Are You a 2%er, or a 4%er ?
Danger, while this post will begin with some important value investing commentary, it will end with some economic and political discussion. If you want to avoid economics and politics, stop at the row of xxxxxx’s.
I think most people would consider Bill Ackman a smart investor. Let’s investigate his investing and his politics.
I first focused on Mr. Ackman when he presented his Herbalife - HLF research to the public. His work was brilliant, but it eventually cost him, and his investors, billions in losses. Herbalife is now a $5 stock. In the long-run he was correct, in the short-term he got crushed.
Let’s stipulate that Ackman is a smart guy and review his current holdings, and think how that might effect our Model 20 portfolio.
Ackman only owns 10 stocks, so when he does start a new position in Nike - NKE - $79 it does make me rethink my negative view. Right now I still like Columbia and Oxford better. Of course a multi-billion dollar hedge fund is too big and therefore cannot build a meaningful position in either. Maybe Bill would rather own Oxford, we will never know.
Ackman is a big fan of restaurant investing, and I agree with him. Why he owns Chipolte at 55x earnings is a discussion for another day. He does own Restaurant Brands International (Tim Horton’s, Burger King, Popeye’s, and Firehouse) - QSR - $71 at a reasonable multiple of only 21x. I would still rather own Jack in the Box at 9x, but QSR is a stock to think about.
Bill’s largest position is Hilton Worldwide - HLT - $225. I cannot chase that stock at 33x and a new high, but it does make me like Vail Resorts - MTN a little more. Ackman thinks travel stocks are ok.
Ackman also started a new position in Brookfield Asset Management -BAM - $53. I am not going to invest in either the private equity business or Satan, but I will at least glance at Brookfield Infrastructure - BIPC - $44, with a 4% yield.
Ackman own Alphabet. He calls it a “moat”. I call it a clear violation of anti-trust law. My imaginary girlfriend, Ms. Khan, agrees with me. My hero Mr. Gilder also agrees with me. Read Gilder’s book, then tell me who you agree with.
Bill also just restarted a position in Canadian Pacific - CP - $78. At Behind the Numbers we wrote 2000 sell recommendations, and 1 buy. That buy was CP. Of course we wrote it in 1988, so we were 25 years early. If you need to own a token cyclical, CP is not a bad idea.
If you want play the arbitrage game you can try Howard Hughes - HHH - $76, but I will leave that to smarter folks.
If you like spin-offs you could try Seaport Entertainment - SEG - $28, the recent spin from HHH. They own a mess of Boston real estate, and the AAA Las Vegas Aviators baseball team.
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I guess Ackman showed up on my radar because he recently wrote, “33 Reasons to Vote For Trump”. I agreed with 80% of what he wrote, but like his stock picks, I disagreed with a few of his 33 points.
What was more interesting was an interview podcast he did recently with TRIGGERnometry.
Here is the link:
The most interesting point come at the very end. After a reasonable discussion of the normal issues, the host asks Ackman the excellent question.
“What is the most important thing we have not discussed?”
A very smart guy like Ackman gathers his thoughts and responds:
— My words, go to about 55 minutes in the video for his exact words —
The power of compounding is important. The US cannot afford its debt debt load if we only grow at 2%, but we can afford it if we grow at 3.5 to 4%.
I believe Mr Ackman is correct. The choice is that stark. “Muddle through” at 2% will no longer work, we must push for 4%.
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Years ago a young analyst came to me and said they wanted to learn about economics. They had spent the first 15 years of their investing career studying companies, and now they wanted to learn about macro-economics. I distinctly remember starting the conversation with:
“You can either be a 2%er, or a 4%er”
95% of conventional economists believe the US economy can only grow at 2% in the long-term. These are the Keynesians, the Neo-Keynesians, the Monetarists, and many others.
The other 5% believe in the ideas of Mundell, Laffer, Waniski, Lehrman, Gilder, Kemp, Bartley, and Kudlow. Yes, those evil “trickle down” folks that brought you the Reagan Revolution. Their basic idea is how to increase the I in the formula GDP = C + I + G
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In just a week we face an election between a 2%er (at best, maybe much worse), and 4%er.
Our choice will have an existential, and perhaps cataclysmic, result.
I seems to be an easy choice. A clear 55%+ of Americans agree with the 4%er.
Oops, except for the younger unmarried women, their mothers, their grandmothers, their sisters, their aunts, and especially their boyfriends, who will turn out in droves to vote 75% for the 2%er.
Let’s be clear, I think the women are making the correct decision, voting in their own self-interest. I blame McConnell, Cruz, Hannity, and many others who have brought us to this point in order to collect campaign contributions or advertiser support.
The silly idiots that run the Republicans Party are willing to make a coin toss on our economic future. I am far from religious, but let us pray anyway.