Lessons in Picking Winners: A Stockpicker Sees Market Favoring Late-Stage Cyclicals
Traders Magazine, March 2005
Think about it. How many Wall Streeters could honestly tell you they've had a lot of fun at work over the last five years? The dawn of the new century, alas, just has not been especially kind to most portfolio managers. Which might lead you to bet that chatting with David S. Wilson would be anything but uplifting. After all, Dave certainly picked a less-than-felcitous time, back then, to part company with a long-time compatriot and set up Wilson Partners and its management company, Wilson Capital Management and go sailing solo in increasingly crowded and storm-tossed hedge fund seas.
But you'd lose that bet. If anything, he's been re-invigorated by the challenge. You see, Dave isn't "most portfolio managers." As his hedge fund's roughly 100 percent total net return over that span (versus about a 12 percent drop in the S&P and more than a 40 percent plunge in the Nasdaq) neatly illustrates, the avid sailor is not in any sense an "average" portfolio manager-and his fund's return is decidedly better than the averages. Dave is a stockpicker of the old school, an intrepid researcher with a nose for value and a second sense about incipient growth. Also, the kind of a guy old-fashioned enough to know when it's better to trim sail and preserve capital, rather than run head-long into a gale-and to act on that knowledge and experience.
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Your clients must expect you to beat the S&P by a wide margin without even breaking a sweat. The last five years haven't been the easiest in which to rack up a 15 percent compound annual return, as you have done.
What's in store for 2005?
Wish I knew. I have been totally surprised. I expected the usual seasonal pick-up in the averages, because of the seasonal cash flows and also because over the last few years it has just seemed that money has followed performance. My grandiose plan was to start selling everything Jan. 15th.
Instead, "they" started selling everything on Jan. 3rd and I never had a chance! But I am surprised at how quickly sentiment swung from bullish to fretful with the New Year. Still, most of the companies that we follow seem to be implying that business is pretty good. And some of my old-fashioned tell-tale signs, like box shipments and container board volume seem to be ticking along. Among the truckers, there's a little company - we don't own it anymore, but we used to, and we still follow it - called Knight Transportation. It is a truckload carrier. It came in operating at full utilization of the trucks, and an 11 percent improvement in rates in the fourth quarter. And I see that trend continuing here in the first quarter. What this means to me, overall, is that I'm not getting any sense I am looking at an economy that is collapsing. Look at 10-year Treasuries. They are trading today at 4.15 percent. That is actually down from where we started the year. Let's just hope the foreign central banks and hedge funds keep finding reasons to buy them - and that the fat tails on some arcane derivatives don't smack us. I don't think anybody really knows what the extent of the derivatives situation is. What I mean is that, ostensibly, all this stuff is hedged every which way from Sunday. But we all know what happened to those geniuses at Long-Term Capital Management. The thing is, there are scads of presumptive "geniuses" putting all kinds of money into new and really untested derivatives markets these days. Huge markets that are all-but-opaque from the outside and, I suspect, very often even from the inside. Like credit default swaps.
