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Painting is by my father, Naum Katsenelson |
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By Vitaliy Katsenelson
I was recently going through a new client’s portfolio and found it full of the likes of Coca-Cola, Kimberly-Clark and Campbell Soup — what I call (pseudo) bond substitutes. Each one is a stable and mature company. Your mother-in-law would be proud if you worked for any one of them. They have had a fabulous past; they’ve grown revenues and earnings for decades. They were in their glory days when most baby boomers were coming of age. But the days of growth are in the rearview mirror for these companies — their markets are mature, and the market share of competitors is high. They can innovate all day long, but consumers will not be drinking more fizzy liquids, wearing more diapers or eating more canned soup.
If you were to look at these companies’ financial statements, you’d be seriously underimpressed. They paint a stereotypical picture of corporate old age. Their revenues haven’t grown in years and in many cases have declined. Some of them were able to squeeze slightly higher earnings from stagnating revenue through cost-cutting, but that strategy has its limits — you can only squeeze so much water out of rocks (unless someone like 3G Capital takes the company, sells its fleet of corporate jets and starts mercilessly slashing expenses like the private equity firm did at Budweiser and Heinz). These businesses will be around ten years from now, but their profitability probably won’t be very different from its current level (not much higher, but probably not much lower either).
However, if you study the stock charts of these companies, you won’t see any signs of arthritis; not at all — you’ll have the impression that you’re looking at veritable spring chickens, as these stocks have gone vertical over the past few years. So this is what investors see — old roosters pretending to be spring chickens.
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Tchaikovsky’s Suicide Note?
Today I wanted to share with you Tchaikovsky’s Symphony Number 6, called “Pathetique” (which translates from Russian as “passionate”). It was Tchaikovsky’s last symphony. He conducted its premier just nine days before his death in 1893. He was 53 years old.
To understand this symphony, we have to understand the dark period in Tchaikovsky’s life.
Tchaikovsky was a master of emotions, because he was a neurotic, highly sensitive person, full of phobias (we know this from his letters). For instance, he had a phobia that his head would fall off when he was conducting. (He eventually overcame this phobia, as at times he had to earn a living as a conductor.) His music is ridden with emotions; it is manifestation of his emotions. It is his emotional confession.
Tchaikovsky wrote “Pathetique” when he was depressed and doubting his ability to compose. (He had destroyed his previous symphony because he was unsatisfied with it.)
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| Vitaliy N. Katsenelson, CFA, is Chief Investment Officer at Investment Management Associates, Inc. in Denver, Colo. He is the author of Active Value Investing (Wiley) and The Little Book of Sideways Markets (Wiley). His books were translated into eight languages. Forbes Magazine called him "The new Benjamin Graham". To receive Vitaliy’s future articles by email or read his articles click here. |
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