Last February, I wrote a thought exercise of sorts for CNBC.com weighing the stocks of the number one and two companies by market cap at the time, Apple and Exxon.
Apple, as you may recall, had just turned in one of the greatest quarters in history, annihilating estimates with record smashing iPhone sales. Its stock had shot up to $128/share, and just about everyone expected it to climb higher. Pundits were breathlessly debating how soon Apple would become the world’s first trillion-dollar company. Exxon’s stock, by contrast, was $88/share and not many people were touting it as a buy. Oil prices had crashed to $50/barrel, from over $100 less than a year earlier, and a recovery was seen as unlikely.
Despite these factors, I wrote that if I could buy only one stock between the two and hold it for the long term, Exxon was a better choice than Apple. A quarter later, as both companies prepared to release earnings again, I reiterated my preference for the energy giant.
Once again, I’d like to thank everyone who has emailed, messaged, or tweeted at me since my book Dead Companies Walking came out. I’ve tried to reply directly to as many folks as possible but running my fund has taken up most of my time and attention, so I thought I would post my responses to a few interesting questions, comments, and criticisms I’ve received in recent weeks here. Unfortunately, I couldn’t fit everything into one post, so I had to break my responses up into two parts. I’ll post the second half on Wednesday.
First up, an email from a reader named Greg:
“I am a private investor who has been investing on the long side for most of my career. I’ve almost finished your excellent book, ‘Dead Companies Walking,’ and it has inspired me to start trading the short side as well. My immediate question is: Where do you find all the good ideas? It’s fairly easy to find long ideas in places like Value Investor’s Club (of which I am a member), or the published portfolio lists of hedge fund managers. But where do you get quality short ideas? Thanks for your help with this!”
If you missed Tim Cook’s interview on 60 Minutes on Sunday, watch how fired up the normally serene CEO gets when Charlie Rose asks him about the billions Apple is keeping overseas (email subscribers can find the video here):
I don’t blame Cook for being angry. I’ve been saying similar things for awhile now. Our corporate tax system is “awful for America.” It would be bad enough if we were growing at a decent, or even somewhat decent rate economically. But in this ‘new normal’ era of slow to no growth, it’s inexcusable.
My last post generated a fair amount of negative feedback on my Yahoo Finance page and on Twitter. There’s nothing quite like waking up in the morning and being called an idiot (and worse) by all sorts of strangers on the internet. I understand that people have strong feelings about Fannie Mae and Freddie Mac, but I have to say, the vitriol of the comments took me by surprise.
Setting aside whether it was fair (or legal) for the government to change the bailout terms for Fannie and Freddie, my main point in writing about the two giant GSEs seemed rather straightforward: the low-priced stocks and preferred shares of Fannie Mae and Freddie Mac are extremely risky investments. If Washington formally nationalizes these companies (or does so informally, as it seems to be doing right now), there is a good chance that their stocks will go to zero. Sure, the big hedge funds and their armadas of lawyers might prevail in court and win the return of the companies’ dividends to shareholders. But even if that happens, it will probably take years. As I wrote in the last line of the post, “There are easier ways to make money.”
The broader lesson of the GSEs for both retail and professional investors can be stated in four words:
[note: an earlier version of this post originally appeared on my Yahoo! Finance page.]
A few months ago, Apple (AAPL) posted one of the greatest quarterly beats in the history of capitalism and its market cap–already the world’s largest–officially doubled the size of the next closest company, a little energy outfit you might have heard of called Exxon (XOM). Nonetheless, I wrote a piece for CNBC.com at the time saying that if I had to choose between the two stocks to buy and hold for the next twenty years, I would pick up my iPad, log into my brokerage account and order a whole bunch of XOM.
With both companies releasing earnings this week, it seems like a good time to revisit that call. Apple annihilated analysts’ expectations again on Monday. Exxon also beat, but its profits were off by almost 50 percent and its stock has been the second worst performer in the Dow, down 5 percent since New Year’s Day and over 13 percent in the last 12 months. The oil giant has even ceded the number two spot in market cap to Microsoft for the time being.
So, have I changed my mind? Do I now think AAPL is a better buy than XOM? The short answer is: no. The long answer is: absolutely not.
My apologies for the lack of blogging lately. Once again, my busy schedule has prevented me from sharing my observations. I did write an article for CNBC.com last week on the trouble with Apple’s recent rally and why I would buy Exxon over the iPhone maker if I had to choose between the two stocks. In case you missed it, you can find it here.
I am going to try to write more in the coming weeks. I have also been invited to become a contributor for Yahoo Finance, so please stay tuned for details on that and other news.
Thanks again to everyone who has bought the book and to everyone who has written to me about it or posted comments here and elsewhere. I am especially grateful to those who have taken the time to write positive reviews on sites like Amazon and Good Reads. Thank you!
I’ve been visiting companies in Silicon Valley for more than a quarter century. In that time, I’ve met with hundreds of entrepreneurs, executives and management teams there. To a person, they’ve all been bright and ambitious. The Valley has earned its reputation as a hotbed of creativity, innovation, and economic vitality. But let’s be frank, it’s also earned its reputation for building just as many manias and pipe dreams as viable products and services–and I think the time has come to rain on the region’s latest parade of groupthink, self-congratulation and irrational exuberance.
In 1984, when I was a fresh MBA working at the largest bank in Texas, I was browsing through the now-defunct magazine Investment Decisions and I came across an article titled, “Do Stock Splits Help Stock Prices?” It was written by a man I had never heard of. His name was Warren Buffett.
I generally find the public’s fascination with would-be financial messiahs puzzling, even pathetic. All my life, I’ve watched one market “guru” after another tout some secret formula for beating the street, only to fade into obscurity. But “The Wizard of Omaha” is an exception. He definitely deserves the fame he’s acquired. He’s delivered more helpful investment advice than any other living American. (Vanguard founder John Bogle is a close second in that regard.) Believe it or not, I have kept Buffett’s Investment Decisions article with me for the last 30 years. I’m looking at it right now as I type, and Buffett’s insights are as apt today as they were back in the days of Swatch watches and New Coke.
Way back when I started managing money in the 1980’s, technology company stocks were revered by institutional and retail investors. The perception was that tech had a much better growth outlook than the overall market. Not surprisingly, tech stocks sold at premium valuations, often twice the price-earnings ratio of the overall market. Back then, and into the 90s, technology companies rarely paid quarterly dividends, and only a handful had stock buyback programs. Investors were content to let them reinvest cash in their businesses. But after the dotcom bubble went supernova, tech valuations crashed and stayed depressed for a long time, even as the strongest survivors of the meltdown grew fantastically and consolidated their holds on their respective sectors.
Despite this trend, I stayed away from big tech stocks like Apple and Cisco and Oracle. After the collapse, I was gun shy, and I’ve historically been suspect of famous stocks with massive market caps. They’re just too heavily covered for comfort. Every analyst and trader from Berlin to Beijing pores over every syllable of every statement they issue. And as the old saying goes, “When the microscopes come out, returns get microscopic.”
But I think it might be time for me to join the herd.
It’s fashionable these days, especially in my industry, to style oneself as “socially liberal but fiscally conservative.” I might be one of the only hedge fund managers out there who claims the opposite. I tend to be to the right socially, but downright Krugman-esque when it comes to many fiscal issues. I’m passionately pro-immigration. I believe we should have government-funded healthcare. And I want more public spending on infrastructure and education.
I’ll also readily admit that wealthy individualslike me are under-taxed in this country. Businesses are another matter, though. Corporations are not people, and we shouldn’t be taxing them like they are.