Seeking Alpha

Bill Gunderson's  Instablog

Bill Gunderson
Send Message
Bill Gunderson @billgunderson is the CEO and Chief Market Strategist of Gunderson Capital Managment in San Diego, CA. He is also a professional money manager, former research analyst, author of Best Stocks Now, and developer of the Best Stocks Now smartphone app. He offers four free weeks to his... More
My company:
Gunderson Capital Management
My book:
Best Stocks Now! Summer 2011 edition
  • Warren Buffett, Berkshire Hathaway: Great Advisors. Lousy Advice. 2 comments
    May 4, 2011 2:52 PM | about stocks: BRK.A, JNJ, WMT, CCE, GMCR, PCLN, ROST, CTSH, GDI


    I love my family, my dog and Warren Buffett.  But these days, I am not taking investment advice from any of them.


    Start with Buffett: Give him his props as the greatest investor in American history.


    But that was yesterday. Today his fund is so large -- $200 billion plus -- and his choices are so limited -- huge cap stocks -- that he is just not getting the returns to match even one of his average years of the past.


    And he knows it, recently telling investors there may come a time when he is forced to pay dividends because he simply cannot find a place to put $15 to $20 billion a year.


    That time is today.


    If you look at the Berkshire Hathaway (NYSE:BRK.A) portfolio, it is full of great companies that are also lousy stocks.


    Johnson & Johnson.  Over the last ten years it (NYSE:JNJ) has averaged 5.5 percent a year. Buffett is sitting on $2.78 billion worth of that turkey.


    Same with Wal-Mart. Over the last ten years, Wal-Mart (NYSE:WMT) has returned 1.8 percent per year. This is hardly the stuff of Hall of Fame careers.


    Coca-Cola (NYSE:CCE) also looms large in Buffett’s portfolio. He likes to tell people his dividends from Coke will soon pay him more than what he payed for the stock. Whatever: Over the last ten years, the average return to investors from Coke 6.2 percent a year.


    Procter & Gamble (NYSE:PG) does a bit better at 9.9 percent return a year over the last ten years.


    Berkshire Hathaway stock has returned about 5.9 percent a year over the last ten years. Not even Buffett will brag about that.


    In the course of doing a daily radio on the stock market for the last 18 years, as well as being an investment advisor at Gunderson Capital Management, I have seen thousands of portfolios. I see portfolios full of these so-called blue-chips all the time.


    They don’t do any better than Buffett. They love the big names. They ignore the lousy returns. They hope for better days with the same old stocks.

    They say 'look at the fundamentals. They are getting ready to do great things.'

    Profit is the only fundamental. Lots of people ignore that. That is why their portfolios are full of lousy stocks. 

    But it does not have to be that way.


    There are lots of other companies that may be too small to show up on Berkshire’s radar, but which do quite nicely for those of us who do not have to worry about finding a decent return on $20 billion a year.


    One of my favorites in this category is Green Mountain Coffee (NASDAQ:GMCR) out of Vermont. If you ever slid a few quarters into the office coffee machine to brew coffee a cup at a time, you are probably using Green Mountain.


    It supplies  McDonald’s. And just signed a deal with Starbucks. All this from a state that elects socialists to the United States Senate. Proudly.


    Whatever. This company $9 billion makes money for its investors -- going up 87 percent per year for the last five years. (The day after I wrote this, the stock went up 22 percent in one day!)


    That kind of return opens up my eyes in the morning quite nicely, thank you. That is why I have had it listed as one of my Best Stocks Now! for more than a year.


    There are lots of others from my Best Stocks Now!: How about a company with commercials featuring Kareem Abdul Jabbar talking in the voice of a woman? A company whose chief spokesman is on just about every list of America’s worst actors?


    A company whose stock just might be one of the most valuable of the last decade: Priceline, of course. Priceline (NASDAQ:PCLN) has returned 29.5 percent a year over the last ten years. And 87 percent per year over the past five. 


    All with a market cap of $26 billion.


    William Shatner: You are Laurence Olivier as far as I am concerned.


    With a market capitalization of $8 billion, Ross Stores (NASDAQ:ROST) is too small for the Nebraska gang. But as they say, it is not the size of the dog in the fight, it is the size of the fight in the dog: This stock has risen  22 percent per year over last ten years.


    Gardner Denver (NYSE:GDI) is another member of the Best Stocks Now club. This $4.5 billion company returned 24.5 percent a year for last five years to investors. 


    Autozone (NYSE:AZO), good commercials, great stock: a $12 billion company delivering 25 percent a year for last five. 


    Cognizant Technology (NASDAQ:CTSH) first made my list of Best Stocks Now in 2004. Over the last 10 years, it has returned 36.7 percent per year to its owners. Today its market cap is $25 billion.


    Not big enough for Omaha. Just right for the rest of us who want value, performance, and profits, and who know better than to look for it at the dinosaur exhibit at the local Natural History Museum.


    Which is a great place to take my family for a visit, my dog for a walk, but not for stocks.

    Bill Gunderson
    Gunderson Capital Managment
    Author: Best Stocks Now

    Disclosure: I am long GMCR, PCLN, ROST, CTSH.
Back To Bill Gunderson's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (2)
Track new comments
  • MaxPSA
    , contributor
    Comments (560) | Send Message


    Thanks for your discussion and stock ideas.


    In order to balance out your comments, I thought I'd add the following comments:


    1) In the long run, earnings (& earnings growth) determine the share price. The initial price you pay for the stock is crucial, as you can buy a great business that has a share price level that discounts 10 or more years of good future earnings.


    If you overpay drastically, your ROI (particularly, capital gain) reflects that. This is the exact scenario for stocks like JNJ, WMT, etc. over the past decade. For WMT, it was trading at a P/E ratio around 30x earnings a decade ago.


    So, despite WMT's great earnings growth (above 10% per year COMPOUNDED over the last decade), the share price did not appreciate correspondingly.


    I'd point readers to look up Chuck Carnevale's articles on any of the stocks that you mention, as he provides fuller context to the discussion (where your comments might be considered very one-sided).


    2) Your comments and stock picks show that you have a bias toward growth (as vs. value) investing and are more willing to trade actively.


    To each their own, but I would be reluctant to criticise Buffett and value investing as being ancient relics. I recall around the year 2000 how much criticism Buffett took for not buying into the Dotcom/Tech Mania -- how did that turn out for the dotcoms vs. Buffett?


    3) Re. GMCR - the stock trades at above 30x earnings. Mathematically speaking, it is very difficult to grow earnings 30% a year, year-over-year (i.e. compounded every year), for an extended period of time (ex. 10-20 years).


    While GMCR may become a mega-cap blue chip stock in the future, the likelihood is that its growth will slow down and its multiple will be over-inflated for lower earnings growth levels. This will obviously mean that the stock will not appreciate at such a high rate, or it will stagnate or fall in price.


    We'll see how it turns out, but by writing how incredibly confident you are that GMCR will continue its hyper-growth rate might lead others to invest in a stock that will likely not perform in the future as well as it has in the past.
    15 Nov 2011, 04:34 PM Reply Like
  • Fi-Slut
    , contributor
    Comments (143) | Send Message
    Thank you Max, for your authoritative commentary on Bill Gunderson's authoritative commentary. Not being an authority myself, the balance is appreciated. Us non-professionals need your collective perspectives. I invest for a living but am not a number cruncher and depend on the kindness of strangers.....
    4 Jan 2012, 12:35 AM Reply Like
Full index of posts »
Latest Followers


More »

Latest Comments

Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.