As I recently shared, I sold my Brixmor (BRIX) position. In this post, I am going to discuss what I am doing with some of the proceeds.
In the most recent BRIX update, I wrote about using some momentum/trend-following type stuff to determine when to cash in my gains. Basically, the stock was in the range of fair value and I saw the CEO was appearing on Mad Money and (someone) was running some ads promoting the stock on CNBC.
Rather than just selling it, however, I decided to let it run as long as it stayed above short and medium term moving averages. Basically, just allowing for some reflexive and/or price momentum. This allowed me to reap another 8% or so in gain when I sold it.
Selling, in general, is something I am thinking about a fair amount these days. Reading a lot of the momentum and/or trend discussions and literature may have benefited me in this area (time will tell). At this point, I am pretty convinced that higher prices usually bring more buyers of stocks (I’ve long concluded this was “a thing” in consumer goods), so I am trying to allow for that in making selling decisions.
Setting the table
Ok, enough about selling. Let’s talk about buying some stonks! In this post, I am just going to sort of briefly summarize my thoughts on a few stocks I bought in with my BRX gainz.
I might do more detailed posts about each later. I’m also planning to start tracking the Roth IRA that these stocks will be in on this blog to sort of hold myself accountable for the potential damage I’m doing to my portfolio (it may be entertaining for you).
So here are two stocks I bought and some quick thoughts/streams of consciousness:
ViacomCBS (“VIAC”): It is cheap, this is known. Why? Because of streaming wars/death of the cable bundle. VIAC has valuable I.P., including newly reunified Star Trek (before viacom had movie rights/license and cbs had t.v. rights…nightmare), Sponge bob, and unified licensing for the company (can you imagine how much Trek revenue they have blown in licensing since the Big Bang Theory/nerds became popular).
CBS is a dominant ratings network and has power in the bundle (people like those NCIS and similar shows, apparently). The scale of newly combined VIAC will help monetize/protect the weaker cable networks. Showtime is strong. They are also doing a show about the 1987 crash, so I might be biased. I like the pluto free to cbs all access range of D2C offerings (they probably need to rework that with new scale of combined company and may need to consolidate more). I am also a fan of selling, when it makes sense, into this “gold rush/netflix money,” while still maintaining optionality with their direct to consumer initiatives. For example, ringing the register/licensing SouthPark and producing some shows for Amazon/NFLX (in case this is all stupid and these tech guys are just blowing VC/stock offering/bubble money and in a few years we are like…”I had six video apps/subscriptions, wtf!?” In essence, my thoughts are similar to those contained in this post: (on a much better investing blog) Yet Another Value Blog.
It also seems like Shari Redstone is not happy with the price and is doing stuff about it (she had to break a few necks…but maybe they had it coming). I watched several presentations from Bob Bakish (new CEO) giving his pitch and he seems ok/good. Bakish did an admirable job with Viacom from what I can tell. Seems like a big improvement over Sumner’s buddy who was running Viacom before. I am interested in the stated plans to dispose of NYC trophy tower and buyback stock. We will see if they actually shrink the share count, but at least they are talking about some out of the box stuff. Sure, I would rather own Google or Disney, but at this price…I’m long $VIAC.
Wells Fargo (“WFC”): Trading around 1.3x tangible book, which is not really cheap relative to the most recent annual ~10% return on equity, but I believe long-term ROEs are more likely to be 15% – 20% (If you are curious about these metrics, go to CNBC’s Buffett archive and search tangible book or read one of Jamie Dimon’s annual letters).
So, WFC is reasonably cheap (if returns/expenses revert closer to historical experience). The business mix (higher returns through the cycle) is still superior to JPM and BAC (and of course Citi) in my opinion. BAC, for example, seems to agree with this, and tries to back out the “global investment bank” in a lot of its return and deposit/funding cost slides/metrics. I do not like investment banking as an equity investor (lion’s share of returns go to the smart, very greedy people who work in the business). USB is the best comp (but WFC has superior scale) trading at ~2.5x TBV. WFC’s returns (ROAs and ROEs) are being depressed by temporary stuff (at least that’s the bet) and likely to revert and then some reminds me a lot of BAC back when I was buying the BAC-WTA (TARP Warrants).
As far as large banks generally, I think regulatory capture/moat has increased post financial crisis. I really think the moat is gigantic. WFC has $1.3+ in deposits with cost of .62% (!!!) It grew deposits last quarter with half the presidential candidates running against them and a new CEO who can’t find the men’s room yet.
“Fintech” is a threat but I am willing to bet it won’t be able to really dent core banking (or at least that the probabilities are already more than fully discounted). When you are dealing with real sums of money, I think people want bricks around just in case (have you tried to order anything on the internet lately?). I think people will continue to demand FDIC insurance for real money (see, Mt. GOX, etc…) Fintech assaults also probably increase the moats of big banks versus smaller ones, because of the scale and sophistication required to deal with technology changes (combined with regulatory burdens).
Even in payments, I think the banks have a good chance to win/hold their own. When Diner’s Club and American Express first started payments, I’m sure there was a lot of angst about removing cash (and/or the banks) from the transactions (and commerce generally). From what I can tell, the banks waited for them to prove out the concept and then all the big ones got together and formed VISA and Mastercard.
This reminds me of Zelle and payment apps (like venmo and cash) today. On day one, after all the big banks formed Zelle, there were probably at least 10x+ “users” with Zelle accounts versus their nearest competitor (with all their data already entered for them and full integration with their $$$ accounts and employers and billpay where they entered all that PITA data, etc). [Only USB size and up have a piece of the equity in Zelle (early warning, llc) as of right now…perhaps another reason to prefer the big banks over the regional banks]
Now it is just a matter of getting users active on the app. If venmo, etc. ever try to monetize, it seems like there would be a huge landslide to the free app that everyone already has. In the next recession, banks will also probably pick up some of the fintechs (with cash burn) on the cheap and integrate their tech. This is kind of how tech booms work.
Finally, Charlie Munger runs a small portfolio (for him) with zero size constraints at the Daily Journal co. Excluding some small Korean stock positions, over 50% of the portfolio is in WFC (admittedly, he bought near the bottom, as legends will do). Munger is the founding disciple of the church of quality-compounders and he is super-long (cheap) banks. His biggest position is WFC.
I Bought Some Stonks
I am now long $VIAC and $WFC. Each is about a 10% position in the Roth IRA that I’m going to start tracking in a little bit more detail on this blog (it’s also the account with other positions I’ve written about before: Avon/Natura (this thing keeps ripping BTW), Coty and CAG). I also took a little flyer/option-like position in $CBL at $1 (~.5% position). I might write that up later.
I’ve still got some more BRX proceeds to invest. I am pretty sure what I’m doing with most of the money, but I want to make the decision for sure (and get the stock purchased) before writing about it. I am trying to limit the impact of posting opinions on the blog on my actual portfolio (there have been studies indicating that taking a public position on something leads to some pretty strong biases and I could feel myself growing more certain/enthused as I marshaled points regarding WFC).
Thanks for reading!