Boeing's problems keep getting worse; Why I'm holding plenty of cash; My experience with intermittent fasting
1) I'm not surprised to see more bad news emerging for Boeing (BA)...
I've already warned my readers about the iconic aircraft manufacturer's stock three times this year in my March 12, March 27, and April 5 e-mails.
Since that most recent e-mail in April, Boeing is down about 6% versus a nearly 2% gain in the S&P 500 Index... And its stock tumbled by more than 7% yesterday.
Yesterday's collapse came after Boeing announced that its upcoming cash flow would end up being much worse than it had previously expected.
The Wall Street Journal has more on the story here: Boeing Says Cash Flow Is Worse Than It Thought. Excerpt:
Boeing said it would burn billions of dollars more than expected in the coming months and likely won't generate cash for the full year, signaling the jet maker is struggling to contain the financial fallout from cascading production and supply-chain issues.
A month after announcing a nearly $4 billion hit in the year's first quarter, finance chief Brian West warned investors Thursday that the company is on track for a similar or bigger cash hole this quarter.
Boeing shares fell more than 7% in Thursday trading. The stock has lost roughly a third of its value so far this year, erasing more than $50 billion in market capitalization.
West also told investors that Boeing is unlikely to generate cash for the full year as the company deals with slowing production of its jets.
Now, I can understand why bottom-fishing value investors are buying the stock and betting on a turnaround.
Boeing is one of only two manufacturers (along with Airbus) of large passenger aircraft, for which there is so much demand that backlogs are currently more than a decade for both companies. This is a great business, so by all rights Boeing should be minting money.
The reason it's not is because over the past quarter century, a company once run by the world's finest engineers was taken over by bean counters who engaged in the worst sorts of financial engineering.
For years, the company cut costs and rushed planes to market, irrespective of the effect on safety.
And to prop up the stock, management bought back stock, all while compensation went through the roof (for details, see the two reports by my old friend Porter Stansberry, the founder of Stansberry Research, which I summarized in my March 12 e-mail).
This chart shows Boeing's $67 billion worth of share repurchases over the years (for a company that only has a roughly $106 billion market cap today), with 57% of it occurring in the five years from 2014 to 2018 just before the wheels fell off the bus:
Now Boeing is paying a steep price for former management's shortsighted actions, as the company's reputation is in the toilet and it's short on cash. As the WSJ reported in that same article:
The company last month tapped debt markets to raise $10 billion as investors fret over the company's liquidity. It ended March with $7.5 billion of cash and investments, less than half what it had at the start of the year.
In April, Moody's Investors Service downgraded its rating on Boeing's unsecured debt by one notch to Baa3, the lowest investment-grade level. Moody's expects that cash-flow pressures will persist through 2026.
Sure, some of the most successful investments in my career have been bets on turnarounds of great companies – Berkshire Hathaway (BRK-A) at $41,500 in March 2000, Apple (AAPL) at $0.35 in October 2000, McDonald's (MCD) at $12.79 in March 2003, and Netflix (NFLX) at $7.78 in October 2012 come to mind.
But it's easy to be too early – I was down 15% to 35% on my initial investments in all four of these stocks – so it's important to be patient.
You don't need to be a hero and try to nail the exact bottom. If you're right about the turnaround, it won't matter if you miss the first 10% to 20% – or even 50% to 100% – rebound in the stock.
In the case of Boeing, it took more than two decades to bring this once-great company to its knees. I think it's going to take years, not months, to fix it... so I would remain on the sidelines for now instead of trying to bottom-fish the stock today.
2) Here's a quick follow-up on last month's four-part series on how Charles Schwab (SCHW) was paying me less than 0.5% interest on the cash I held in my brokerage accounts, which prompted me to transfer my accounts to Fidelity...
(If you missed them, these e-mails ran on April 18, April 19, April 22, and April 29.)
One of my readers, Dimitris M., a "wealth manager and finance professor," wrote:
From an investing standpoint, long-term investors should keep just a tiny percentage of their portfolios in cash. I'm sure you agree that staying fully invested throughout market cycles is the key to long-term investing success. The fact that you had the "most-ever" feedback on this cash yield topic demonstrates that many investors are missing the forest for the trees.
Generally speaking, unless there are ongoing withdrawals, I keep no more than a 1-2% cash position in my clients' long-term investing accounts. Whether that 1% cash position earns a 0.5% or 5.0% yield doesn't move the needle in my clients' account performance – it's what I do with the other 99% of the account balance!
I think Dimitris' advice is exactly right for most investors, which begs the question...
Why are 27% of my investable assets (not counting the value of my apartment) sitting in cash right now?
The answer is that I'm not your average investor.
Because I've been actively investing for nearly 30 years, 18 of which I was managing multiple hedge funds and mutual funds, I have the track record and experience that leads me to believe I can beat the market by picking a handful of stocks over time.
That said, my confidence is tempered by humility. It's possible that I could underperform, which is why I've invested half of my investable assets in the S&P 500.
The other half is my actively managed account, which currently holds lots of cash, six stocks, and one investment in a private medical-device company my cousin founded.
It used to hold more stocks. But in March, at the end of a quarter in which the market hit 22 all-time highs, it seemed like a reasonable time to do one of my periodic "house cleanings" – so I exited a handful of smaller positions.
As a result, my active account ballooned to more than 50% cash, which is where it remains today...
I know that Dimitris is right that "staying fully invested throughout market cycles is the key to long-term investing success." But I'm OK sitting on quite a bit of cash – and getting paid 5% risk free – while I look for the next great investment ideas.
3) Every year, I train like a maniac to get in peak physical shape to prepare for the 24-hour World's Toughest Mudder in mid-November.
In the months following, I give my body a rest during the winter – by traveling and skiing. And then, starting in April, I begin ramping up again. (Lather, rinse, repeat...)
This year I took it to an extreme during my offseason. I visited 19 countries and traveled all over the U.S. as well, so I really got out of shape and gained six pounds (from roughly 166 to 172), which I can really feel.
Now that I'm in a travel lull – only one international trip and a few short domestic ones in a 10-week period – I'm ramping up my training again. I'm running most days (including the Brooklyn Half Marathon last weekend), playing a lot of tennis, etc.
As part of this, I tried intermittent fasting for two weeks.
This basically just meant that I skipped breakfast, drank a lot of water in the morning, and ate normally the rest of the day. It wasn't especially hard, but I noticed that I was weaker during my morning workouts/runs. And it didn't appear to have any weight-loss benefits for me.
In the past when I've put on a few extra pounds when I'm traveling due to less exercise and a lousy diet, it all comes right off, usually within a week.
But this time, I only shed two pounds in two weeks, so I gave up intermittent fasting last week and now just have my normal breakfast: a bowl of cereal consisting of a layer of granola, a handful of Frosted Mini Wheats, Cheerios, half a banana, and almond milk.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.
P.P.S. Stansberry Research and the markets are closed on Monday for Memorial Day. Look my next daily e-mail on Tuesday, May 28, after the Weekly Recap. Enjoy the holiday!