Last week on Friday, one of my best managers, Wayne Himelsein, explained why he passed on AMD at $10 back in April, but was happy to buy it at $16 in June. Since then, AMD jumped 23% in just five trading days proving Wayne’s point that the best investments are the ones the rise quickly after you make the purchase even if you didn’t buy at the low. Just as the best poker players win by reading other player’s “tells,” Wayne evaluates the market’s “tells” to determine when to be aggressive and when to hang back. Here’s what he thinks about Tesla, Mastercard and Twitter.
Ken Kam: Wayne, thank you for bringing AMD to our attention last week Friday. I’ve heard from many investors who after reading your interview paid up to $20 for the stock early last week. With AMD closing out the week just under $24, you’ve got a lot of new fans who want to know your thoughts on stocks that are not in your portfolio. Are you game for that?
Wayne Himelsein: I routinely evaluate all the stocks in the S&P 500. For many stocks, the market’s tells are weak or even conflicting. That’s why I only use the top 10 for my portfolio. With that said, I’d be happy to tell you what I see about any of the other S&P 500 stocks.
Kam: Understood. You are one of the few managers who has been successful at evaluating stocks over the short-term. Everyone says they are a long-term investor. But it is easier to stick with a stock for the long-term when the position is profitable.
I’d like to start with Tesla. Elon Musk, Tesla’s CEO, has been in the news and stock has been quite volatile. What market tells do you see about Tesla?
Himelsein: Tesla has seen multiple 30-50% swings this year; with repeated touches of tops in 360 range and bottoms in the 280 range, and each reversal only a few months apart. To say the least, these swings are extreme and point to tremendous uncertainty in consensus between buyers and sellers. Nobody feels clear on what will happen, and both sides seem to rush in/out with the Tweets of Musk.
Kam: Tesla is not one in your portfolio now, so I gather you recommend that readers who don’t already own it look elsewhere. But, what would you recommend to those who already own the stock?
Himelsein: It’s one thing to go out surfing when the waves are building perfect sets for you to catch a smooth and extended ride into the shore, but it’s quite another when the water is choppy and the waves are literally breaking into each other. Not only is there no good wave to catch, you may want to not even get into the water, and if you’re already in, get out before you drown.
In my long term experience, “when in doubt, get out”. This is not to say we are can’t make a reasonable guess, but if so many others, who dedicated exhaustive resources to research and analysis, are so completely all over the place, how can we possibly feel confident in taking a strong position. And since we can’t move forward with any semblance of conviction, and instead must rely on the waters calming to choose a direction for the current, we are better off moving on and letting the rest fight it out.
Kam: The market hasn’t yet had a chance to react to Musk’s decision to withdraw his plan to take Tesla private. Could you keep an eye on Tesla for us next week?
Himelsein: Will do.
Kam: Mastercard is one of the most widely held stocks among my managers, yet it is not in your portfolio eventhough it has performed well. What do you think of Mastercard?
Himelsein: To the complete contrary of TSLA’s choppy waters, there’s nothing like some tropical beaches with calm waters and high visibility so you can watch the colorful fish below you as you drift along on your float. You can’t even believe this is the ocean, but it is -- in that part of the world. Do waves ever come around? You wonder. Sometimes, but rarely, it’s mostly just a pleasant sway along the shoreline drifting towards new beautiful beaches, so that even if you fall asleep, the current is mild enough to keep you in safe distance to the shoreline, and in the direction you want to go.
This is the behaviour of MA, where buyers and sellers show very little disagreement, they just drift forward, at a steady pace, and with a mild current. Once in awhile, there may be a slightly bigger wave that wakes you up while you float, but within a few minutes, you fall gently back into your peace and calm. In fact, there was one of these mildly bigger waves that came along in late July, but MA just absorbed the wiggles, remaining nicely stuck to the shoreline. And then throughout the month of August, just continued drifting forward in small and stable movements toward the desired beach. Neither buyers or sellers got shaken up enough to capsize your float. Not even close. They just pressed forward like nothing happened.
Kam: So you like Mastercard, but there is not enough disagreement between buyers and sellers to set up a situation where the stock could run up quickly?
Himelsein: Yes, that’s right. Mastercard is a good stock for long-term investors. This is where you want to be today, and tomorrow, and until such time that the coastline or the current materially changes, which will be highly evident as a shock to the peace and calm you have become so accustomed to.
Kam: There has been some strong disagreements about Twitter among my managers.
Himelsein: At the end of last month, there was a tidal wave, a 30% shock to the system that destroyed everything on nearby beaches and even affected some thousands of feet away from the event. However, no matter how many times the water pushed at edges, the mountain just stood there, firm and stable, absorbing the rush with ease -- unmoved by the onslaught.
No matter how many sellers rushed to exit, TWTR found its support in the low 30’s immediately after the greatest shock it has seen in years.
Kam: Is Twitter a buy now?
Himelsein: At the base of the mountain at 30 is the incredible build up of “buyers in the waiting”. They like TWTR (always have), and have wanted to own it, but just couldn’t pay up for it. Until now.
Now it came to them. And it didn’t matter to the buyers that the approach was aggressive, that quite literally, a tidal wave brought the sellers to them. They had been waiting so long, they were happy to oblige. “I’ll take it” said the buyers at the base of the mountain, “I’ll take all you have to give me”.
That’s the stock I want to own, and especially so, if I got in anywhere near all that demand. I don’t exactly know when new heights will be made, but I am highly confident that they that will, that the waters will rise above the levels it was before the tidal wave, and will look back on that old shock as a blip.
Kam: Thanks Wayne.
My Take: Forecasting the price of stocks in the short-term is hard. Without knowing someone's track record it’s hard to know if their opinions are worth paying attention.
Wayne’s Logica Focus Fund (LFF) has a 17+ year track record at Marketocracy. Over that period, Wayne's model averaged 13.23% a year which more than doubles the S&P 500's 6.02% return for the same period. In August 2012, LFF was made available as an investment option for clients in our separately managed account program. Since then, the composite of our client returns has exceeded the return on the model portfolio.
Because LFF consists of large-cap, liquid stocks, the S&P 500 is an appropriate benchmark. For those who aim for the lowest fees, an index fund is hard to beat. But for those who aim for the highest return after all fees, LFF has been a better choice for years.
For the full Forbes.com article, please click here.