For the first quarter of 2000, our average account gained +7.21%.
A quarter in which we gained slightly more than our long-term average seemed like a disco after the last song had been played. Very quiet, after the cacophony of last year. Also very pleasant, in that “reversion to the mean” is a harmless sounding phrase with often ghastly practical applications. If this is all the reverting we do, we will be glad of it.
We spent the quarter, early and late, selling pieces of the two best performers of last year, and, indeed, of our history. We have waxed ardent about Echostar, and what a wonderful business it is, time out of mind now. Alas, at $9,000 per current subscriber, the price at which it now trades, it is no longer great value. Are we being too casually dismissive of a 60% growth rate? Perhaps, in worrying only about its current valuation, we are overlooking its strongest attribute; it grows like a weed. However, such extraordinary growth is by its nature unstable, and we have long been characterized as belt and suspender guys. If it goes up we will lighten up; we have much else to do with the money.
In exchanging Qualcomm and Echostar for our newer investments we are also wittingly going from the sunny uplands of the “new economy” to the dark nether regions of the old. We have long noted that Wall Street’s denizens are at least as susceptible to fads and crazes as any population of teenage girls extant. Yet even with that firmly in
mind, has there ever been quite the equal for idiocy masquerading as insight as the notion that there are “new economy stocks” which deserve not simply richer valuations, but whole new theories of value? Here is a useful distinction. A stream of roughly knowable cash out into the future, discounted by a current interest rate, that is an investment. A sum of money spent greatly improving the lot of mankind, that is charity work. Internet enthusiasts seem to have grown confused on the point.
We do not often throw hostages to fortune in these letters, and it is not our business to make predictions of the future. We have no objection to others who set themselves up in the swami business, looking for renown on the financial news networks, although we do wish they were outfitted with tall, conical hats bearing stars and moons, just to keep the players straight at a glance. Still, peering through the dust on our own crystal ball, here’s our oracular effort; profits are soon to be discovered as more enriching than losses, and businesses will be found to be more valuable than business plans. In fact, in a country with $18 trillion in market capitalization and $330 billion in profits, we live in some trepidation that the investing public may suddenly decide there is a shortage of profits, and act accordingly. In Countrywide Credit and our real estate investment trusts, we intend to lay in a large supply of profitable businesses, before the shift in sentiment arrives.
Lest you be left with the wrong impression, we continue to be amazed at the large number of fine companies with excellent records trading at “old economy” multiples. That they trade companionably cheek by jowl with such zaniness is a tribute to the self-delusional abilities of our industry. Through the years when we find ourselves discomfited that we are abandoning what is clearly working for what is “clearly discredited”, we are always put in mind of G.K. Chesterton’s acid but apt observation,
“If a person marries the spirit of the times they are sure to be soon widowed.” We would only add that there are always sound reasons not to buy cheap stocks, but “they’re not working now” is never one of them.
All and all it has not been a bad way to start a millennium. Now if only we can all go on this way right through it….
Sincerely yours,
Edwin A. Levy
Michael J. Harkins