Pigs are smarter than dogs, and both are smarter than Congress.
So last year, I was relaxing at home with my daughter and we were enjoying the pleasure of watching a basketball game on television. A professional team with whom I am very familiar was on, and after watching their point guard yet again shoot a poor shot, I remarked, 'Oink, Oink, goes the pig.' My daughter laughed hysterically, as did my wife. Now, you see this kind of situation a great deal in basketball, as well as other sports. You also see it in enterprises across a wide variety of industries and economic models. In many cases, leaders are more concerned with their personal accomplishments than the overall good of the entity they are running. CEO's of publicly traded organizations and presidents of sovereign nation states, included the current zero running this fabulous country, are also guilty of this common characteristic. So, being a pig is something we can run across in many areas of our lives.
However, on the flip side, a very accomplished investor named Stanley Druckenmiller (the ex-partner of George Soros who helped him break the pound many years ago) weighed in on the topic of pigdom. 'I think diversification and all the stuff they're teaching at business school today is probably the most misguided concept everywhere,' Druckenmiller said during a speech on January 18th at the Lone Tree Club in North Palm Beach, Florida.
In his speech, Druckenmiller described his investment philosophy as that of a 'pig' instead of a stock market "bull" or "bear."
'The first thing I heard when I got in the business....was bulls make money, bears make money, and pigs get slaughtered. I'm here to tell you I was a pig. And I strongly believe the only way to make long-term returns in our business that are superior is by being a pig.'
Sticking with those who believe that the proper way to higher returns is through gluttony, Charlie Munger also advocates making massive, concentrated bets when you believe you have located a superior opportunity. Let me emphasize, the key point is they are not easy to find and come along once in a great while, so when you have the chance, you have to make the most out of it. In some cases, that means it may take 6 months or a year to build a large position. For example, it took Buffett nearly a year to accumulate his billion dollar stake in Coke in the early 1980's. For months at a time, he was buying half of the shares which traded that day. This my friends, is called conviction, and we are not referencing convicts.
My own thought on the subject is my investors and I have benefited from this mindset a great deal, but in a limited way. You see, when you are a registered investment advisor, your fiduciary obligation is to the client, and prudence calls for diversification when managing money in individual accounts. Managers of hedge funds or funds where assets are pooled are also fiduciaries, but in many cases they have institutional clients who have billions of dollars in assets and are looking for outperformance from that particular capital allocator. I still believe there are not that many great situations to take advantage of, so when you get your chance you have to swing for the fences. However, you have to be very particular about what, when, and why you decide to take the bat off your shoulder. In any case, from a money management perspective, being a pig is a high complement, at least from Mr. Druckenmiller (and Mr. Munger), anyway. Oink, oink.
The market was full of all kinds of earnings reports this week as Goldman Sachs (NYSE:GS), Citigroup (NYSE:C), JPMorgan Chase & Co (NYSE:JPM), and American Express Company (NYSE:AXP) all posted their results. The large banks were led by Jamie Dimon's fabulous entity, Chase, which generated nearly $6 billion in earnings. Citi was also pretty strong and Goldman had very good underwriting and trading results in fixed income and equities. Johnson & Johnson (NYSE:JNJ) showed is strength yet again, although the strong dollar slightly hurt performance. The company had over $17.4 billion of sales for the three month period.
In technology, Intel (NASDAQ:INTC) posted decent results but the group which got gushed over was Netflix (NASDAQ:NFLX), which had nearly 5 million in subscriber gains and the street now believes cable and satellite broadcasters are dead ducks. Etsy had its IPO and the stock was a work of art, popping nearly 100% on the first day. The painting went out of favor relatively quickly as Friday was a very difficult day for equities.
What caused the big selloff? First, China allowed investors to lend shares to short stocks as it's main index has been an investors dream, up seven weeks in a row to a seven year high. Next, the world's on going problem child, your friend and ours, Greece, continues to march toward a potential liquidity shortage in meeting it's May 12 interest obligations to the IMF. The IMF looks like it will not budge, so he investment community is now gearing up for a Grexit. Adding a little spice into the meal is the world's Darth Vader, Vladimir Putin. It is now being reported Russia and Greece have agreed to a deal where Russia will infuse $3-5 billion of capital into Greece's treasury (http://bit.ly/1O3eA5m). In return, the Greeks have committed to letting Russia build a pipeline through the country for oil transport. So, the plot thickens and next week on the 24th, Greece meets with the Eurogroup to try and work something out. Or not, as has been the case for nearly 10 years.
Sticking with the earnings front, next week will be a big week in the tech sector as Facebook (NASDAQ:FB), Google (NASDAQ:GOOGL), and Microsoft (NASDAQ:MSFT) all report. It is a period which is heavy with reports from companies all over the corporate world and markets will certainly be in play.
DISCLAIMER: Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.