The Physician Investor

THE PHYSICIAN INVESTOR NEWSLETTER

HELPING PHYSICIANS ATTAIN FINANCIAL SECURITY
By Robert M. Doroghazi, M.D., F.A.C.C.

Barron's Conf., Part III

Issue #TPIN #182, November 07, 2011

The Barron’s Art of Successful Investing Conference
Part II of III
Fred Hickey
Long-time Barron’s Roundtable member Fred Hickey is Editor and Publisher of The High-Tech Strategist.
The key to investing is that you can’t lose big, as happened after the tech bust of 2000. We have been in a secular bear market in tech since then (RMD comment: we have been in a secular bear market in the broad market since 2000). He is getting bullish short-term because of the attractive valuations. Assuming Europe is OK, the market will rally through year end. The Fed is prepping the market for QE III; it won’t create jobs, but it will support asset prices. He notes, however, that we haven’t seen the final secular bear market low in tech.
Business is being pressured by heavy regulation. We won’t hit bottom in the economy until next year or later. The final bottom will be when the market comes to the conclusion that Quantitative Easing doesn’t work.
Salesforce.com (CRM): Has a 100 P/E even using non-GAAP (Generally Accepted Accounting Principles) accounting. It is the only tech stock he is currently short. Many sales people are leaving and all of their numbers are wrong.
Fusion-io (FIO): He doesn’t like it, even though it was given a very positive review in the Barron’s that came out the day of the conference. It may be a good pick over the next 6 months, but then the competition will come in.
EMC: Could be a threat to Fusion-io. VMware (VMW) is the finest cloud company around, and is 79% owned by EMC.
MSFT: He likes it. The P/E is 10, if you strip out their cash, it’s only 8. A catalyst will be Windows-based systems going into tablets and mobile phones. Nokia (NOK) is introducing a Windows-based phone; it is strong and might take off. MSFT has an investment in Facebook. He is impressed that many software designers are personally buying MSFT because they believe it will get a big chunk of the tablet/mobile phone market.
Going forward; large-cap tech will outperform; small cap will get killed. Wait until the final bottom to buy small cap.
AAPL: Is consumer oriented and must keep innovating; they are at risk long term without Jobs.
RIMM: A long, painful death. Don’t short; just stay away.
Gold: Since 2003, Hickey has had 40-80% of his wealth in the precious metals. The dollar is strong only because other currencies are weak. When Europe’s problems are solved, the dollar will weaken and gold will strengthen. At the recent $1,900 peak, the selling was in the futures market, but not in physical gold (RMD comment: This is what I did. I have not sold any physical gold). We haven’t seen the top in gold. Central banks, India and China are buying. Gold has already stabilized, and there could be a big rally because the end of the year through January and February is a traditionally strong period.
Oscar Schafer
Schafer has been a Barron’s Roundtable member for 20 years.
Macro view: There will be little growth and interest rates will remain low. We are in a bear market. The increased volatility has decreased the common investors’ interest in stocks. Business and investors have no confidence in Washington; they feel the system is broken. Gulliver was tied down with many small ropes; this is what the government is doing to business (RMD comment: One of the basic themes of the conference and of these letters for the last year has been over-regulation, and I love references to the classics).
How should the average investor approach the market? Don’t be heavily exposed to stocks. Cash is OK. Major US multi-nationals with 3-4% dividends are a good place to look; they pay more than Treasuries.
Xerox (XRX) gets 50% of its business from copiers, with a trend toward color over black-and-white, which is more profitable. Fifty percent is from services. They will buy back stock.
He again recommends Mako Surgical (MAKO): they are the Intuitive Surgical (ISRG) of this period. The only big-cap pharmaceutical he owns is Sanofi (SNY), which he likes because of their vaccine business and the dividend.
Individuals should have 5-10% of their money in physical gold, preferably stored overseas (RMD comment: Sounds familiar; another convert to the importance of holding physical gold). Singapore and Canada are also good places to have gold.
Brian Rogers
Rogers is Chairman and Chief Investment Officer at T. Rowe Price.
Volatility and the downgrade of US debt have rattled investors. Individuals feel the game is stacked against them, and will stay on the sidelines until things go up. The key is investor confidence. Think of long-term government bonds as “Certificates of Confiscation” because you lose purchasing power.
RMD comment: Contemplate that phrase ‘Certificates of Confiscation”. I think it is one of the most important new “catch-phrases” of the conference (see Stephanie Pomboy, next letter). Loaning your hard-earned capital to the politicians is legalized confiscation. The Federal Reserve’s stated goal is 2% inflation per year. Over the course of a 30-year bond, your money will lose 75% of its value—plus taxes, plus however much the government low-balls the inflation numbers. I can see no reason to buy a government bond of 10 years or longer duration.
In the past, dividend-paying stocks were considered insurance against inflation because the company could increase the dividends pari passu. Beware of a 7-9% or higher dividend, a cut is often coming. Dividends of 3-4% are usually more sustainable.
In the next issue, I will wrap up my observations from the Barron’s Conference.
RMD
I recently had supper with a man who lived in a Communist country until age 9. His father was a very successful, educated professional. When they tried to leave the country, his dad was put to work as a laborer in the fields. They finally got out 2 years later.
RMD comment: Communism was the greatest travesty foisted upon humanity in the 20th century. Lenin and Stalin murdered 50 million of their own people: Mao as many or more. The smarter you were, the more you could think for yourself; the tougher it was. People who have lived through such adversity appreciate how truly blessed we are here in the US.
For an interesting perspective, I suggest Dupes: How America’s Adversaries Have Manipulated Progressives for a Century (Kengor, 2010, ISI Books).
When I recently visited older son John, he said “Dad, every Hungarian I’ve ever met, except Uncle George, is really careful with their money (Uncle George was one of my dad’s two brothers. He spent freely, but his mortgage was paid off, and he was the most truly generous person I ever met).
In The Millionaire Next Door (Longstreet Press, 1996), Stanley and Danko note that the immigrants to the US with the highest percentage of millionaires are 1) Russian, 2) Scotch, and 3) Hungarian.