Does Stolen Fruit Taste Better? Check Out My Purloined Portfolio
Posted: October 28, 2020
October 19, 2020 (Maple Hill Syndicate) – Major League Baseball punished the Houston Astros for the way they stole opponents’ signs. But there’s no penalty for an investment manager stealing ideas from another manager.
In fact, I think one would be foolish not to.
I peek from time to time at the holdings of other managers I respect. In this column, once a year I present my Purloined Portfolio, composed of stocks held by other managers I esteem.
Today’s Purloined Portfolio is the 17th one I’ve compiled, beginning in 2000. The average one-year return for the first 16 outings has been 12.0%, compared to 10.1% for the Standard & Poor’s 500 Index. Thirteen of the previous lists have been profitable and eight have beaten the index.
Bear in mind that my column recommendations are hypothetical: They don’t reflect actual trades, trading costs or taxes. These results shouldn’t be confused with the performance of portfolios I manage for clients. Also, past performance doesn’t predict future results.
Last year, the Purloined Portfolio had one of its three unprofitable years. My selections were down close to 16%, while the S&P 500 advanced 18.1%, including dividends. The biggest loser was Sinclair Broadcast Group Inc. (SBGI), down 55%.
Fox Corp. (FOXA) and Chevron Corp. (CVX) also lost ground, while Zimmer Biomet Holdings Inc. (ZBH) and MKS Instruments Inc. (MKSI) were winners.
Scott Black is Chairman of Delphi Management Inc. in Boston. Name a stock and Black can reel off relevant statistics, as well as his opinion and the reasons for it. He is an art collector and a major donor to the Democratic Party.
From Black this year I will select Berkshire Hathaway Inc., (BRK.A and BRK.B), his largest holding. One reason I like Berkshire is that I expect its chairman, Warren Buffett, to do some rescue missions of other companies, as he did for Goldman Sachs and General Electric in the Great Recession of 2007-2009.
Buffett has said he doesn’t expect to do such deals in the current recession. But before it’s over, I expect that some big troubled companies will come to cash-rich Berkshire and ask for help. I don’t think Buffett will be able to resist –- and the past deals were on terms very profitable for Berkshire.
Randall Eley, who runs Edgar Lomax & Co. in Alexandria, Virginia, was one of the first black investment managers in the U.S. to achieve success. A graduate of Yale and the University of Chicago Law School, he was a securities attorney before he became a money manager.
Eley’s largest holding is Pfizer Inc. (PFE). I think Pfizer is a timely stock now. Whether its own proposed vaccine for Covid-19 succeeds or not, Pfizer is likely to mass-produce whatever vaccine the U.S. government chooses to combat the pandemic.
Pfizer is highly profitable, with a 22% return on stockholders’ equity in the past four quarters. The stock sells for a down-to-earth valuation, 15 times earnings.
Ken Heebner, sometimes known as Bigfoot for his aggressive trading style, is general partner of Capital Growth Management in Boston. Heebner over the years has achieved extreme returns, for better or worse. When he gets it right, he is at the top of the pack.
Currently (as of the latest filings), Heebner is heavily into homebuilding stocks, which account for four of his ten largest holdings. My favorite is D.R. Horton Inc. (DHI), one of the nation’s largest homebuilders, which offers homes at a variety of price points.
Many homebuilders rely on heavy borrowing. I like it that Horton has debt of only 39% of its corporate net worth.
The president of Matrix Asset Advisors Inc. in White Plains, New York, David Katz has been a frequent guest on CNBC television.
From his holdings, I will pluck Alphabet Inc. (GOOGL), parent of Google, You Tube, and the Waymo self-driving car project. I think Google is one of the most innovative companies in the world.
Chuck Royce heads Royce Investment Partners, based in New York City, which manages more than $11 billion, mostly in mutual funds. From his holdings I’d choose John Bean Technologies Corp. (JBT). It’s a conglomerate that mainly serves the food industry and airports.
Among its many products are freezers, food canning equipment, food processing equipment, towing vehicles for planes, deicing machines, cargo-loading systems, and Jetway boarding tunnels. The company had a return on stockholders’ equity in the past year of almost 25%.
Disclosure: I own Berkshire Hathaway, Pfizer, D.R. Horton and Pfizer personally and for clients. One of my clients owns Zimmer Biomet.
John Dorfman is chairman of Dorfman Value Investments in Boston. His firm of clients may own or trade securities discussed in this column. He can be reached at firstname.lastname@example.org.