Friday, October 5, 2012

The Value of Scuttlebutt


One of the most valuable things an investment manager can do, in my opinion, is talk to other investors whose opinion you respect.

You don't always have to agree with their opinions, or even act on them, but sometimes just talking to others, and getting industry scuttlebutt, can be as valuable as reading annual reports.

Take last fall, for example. Steve Jobs had just died, and the investment community was buzzing about what would be the future of Apple, the company he started.

The initial reaction of the stock market was understandably negative to his passing.  Genius the likes of a Steve Jobs is rare, and while his replacement Tim Cook has proven to be a tremendously capable executive, no one expects Mr. Cook to be able to have the creative capacity that his predecessor had.

I must confess that at the time of his passing I was tempted to sell some of the Apple stock that I had bought for my client portfolios.  Fortunately, I had the chance to have a brief discussion with Chuck Clough.

Chuck Clough had been a top-rated investment strategist for Merrill Lynch for many years.  I was an avid follower of his work, and his insights and analysis were very helpful to me in managing client portfolios.

Mr. Clough left Merrill around a decade ago to manage money in a firm he started. Clough Capital today has about $3 billion under supervision.

Last fall, Chuck and I had attended a meeting hosted by Barclays Securities where the topic of Apple stock was discussed.  Ben Reitzes follows Apple for the brokerage company. I remember that while Reitzes urged those in the room to take advantage of the weakness in Apple stock to add positions, few seemed inclined to do so.

So after the meeting Chuck and I were walking back to our offices, and we got to talking about Apple.

"You know," Chuck said, "this reminds me of the late 1960's, when Walt Disney died.  Everyone wanted to sell Disney stock then, but it turned out to a great buying opportunity."

Chuck went on.

"I have been reading the Jobs biography {written by Walter Isaacson} and it seems to me that while Jobs was obviously a creative genius, the real technology development was done by lots of other people in the company."

"Like Jobs, Disney was obviously a creative genius. But the richness of his company extended far beyond Walt Disney."

"So," Chuck concluded, "I am inclined to believe Ben Reitzes, and buy Apple in here."

In the 12 months since the passing of Steve Jobs, Apple has become the most valuable company in the world, as the stock has nearly doubled.

Besides being thankful for the serendipitous discussion I had with Chuck Clough, I am also reminded that sometimes the best ideas is to simply sit tight.

Or, to put it another, sometimes the obvious trades are not the best trades.