(GuruFocus, November 24, 2009) Investment Guru Ronald Muhlenkamp often compares investing to farming in the sense that investing environment has cycles just as in farming there is seasons. He must be having pretty lousy season in the last few year as indicated by the performance of his mutual fund Muhlenkamp Fund. The Fund has underperformed the S&P 500 in a row for a couple of years after beating the index handsomely earlier in the century.
Things are turning up a little for the Fund: YTD, it is up 28.89% vs. S&P’s 22.46%. Hope the effectiveness of Muhlenkamp’s investment philosophy came back and stay here for the next a couple of years.
This time last year, in the middle of Muhlenkamp was interviewed by Steve Forbes, among other things, Muhlenkamp discussed his investment philosophy:
(Read the full transcript here.)
In the interview with Forbes mentioned above, Muhlenkamp did comment why he get into Berkshire Hathaway and BofA:
The interview happened a year ago. Muhlenkamp is famous for keeping his chips for a long time.
No. 2: Cisco Systems Inc. (CSCO, Financial), Weightings: 7.11% - 2,028,035 Shares
Cisco Systems, Inc. is the worldwide leader in networking for the Internet. Cisco's Internet Protocol-based networking solutions are the foundation of the Internet and most corporate, education, and government networks around the world. Cisco provides the broadest line of solutions for transporting data, voice and video within buildings, across campuses, or around the world. Cisco Systems Inc. has a market cap of $138.45 billion; its shares were traded at around $23.9 with a P/E ratio of 21.9 and P/S ratio of 3.8. Cisco Systems Inc. had an annual average earning growth of 17.1% over the past 10 years.
No. 3: General Electric Company (GE, Financial), Weightings: 5.81% - 2,375,860 Shares
General Electric is one of the largest and most diversified industrial corporations in the world. GE is engaged in developing, manufacturing and marketing a wide variety of products for the generation, transmission, distribution, control and utilization of electricity. Some of GE's products include major appliances; lighting products; industrial automation products; medical diagnostic imaging equipment; motors; electrical distribution and control equipment; locomotives; power generation and delivery products. General Electric Company has a market cap of $170.57 billion; its shares were traded at around $16.02 with a P/E ratio of 13.2 and P/S ratio of 0.9. The dividend yield of General Electric Company stocks is 2.5%. General Electric Company had an annual average earning growth of 12.7% over the past 10 years. GuruFocus rated General Electric Company the business predictability rank of 3.5-star.
No. 4: Oracle Corp. (ORCL, Financial), Weightings: 5.47% - 1,763,138 Shares
Oracle Corporation is one of the world's leading suppliers of software for information management. The company develops, manufactures, markets and distributes computer software that helps corporations manage and grow their businesses. The company's software products can be categorized intotwo broad areas: Systems software and Internet business applications software. Oracle Corp. has a market cap of $113.3 billion; its shares were traded at around $22.6 with a P/E ratio of 16 and P/S ratio of 4.9. The dividend yield of Oracle Corp. stocks is 0.9%. Oracle Corp. had an annual average earning growth of 18.2% over the past 10 years. GuruFocus rated Oracle Corp. the business predictability rank of 4-star.
No. 5: Legg Mason Inc. (LM, Financial), Weightings: 5.34% - 1,156,500 Shares
Legg Mason, Inc. is a holding company which, through its subsidiaries, isprincipally engaged in providing asset management, securities brokerage,investment banking and related financial services to individuals,institutions, corporations and municipalities. Legg Mason Inc. has a market cap of $4.72 billion; its shares were traded at around $29.12 with and P/S ratio of 1.4. The dividend yield of Legg Mason Inc. stocks is 0.4%. Legg Mason Inc. had an annual average earning growth of 9.6% over the past 10 years. GuruFocus rated Legg Mason Inc. the business predictability rank of 4.5-star.
No. 6: PHILIP MORRIS INTERNATIONAL INC (PM, Financial), Weightings: 5.09% - 701,952 Shares
Philip Morris International is the leading international tobacco company, with products sold in over 160 countries. They own 7 of the top 15 brands in the world and have a strong mix of international and local products that seek to appeal to a wide array of adult smokers. Philip Morris International Inc has a market cap of $96.86 billion; its shares were traded at around $50.07 with a P/E ratio of 15.6 and P/S ratio of 1.5. The dividend yield of Philip Morris International Inc stocks is 4.6%.
