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Forbes Financial Round Table: Michael Holland MICHAEL HOLLAND
Chairman, Holland & Co., LLC
I’m too depressed to go on. [LAUGHTER] I've known Byron too long and he's been too right too often. Just presuming that he's only going to be partially right, which he always is, is depressing. Last year he only had oil going to $80 and gold just going to $800.
My forecasting ability is zero. So realizing what the world is and what's possible, what I try to do is invest in stocks where the managements are thinking as Byron is thinking. Then, if they have the capacity, they can take advantage of the problems.
One of the easiest examples during 2007 would be Goldman Sachs being on one side of the trade where Citigroup and Bear Stearns would have been on the other side of the trade. There are winners and there are losers. I think in the environment that Byron describes, Henry and Doug to a lesser extent, is a more challenging environment. So companies are like athletes: the stronger they are the better prepared they are for the difficult times and the better they produce.
Some of the names that have already been mentioned are among those. Schlumberger (NYSE:SLB) or General Electric (NYSE:GE) would be examples. Others that I would use would include companies like Berkshire Hathaway (NYSE:BRK.A). In other words, companies those have very, very strong balance sheets where they can identify problems and take advantage of the problems by providing solutions. GE goes through its businesses looking for those things.
Warren Buffett just started a brand new business in the municipal bond insurance area because he identified a problem where he could use his enormously strong balance sheet. Where it used to be $52 billion dollars, there is still $40 billion dollars in cash on their balance sheet.
Microsoft (Nasdaq:MSFT) would be an example in the technology area where I think that if the worst happens, or that we are being told could happen, it will survive. There are a lot of financial service provider’s employees who are no longer employed. So there will be less demand for a lot of the technology that Qualcomm (Nasdaq:QCOM) or Microsoft (Nasdaq:MSFT) or Cisco (Nasdaq:CSCO) generally provides. But the weaker entries in those businesses will probably not be the ones that will survive. It will be the stronger ones who will probably, as in past cycles, get market share. So a Microsoft with its strong balance sheet or an Intel (Nasdaq:INTC) with its strong balance sheet will have the opportunity to gain market share because they can come out with innovations that are not possible for some of the weaker brethren.
So I would say that's where I would look in the U.S. given the dire possibilities. I also realize that when I get particularly nervous, as Henry mentioned before, when things look their worst that is when the market has surprised me. When I'm ready to slit my wrists it’s the time when I'm in a position to make more money in the stock money than I ever would have thought possible.
So I think I'm always prepared to sit through the worst of times because I won't be able to pick the tops or the bottoms. Having said that now, if I have to invest a full portfolio, I would be looking outside the U.S. I would also be wary. Having been, as Byron has, many times to China over the years - and I sit on the board of the China Fund which is listed on the New York Stock Exchange (a disclaimer) and I'm also on the board of the Taiwan Fund which is listed on the New York Stock Exchange. Taiwan looks good to me. I wouldn't use Byron's phrase that you can't lose money or that it’s a no-brainer, but compared to China, Taiwan looks very attractive. So I would look at the Taiwan market and also the South Korean market.
Having been in Europe recently, I think things are slowing down there. I'd be wary of a lot of places outside the U.S. They have reflected a much better performance economically, but their stock markets have done so much better than the U.S. I'm not sure it’s as extreme as the 1999-2000 periods when we had a silly situation in the Internet area and you could lose a lot of money and that the collateral damage to companies like GE and Schlumberger were crazy. But I would be careful. If we are going to have a decline in stock market valuations, I would be careful of the places where we've had the most enthusiasm and I would start with the Shanghai exchange.
The final thought, I would have to note there is something that came up a lot during the end of the year period. That was that, if you have to put money into fixed income, the tax-exempt market is once again, as occurs every several years, ridiculously undervalued relative to other fixed income instruments. So, if you have to buy fixed income as an individual, you should look at the high quality tax-exempt market. Period. End of statement.
WALLY FORBES: Thank you Mike. Vahan.
Next: Forbes Financial Round Table: Vahan Janjigian
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