Inc: How much churn is there in your portfolio?
Mansueto: I try to hold stocks for a long period of time. I'm definitely not a churner. I like to hold things for at least three years. I have one stock in my portfolio I've held for over 10 years, the publisher John Wiley. (See "Joe's Top 10," below.) It's hard to be patient with so much information and news constantly coming to you. But you need to resist the urge that tells you trading activity is a good thing.
Typically, I try to find companies I like and that I want to be a part owner of. Knowing when to sell is the hard thing for most investors. It's much easier to know when to buy. I think most of the sell decisions I've made have been bad ones because the stocks continued to do well after I sold. Sometimes the valuation gets too rich for me. A valuation into the stratosphere will eventually get me to sell.
Inc: Did you get hurt when the dot-com boom went bust?
Mansueto: Like most [value] investors, the last few years have been good ones for me. I've never been attracted to technology stocks, because of their unpredictability and often rapid product obsolescence. So the dot-com phenomenon was a nonevent for my portfolio.
Morningstar is my high-growth, semitechnology investment. What I keep in my stock portfolio is the opposite -- more basic companies like Smucker's, Mercury General Insurance, newspapers, and TV stations.
I like to find good businesses, businesses that have some kind of franchise, some protection from competition. I try to buy them at good valuations and hold on to them. A TV station is something that it's difficult to compete against since you need a license from the FCC.
I've held my Morningstar stock for 17 years. I think any decision I would have made to sell along the way would have been a bad decision -- even if I could have gotten a premium for its true value at the time.
Try to view your public holdings as you do your private holdings. Private-company owners rarely sell their equity, and when they do, they know the value of what they're selling. If you think of a stock as if it were just a piece of paper, the only person who'll grow rich on it is your stockbroker.
Inc: What about right now, as we talk at the end of September, after the terrorist attacks of the 11th and the stock-market volatility that's followed. Has that affected your investing views?
Mansueto: Investing seems pretty trivial compared to the human suffering of the attacks. The answer is no. But overall the damage the attacks caused can't be significant in the long run to an economy as large and powerful as that of the United States. Stocks are worth the discounted value of their future cash flows. The recent attacks haven't changed those estimated cash flows all that much.
I read a quote from Warren Buffett that said whatever you felt about stocks before this all happened is what you should still feel. That's a pretty wise statement. There may be a one-year impact for stocks in some industries, such as insurance and travel, but the overall values haven't changed much. I had losses after the attacks, like everyone else, but because my portfolio has a conservative tilt, it didn't sink as much as the whole. In fact, I think the recent volatility has created a good opportunity for long-term investors. Still, the attacks were such sad events that it's no fun managing your portfolio in their aftermath.
Joe's Top 10
We asked Joe Mansueto to tell us his 10 favorite stocks. He offered the following list and comments. He currently owns shares in each of the companies:
John Wiley (JWb): A $600-million professional publishing company full of "must-have" information for scientific, technical, and medical markets. I've owned Wiley shares for over 10 years. Wiley has dominant positions in many niches that insulate it from competition and allow it to generate lots of free cash flow.
Mercury General (MCY): A low-cost auto insurer that does most of its business in California. It is one of a few insurers that regularly show an underwriting profit. Add to that the earnings from its $1.8-billion investment portfolio and you have a company with solid earning power.
Walt Disney (DIS): My most recent purchase. In September the terrorist attacks and a large sale of Disney shares by the Bass Brothers sent the shares down to $16. The way I like to calculate it (operating income plus goodwill amortization minus interest expense divided by its $32-billion market capitalization at the time), DIS had an 11% earnings yield at that price. A great long-term value.
Cedar Fair (FUN): Owns and operates amusement parks, principally Cedar Point, in Ohio, and Knott's Berry Farm, in California. These are wonderful mini-monopolies that throw off buckets of cash. It's structured as a limited partnership, so there's no corporate tax, and all the income comes right to you. (The current yield is 8%.)
Media General (MEG): Owns newspapers and television stations across the southeastern United States. It's one of the cheaper media stocks and a potential acquisition candidate.
Standex International (SXI): A very cheap industrial conglomerate. I like SXI because its management is very shareholder-oriented. It uses most of its earnings to buy back stock and pay out a hefty dividend. SXI has bought back over half its stock since the mid 1980s.
GATX Corp. (GMT): Leases railroad tank cars and finances large capital assets and equipment. It raised more than $1 billion after-tax by selling off marginal business and is now a focused leasing company. Warren Buffett's Berkshire Hathaway owns 15%.
Great Lakes REIT (GL): A midwestern real estate investment trust that buys small, underperforming commercial properties and turns them around. It doesn't make big bets (its properties are 50,000 to 400,000 square feet), so it offers a conservative way to own real estate.
Peet's Coffee & Tea (PEET): A well-known coffee brand that's very cheap -- market capitalization is $60 million. It's a small company -- with sales of $90 million -- but can grow strongly in the years ahead by selling coffee through many distribution channels.
Mattel (MAT): Barbie and Fisher-Price are great brands that are turning around under MAT's new leadership. A terrible acquisition of the Learning Co. created a nice buying opportunity in MAT several years ago.
Copyright © 2001 Michael Warshaw.
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