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| Year | Return (%) | S&P500 (%) | Excess Gain (%) |
|---|---|---|---|
| 2008 | -40.39 | -37 | -3.4 |
| 2007 | -9.66 | 5.61 | -15.3 |
| 2006 | 4.08 | 15.79 | -11.7 |
| 2005 | 7.88 | 4.91 | 3.0 |
| 2004 | 24.51 | 12 | 12.5 |
| 2003 | 48.07 | 28.7 | 19.4 |
| 2002 | -19.92 | -22.1 | 2.2 |
| 2001 | 9.33 | -11.9 | 21.2 |
| 2000 | 25.3 | -9.1 | 34.4 |
| 1999 | 11.4 | 21 | -9.6 |
Things are turning up a little for the Fund: YTD, it is up 28.89% vs. S&P’s 22.46%. Hope the effectiveness of Muhlenkamp’s investment philosophy came back and stay here for the next a couple of years.
This time last year, in the middle of Muhlenkamp was interviewed by Steve Forbes, among other things, Muhlenkamp discussed his investment philosophy:
Steve Forbes:Well, Ron, it's good to have you with us. We're in one of these extraordinary periods in investing where a month seems like a decade. I first would like you to give our viewers and listeners a roundup of your investment philosophy, which is not the usual pigeon-hole things we see. You've described it as sort go-anywhere, macro economics and bottom fishing.
Ronald MuhlenkampWe like to invest in good companies when the price is right. We prefer stocks to bonds because we want management working for us as opposed to against us. There's two ways you can put money into a company. You can loan them money, in which case the management's job is to minimize your return. Or you can actually be an owner of the business, in which case their job is to maximize return. We like management working for us.
We think in terms of investing in companies as opposed to buying and selling stocks.Now, we're small enough that we can't really buy companies like Warren Buffet might. But that's the philosophy we come with. So we always want to own good companies. And we start with our definition as return on shareholder equity
Actually, if you made a column and sorted companies by return on equity and sort them by reputation, you'd find that they pretty much marked with each other. The best companies by and large have the best reputation. But we don't know how to quantify reputation. We do know how to quantify return on equity. Historically, we tell the general public that we're trying to buy Pontiacs and Buicks when they go on sale. You know some folks who say the only thing you want to buy is the best companies. And the trouble is the best companies don't very often go on sale.
(Read the full transcript here.)
Recently with Gold price surging, Muhlenkamp was dragged into an interview on the movement and investment worthiness of Gold. Instead of commenting on Gold prices, he stated the current rally of gold is a momentum move and he would rather stay with stocks for which he is more acute in assessing the value.
Watch the video with Ron Muhlenkamp interviewed by CNBC. Muhlenkamp reveals his opinion towards interest, liquidity, and gold price.
With all that said, here are companies that Muhlenkamp had the heaviest position as of September 30, 2009:
No. 1: Bank of America Corp. (BAC, Financial), Weightings: 7.92% - 3,144,489 Shares
Bank of America provides individuals, small businesses and commercial, corporate and institutional clients across the United States and around the world new and better ways to manage their financial lives. The company enables customers to do their banking and investing whenever, wherever and however they choose. Bank Of America Corp. has a market cap of $140.93 billion; its shares were traded at around $16.29 with a P/E ratio of 108.6 and P/S ratio of 1.9. The dividend yield of Bank Of America Corp. stocks is 0.2%. Bank Of America Corp. had an annual average earning growth of 7.5% over the past 10 years.In the interview with Forbes mentioned above, Muhlenkamp did comment why he get into Berkshire Hathaway and BofA:
Forbes:So what kind of companies are you buying now?
Muhlenkamp:We own Berkshire Hathaway for the first time ever because Warren Buffet started with $40 billion. He understands credit markets. And he can write his own terms. I can't go to GE or Goldman Sachs and say, "I'd like to put money in ..."
Forbes: That stock has plummeted, right?
Muhlenkamp:Well, yes, it has. And he has another $20 billion left to invest. It was interesting to me that when Paulson said he was going to buy distressed assets, Warren said, "I'd like a 1% piece of that deal. It looks like a pretty good deal." We think that IBM's a Cadillac. We think Cisco's a Cadillac.
What we did in our earlier thing on recessions, we're trying to look for what's different this time vs. last time. And in '01 the dollar was quite strong. As you know, when the dollar's strong, it benefits the American consumer and squeezes the American producer. Now, even though the dollar has strengthened in the last few months, we're still well below where we were six or seven years relative, for instance, to the euro.
Let's say you're Boeing. You've got one major competitor--Airbus. The flaw in my argument is that Airbus is subsidized. But if it's only Boeing vs. Airbus and it's a dollar vs. a euro and you're trying to sell planes to China. The fact that the dollar's still 20% below where it was relative to the euro six or seven years ago means that, all else being equal, Boeing's cost, because their costs are in dollars, are 20% less than Airbus's.
