onto an amphibious aircraft until early fifties when I hitched a ride to Tokyo from Korea where I was an entrenched “dog face.”
Growth stock investing reminds me of my precocious bicycling days. You are always waiting for the pedals to come up, the quarterly financials either confirm your bullishness or wreck it tout de suite.
Aside from my overweight in AT&T, value paper is goat meat in our slowing economic setting. U.S. Steel is ready to slip into single digits. Ford is already there. Microsoft, worth a trillion, carries wherewithal for share buybacks and dividend bump-ups, Apple, too. The Haves vs. Have-nots.
Facebook’s nerds don’t strike like the United Auto Workers. Their pay package comfortably exceeds General Motors’ assembly line blue collars. They had their day in the seventies when the UAW extracted 8% per annum pay increases from the Big Three who foolishly caved in. They turned uncompetitive with Volkswagen and Toyota and helped spawn inflationary expectations.
Paul Volcker dealt with this in 1982. Later, in the financial meltdown General Motors turned into a ward of the state. It’s better managed now and financially sound. But, on average earnings next three years, its dividend paying capacity is limited. Ragamuffins tick under 10 bucks, but it’s easier for $2,000 paper like Amazon to levitate.
A foolish conceit prevails among Apple, Berkshire Hathaway, Alphabet, Netflix, Microsoft, et al. Don’t split your stock down to an average $50 price to induce public participation. Even Costco and Walmart play in this game along with Home Depot and Tesla.
I stand or fall on whether Microsoft, Facebook, Alibaba, even Citigroup and AT&T confirm or deny my earnings projections. Ford, General Electric and Halliburton don’t interest me. So called growth stocks like Netflix and Nvidia never sucked me in. As for big capitalization industrials, let passive investors who crave some yield own Exxon Mobil. I’m agnostic on Apple and wouldn’t even dream of Tesla as a home run.
Why? Because I can model Microsoft but not Tesla or even General Motors and Amazon. The market mirrors this “life is unfair” situation. Geopolitical upsets are troublesome because the market at 18 times earnings is rich and recession is an even money bet. If you believe markets are efficient, think of Black Monday and that snappy 22% morning drop-off. Nobody saw it coming.
Inequality flourishes everywhere. Because the country faces deep-seated issues like General Motors’ hungry workforce. Lopsided income disparities congealed over past 40 years. Our industrial workforce is a shadow of its sixties self, even the seventies. Hard to extrapolate more than modest GDP growth. Low interest rates should hold for years to come.
Mortgage rates hang at 3.5%, a great bargain, historically speaking. The consumer can carry GDP while net exports and capital spending languish. Hopefully, GDP numbers bore everyone silly, a plus for growth stocks or wherever else some excitement is brewing. For the middle-class, asset values remain centered in homes and profit-sharing plans, an amorphous boodle. Contrastingly, I define wealthy with 30 times middle-class net worth. They need not work. Just invest conservatively. Carry a 3.5% yielding portfolio of marketable paper.
If I were a graduating medical student with a $200,000 tab for schooling, I’d conclude life is as unfair as it is for an assembly line worker at General Motors or anywhere else. Meanwhile, Wall Street analysts refuse to deal with the wide GAAP vs. non-GAAP variance in corporate earnings reports. This is mainly a function of excessive stock grants to management and key employees. Why get in their way if you need access?
Read a corporate proxy statement if you need confirmation on my “life is unfair” theme. A wealth tax won’t change compensation constructs for the workforce, skilled or unskilled. Capping steady healthcare insurance increases and drug prices is a must or it becomes 50% of a salaried employee’s take-home pay in three to five years. This is like bread prices doubling overnight in Paris, followed by the storming of the Bastille.
Anyone owning U.S. Steel, Alcoa, even Macy’s, Ford and General Motors won’t convince me they’re oversold, ignored in the bargain bin. They belong in the life’s unfair category. The market pays for high unit growth and some pricing power. This is what Warren Buffett missed in his Kraft Heinz pick. No unit growth or price power to speak of. Shelf space for razor blades, Marlboros and corn flakes don’t carry weight any longer. They were concept stocks in the 1960s along with newspaper chains and Coca-Cola whose per capita consumption ratcheted up.
For decades, Pan Am World Airways carried a top-heavy balance sheet inclusive of a series of convertible bonds. Juan Trippe, headman, thirsted to fly everywhere, but everywhere led to bankruptcy. Too many city pairs that made no traffic sense. I peddled along, then, foolishly and unsteadily, too, drawn to Trippe’s sonorous “Flying Boats.” On my big brother’s bike, I got away with it, preteen, a fearless operator.
Armchair investors need a Nasdaq 100 Index ETF as should anyone else who feels the investment world is unfair. Many well-heeled players likewise frustrated. Their advisers, mainly big banks, employ a pie-chart investment strategy where you own a little of everything the world has to offer, inclusive of gold and oil futures. This gives your advisor a lot to talk about when investment performance somehow falls short.