Our friend Whitney Tilson and his partner John Heins wrote in a recent Forbes article the average holding period for New York Stock Exchange stocks is just six months. Thirty years ago, it was five years.
Investors are more shortsighted than ever, virtually begging you and me to exploit a major competitive advantage – patience – by simply holding longer than six months.
It's no wonder nobody is a long-term investor anymore. Hardly anybody in the world knows how to count to 10! I've seen various news stories discussing the end of the decade... which is really strange, since the decade doesn't end until December 31, 2010.
When you count things, whether it's Tiger Woods' girlfriends, the ways large banks can borrow from the Fed, or the years in a decade, you start with 1 not 0. The first year A.D. was the year 1, not 0. The first day of the year is January 1, not January 0, and the first year of the millennium is 2001 (Arthur C. Clarke understood this), not 2000. Ergo, the decade ain't over 'til it's over. Maybe investors would learn to hold on longer if they could count to 10!
Failing to hold on long enough is, unfortunately, all too human a mistake to make. I just looked at my track record since the credit crisis began in March 2008. My most common mistake was selling too soon. I'd have done much better for you had I been less active.
That's usually the way it is with stock market investing. The combination of buying value and exercising patience trumps most strategies over time. Warren Buffett has famously said inactivity strikes him as intelligent behavior and lethargy bordering on sloth is the cornerstone of his investment style.
Today, Kraft upped the cash portion of its bid for confectioner Cadbury to $17 billion. Kraft will sell pizza brands including DiGiorno and Tombstone to Nestle and use the net $3.7 billion to increase its bid. Nestle dropped out of the bidding, leaving Kraft as the sole interested party.
However, Cadbury still thinks Kraft's bid is too low... "Kraft has once again missed the point," said Cadbury spokesman Trevor Datson. "Despite this tinkering, the Kraft offer remains unchanged and derisory with less than half the consideration in cash."
And Warren Buffett, Kraft's largest shareholder, voted no on Kraft's proposal to issue more shares for the share portion (60% of total) of its Cadbury bid. Kraft wants authority to issue up to 370 million additional shares, potentially diluting existing shareholders by 25%. In a public statement, Buffett said voting yes to the share issuance is granting Kraft a "blank check," and "no shareholder should vote 'yes' when he can't possibly know what he is voting for."
While Kraft is the only declared suitor for Cadbury, Hershey is still considering a bid. People familiar with the matter say Hershey is the most likely counter-suitor, though it won't make a bid until Kraft makes its final offer. In his latest issue of PSIA, Porter predicted with certainty that Hershey would buy Cadbury. The reason... Warren Buffett. And with Buffett voting against Kraft's takeover measures, his support of Hershey looks even more certain:
Warren Buffett has owned lots of candy businesses over the years – most famously See's Candies. He also recently helped provide the financing for the Mars takeover of Wrigley, which has many similarities to the deal Hershey is trying to pull off with Cadbury. Both involved closely held, high-quality companies. And both deals were in the $20 billion range. Buffett provided Mars with $6.5 billion in loans. So why am I so sure Buffett will be involved in the Hershey deal to purchase Cadbury?
First, I know Hershey is exactly the kind of business Buffett wants to own. But far more important, I know Buffett will be involved in the deal... Hershey has retained investment banker Bryon Trott, known around the world as Buffett's banker. He's the very same man who put together the Mars/Wrigley deal... If Bryon Trott is putting together a candy deal that requires $5 billion-$10 billion in funding, you can bet your last dollar Warren Buffett is going to be involved. – PSIA, December 2009
In his issue, Porter showed subscribers his favorite way to play the Cadbury situation. It's a long-term trade, but Porter says you can realistically expect to make 20 times your money over the next 20 years. To access Porter's recommendation, click here...
The man Porter calls "literally the best investor I've ever met," just turned in a record year. Kudos to our friend Chris Weber, who posted a 69.35% gain for 2009 – his best average return for the nine years he's written an investment newsletter. Of his 22 recommendations, 21 were up. The biggest winner soared 685%. Three other stocks were triple-digit winners. The only loser fell a mere 3.5%.
Chris achieved his spectacular gain by allocating his portfolio between stocks, bonds, and precious metals. Right at the market bottom, he went "overweight" common stocks, which helped to goose his gains. After booking huge gains last year, Chris is wary of future market gains. He thinks stocks are frothy and believes precious metals could be starting a correction. To sign up for the Weber Global Opportunities Report and begin reading Chris's prescient advice, click here...
New highs: Valhi (VHI), New York Times (NYT), iShares High Yield Bond Fund (HYG), Burlington Northern Santa Fe (BNI), Kinder Morgan Energy Partners (KMP), Enterprise Partners (EPD), Intel (INTC), Longleaf Partners (LLPFX), Tejon Ranch (TRC), POSCO (PKX), H&R Block (HRB), Prospect Capital (PSEC), Akamai (AKAM), Dana Holding (DAN), Jinshan (JIN.TO), Eldorado Gold (EGO), Rex Energy (REXX), Encore Acquisition (EAC).
In the mailbag... evidence the fridge may still have a little eggnog and champagne in it. Send your notes to feedback@stansberryresearch.com.
"For those who are skeptical about the Alliance... I started with The 12% Letter, then added the S&A Short Report, then added the S&A Resource Report... On The 12% Letter (I held MWE and am up over 400%) and the Resource Report (bought REXX), these two stocks along have more than paid for my new membership to the Alliance. My only two complaints... Not having subscribed last year at a reduced rate and trying to find the time to read all the newsletters... Keep up the good work." – Paid-up subscriber Ron Cossey
"I rarely take the time to look at the Top 10 lists at the end of the S&A Digest because I know what I have purchased and how it performed; if I didn't own it, how it performed doesn't really impact my life. However, this morning I glanced at the list and noticed something interesting. My holding in the Top 10 open positions included ROY, SVM, NAK and SLW. In the [Hall of Fame], my holdings have included SA and IDBE.
"A few years ago, I sent you a note of thanks regarding the enormous profits I made from my investment in IDBE, which at the time was the largest amount of profit dollars I had ever made from a single investment. I now must happily advise you that statement would no longer be true!
"Thank you so much for your research that has saved me so many hours of information 'mining.' When I first started following your work, I believe it was called Pirate Investor. When I joined the Alliance, I believe it cost $6,450 (or something close to that) less the credit I was given for the unused portions of all of the open subscriptions I had at the time.
"Best wishes for continued success in 2010 and, per your request for recipes, I will be sending you one for the best baked beans you ever tasted soon." – Paid-up subscriber Ken McGaha
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and Baltimore, Maryland
January 5, 2010