So we think they're benefiting from the cheaper dollar. So this time around we want to own American producers who are selling to the rest of the world. And we think things like an IBM and a Cisco, No. 1, a lot of their business goes elsewhere, that they're certainly Cadillac companies. They provide a useful service at a reasonable price to folks throughout the world. And we think that's the direction you want to move. But there has been no reason to be in a hurry.
Forbes: So you just hang tough.
Muhlenkamp:Well, when they said these nine banks aren't going bankrupt, we bought some Bank of America. Bank of America basically said, "We don't need our piece of $125 billion." The guy at Wells Fargo said, "We not only don't need it, we don't want it." They were told you'll take it anyway.
Forbes:It's amazing. Take it or else.
Muhlenkamp:Yes. And so we think two or three years from now we'll say, man, this stuff was obvious. But in the meantime, there's still some people are having to sell it. We bought some Triple M [3M]. I'd have to check quite when it was. But there was a period when it dropped 20% or 30%.
Triple M has, as you know, a broad range of stuff that's pretty stable. We think it's a Cadillac company. And we got a chance to buy it cheap. And it's probably cheaper now.
The interview happened a year ago. Muhlenkamp is famous for keeping his chips for a long time.
No. 2: Cisco Systems Inc. (CSCO, Financial), Weightings: 7.11% - 2,028,035 Shares
Cisco Systems, Inc. is the worldwide leader in networking for the Internet. Cisco's Internet Protocol-based networking solutions are the foundation of the Internet and most corporate, education, and government networks around the world. Cisco provides the broadest line of solutions for transporting data, voice and video within buildings, across campuses, or around the world. Cisco Systems Inc. has a market cap of $138.45 billion; its shares were traded at around $23.9 with a P/E ratio of 21.9 and P/S ratio of 3.8. Cisco Systems Inc. had an annual average earning growth of 17.1% over the past 10 years.
No. 3: General Electric Company (GE, Financial), Weightings: 5.81% - 2,375,860 Shares
General Electric is one of the largest and most diversified industrial corporations in the world. GE is engaged in developing, manufacturing and marketing a wide variety of products for the generation, transmission, distribution, control and utilization of electricity. Some of GE's products include major appliances; lighting products; industrial automation products; medical diagnostic imaging equipment; motors; electrical distribution and control equipment; locomotives; power generation and delivery products. General Electric Company has a market cap of $170.57 billion; its shares were traded at around $16.02 with a P/E ratio of 13.2 and P/S ratio of 0.9. The dividend yield of General Electric Company stocks is 2.5%. General Electric Company had an annual average earning growth of 12.7% over the past 10 years. GuruFocus rated General Electric Company the business predictability rank of 3.5-star.
No. 4: Oracle Corp. (ORCL, Financial), Weightings: 5.47% - 1,763,138 Shares
Oracle Corporation is one of the world's leading suppliers of software for information management. The company develops, manufactures, markets and distributes computer software that helps corporations manage and grow their businesses. The company's software products can be categorized intotwo broad areas: Systems software and Internet business applications software. Oracle Corp. has a market cap of $113.3 billion; its shares were traded at around $22.6 with a P/E ratio of 16 and P/S ratio of 4.9. The dividend yield of Oracle Corp. stocks is 0.9%. Oracle Corp. had an annual average earning growth of 18.2% over the past 10 years. GuruFocus rated Oracle Corp. the business predictability rank of 4-star.
No. 5: Legg Mason Inc. (LM, Financial), Weightings: 5.34% - 1,156,500 Shares
Legg Mason, Inc. is a holding company which, through its subsidiaries, isprincipally engaged in providing asset management, securities brokerage,investment banking and related financial services to individuals,institutions, corporations and municipalities. Legg Mason Inc. has a market cap of $4.72 billion; its shares were traded at around $29.12 with and P/S ratio of 1.4. The dividend yield of Legg Mason Inc. stocks is 0.4%. Legg Mason Inc. had an annual average earning growth of 9.6% over the past 10 years. GuruFocus rated Legg Mason Inc. the business predictability rank of 4.5-star.
No. 6: PHILIP MORRIS INTERNATIONAL INC (PM, Financial), Weightings: 5.09% - 701,952 Shares
Philip Morris International is the leading international tobacco company, with products sold in over 160 countries. They own 7 of the top 15 brands in the world and have a strong mix of international and local products that seek to appeal to a wide array of adult smokers. Philip Morris International Inc has a market cap of $96.86 billion; its shares were traded at around $50.07 with a P/E ratio of 15.6 and P/S ratio of 1.5. The dividend yield of Philip Morris International Inc stocks is 4.6%.
GuruFocus provides real time information and insights of Investment Gurus such as Warren Buffett and Ron Muhlenkamp for Premium Members. If you are not a premium member, click here to sign up or upgrade. 7-Day Free Trial is available.
