Mr. Miyagi and Your Portfolio
(00:00.674)
Old predictions, lots of predictions, all the Wall Street gurus out there, predictions for 2024, what to do next, what they see on the horizon. Right. I want to, I want to talk about Mr. Miyagi. Yeah, I’m Karate Kid fan. I even like that the series now that they have on there, Cobra Kai, I think is great. Mr. Miyagi and your
portfolio, what we can learn from Mr. Miyagi and teach us about our portfolio that you’re not going to learn from the Yahoo pundits on TV that quite frankly, flip a coin. And you know what, even flip a coin, I bet you a coin is more accurate than most of these pundits are. There was a talking about right now in regards to breakup of one’s portfolio and value stocks versus growth stocks and what you should do.
how you should handle it and trying to guess what side to go on. Don’t do that. I’m going to take two value. I’m going to do the value growth index of the Russell 3,000. That’s a lot of companies, right? So you’ve got the Russell 3,000 value index. It’s returned 2.1% so far this year. The growth.
index 31%. Wow. I mean, that’s a pretty good size underperformance for this year. For this year, and it’s actually the greatest, second biggest underperformance dating back to 2000. Again, why? What happened this year? Well, we had silicon.
bank failure, and then we had, you know, what was going to happen next with the banking industry, we had this, you know, everybody’s, you know, FOMO with AI, a ton of money going in that direction. And all of a sudden, yeah, investors jump from one thing to another and they go all in on something. And yeah, you know what? We got involved in it too. Why not?
(02:17.858)
Why, how did value stocks do? So I love value stocks, I love value. How did value stocks do in 2022? Pretty darn well. Growth stocks didn’t do that well. Both, you know, you could take a look right now. And the value side, six of the 10 largest stocks are down this year. Chevron, Johnson, Merck.
Bank of America. Are any of those companies bad companies?
No, they’re not bad companies. They’re value companies. They’re strong companies. So let’s take a look at the numbers right now. The growth index, that 3,000 growth stocks, trades at 32 times earnings. 32 times trailing earnings. The value index trades at 14 times earnings. Wow.
hell of a lot cheaper. Well, how are these companies supposed to do next year? Well, growth companies, again, fast growth, they’re expected to increase their earnings per share by 14.3%. Values is expected to go up by 11.4%. So it’s pretty close. So what am I getting at right here? Okay. Again, this is what where people screw up is they go all in.
all out on either one when you have to achieve balance. You have to achieve balance. And this is where I’m gonna get into Mr. Miyagi. Again, I wrote this piece several years ago and the title piece is Bonsai Tree. And yeah, back then, a similar type of situation right now, who’s gonna win, who’s gonna lose, what’s hot, what’s not, what to do in 2024, okay?
(04:21.322)
It doesn’t matter what they’re saying. Doesn’t matter. You’re gonna try to guess which is gonna outperform in 2024 value growth. I don’t know. I couldn’t tell you. Again, lots of things could happen. Who knows? Why do people always, always underperform?
Why do people, when they’re managing their own money, why do these people, these 401Ks, why do they always underperform? They buy high and they sell low.
(04:59.754)
There was a professor out of the Haas School of Business at Berkeley. His name is Terrence Odean. And I’ve been following his studies going back to the 1990s. And he basically, you know, investors continually buy and sell stocks at the wrong times. They sell stocks that are undervalued and are poised to rise and purchase stocks that do worse than the ones that they sold.
than if they had been throwing darts at a chart.
Well, how do we determine the top? Again, we don’t. We look at the fundamentals. We look at quality companies. And that is where it gets, we’re getting into Mr. Miyagi here, big fan of Mr. Miyagi. And he’s great scene and the first karate kid and Daniel Son, Daniel LaRusso is admiring Mr. Miyagi’s bonsai trees. He’s admiring them.
And he tells, he wants to see how he can do it. All these cool little bonsai trees. And he tells Danny, he said, you know, picture tree in your mind, picture tree. And then he talks about cutting here and snipping there, training the tree, training the tree to do what you envision, what you put into your mind. And that’s what we do. That’s what proper portfolio management.
is all about. It entails the same type of delicate continual touch cut gear snip there. So in 2022, you know, value stocks were doing well in our portfolio. It’s not like I’m selling Chevron and selling out all of these companies. No, we’re trimming the positions because they have done well. And you rotate the assets from the positions that have done well.
(07:00.234)
into the ones that might be underperforming but are still quality companies. This is what you need to do to be successful. Guys, there’s no shortcuts or anything like that. Again, work time and effort, gotta play a part in what you’re doing, not guessing what’s gonna happen next. Watchdog on wallstreet.com.
