I have a simple screenshot that tells a lot: It is a chart for Morgan Stanley (MS) stock. On Sept. 1, 2000, MS closed at $89.35/share. In Tuesday's early trading, MS is quoted at $86.35.
Yes, in a nearly 23-year measurement period, Morgan Stanley has produced a negative return. That is extraordinary. Sure, MS has paid dividends, but so have the benchmarks, all of which have risen impressively since Sept. 1, 2000. (Without accounting for dividend payments, the Dow Jones industrial average has risen 212% since Sept. 1, 2000; the S&P 500 has gone up 192% and the Nasdaq Composite has jumped 243% in that time period.)
I guess Morgan's performance was better than the demise faced by Lehman, Bear Stearns and Credit Suisse in that time period ...
Why am I telling you all this? Because I write as much for you, the reader, as I do against Wall Street. I enjoy steering my audience and clients toward investments in companies that generate cash flow and reward shareholders through cash flow, most specifically dividends. At the same time, I will call out the bad investments.But this does not restrict us: Apple (AAPL) and Microsoft (MSFT) return cash to shareholders via both dividends and buybacks, mostly, because they generate so much of it. So do Exxon (XOM) and Chevron (CVX) . I don't care.
I will never figure out why each dollar of cash flow Tesla (TSLA) generates is worth 8 times as much as each euro that Porsche generates, but, here's a clue: neither will Morgan Stanley, as it gets high off Musk. Perhaps they are trying to convince him to forget that they were the lead bankers for him on his takeover of Twitter (TWTR) , now X, which was quite simply the worst M&A deal that I have seen in the past 30 years.
Elon will be fine, but you could lose your nest egg ... and I don't want to see that. God knows I have had some losses in my investing career, but wherever you see my writing in the future, be it on LinkedIn or scrawled on some dive bar's bathroom wall, just know that I will never knowingly compose a sentence that contains a falsehood.
That's why I left Wall Street and The City (as the financial district is referred to in London) two decades ago. UBS (UBS) shares, by the way, are trading well below their level of Sept. 1, 2000, and have been even worse long-term performers than Morgan Stanley.
Just know that rising interest rates are not conducive to rising equity values. It is the simple math of discounting. For short periods -- like most of 2023, obviously -- that connection can break, but know that over the long-term, rising interest rates are not good for stocks.
What is most galling is that underperformers like MS and UBS have been huge laggards in a multi-decade period of falling interest rates. That game has changed. Inflation is the gift that keeps on giving. It was dead for decades, or so it seemed, but the combination of incredible balance sheet expansion by both central bank and government Treasury departments (especially in the U.S., but also in Europe) and demonizing the development of hydrocarbons by the ESG movement (especially in Europe, but also in the U.S.) have brought the inflation monster back to life.
So, higher interest rates tend to reduce present values for "maybe" plays like self-driving cars that Elon loves to tease and Morgan Stanley loves to love, but tech has always been about Darwinism. Wall Street -- surprisingly only to those who have never worked for a big bank -- is decidedly not. Bailouts, whether direct ones like TARP or indirect ones like the Fed's quantitative easing program, are the lifeblood of the Chardonnay-sipping, Connecticut-dwelling blue bloods. They make their money the old-fashioned way ... by having the government (implicitly or explicitly) indemnify them against paying the consequences for their unceasing bull-market habit of taking idiotic risks with their capital.
At my minnow-sized firm, Excelsior Capital Partners, we have no such guarantees. So, really, our only choice is to beat the Big Boys. And we do. We have been -- by a huge margin -- in 2023, we will again in 2024, and I won't stop fighting for my clients.
Someday I will grow tired of looking at the screenshot of Morgan Stanley stock's generation-spanning underperformance. Today is not that day.
At ExCap we don't have the option of sustaining 23-year "hiccups," or even much shorter performance gaps caused by "transitory inflation" or whatever voodoo is being spouted by Wall Street these days.
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