I used to trade very profitably in Philip Morris in '94-'96. My formula was pretty simple and it worked almost perfectly - buy when the lead story on ABC News was some awful revelation about the industry or its legal liability, and sell when the coast looked clear. Or buy when the yield was 5% and sell when investors got complacent again. In post-split prices, the trade was generally buy at 28-31, sell at 33-35. Then repeat. I made a good deal of money on this stock in a few big trades.
My final trade (and the big homerun) in Philip Morris was in early '97 when there were the first rumors of a congressional settlement. It was 20% of my portfolio and the stock shot up to 45, and I sold within a point of the peak because I sensed my game was up. Once the government got involved we were dealing with forces that made my historical system potentially irrelevant. Optimism was at its peak because all anybody was thinking about was settlement - what I was thinking was that now all the rules have changed, which scared the hell out of me.
I have been tempted to buy the stock many times since then, but never pulled the trigger. And I'm glad, because it wouldn't have made me money. There are plenty of stocks out there, and though I believe Philip Morris is one of the best managed companies in the world, I continue to simply pass on this one.
I remember attending a lecture by Michael Price in 1996 when I owned Philip Morris and I asked him for his opinion on tobacco stocks. He said he did not own them, which really surprised me. He told the audience that he practices Ben Graham investing, and tobacco risk is an unquantifiable off balance sheet risk, so one can have no confidence in "intrinsic value" no matter how you calculate it. i.e. you have no downside protection.
Philip Morris now yields over 6 1/2%. I used to buy it automatically when it would yield 5%, and that was always the bottom. The very fact that it now yields 6 1/2% tells me in some way to stay away. I have no particular moral problem with the company - I am a smoker (that's my contrarian side - I used to joke that its a hedge. If there is some gargantuan verdict, I may lose my investment, but at least I'll get part of the loot!) - in fact my next door neighbor works for the tobacco division as a retail marketer. I just consider it too risky an investment, and there are still too many big investors ignoring the risks in my view. At the same time I revile what the government and trial lawyers are doing to this company and have the Forbes cover titled "Smoke This!" hanging on the wall of my office. I was inches from buying last week at 31, but held back for some reason. I hope those in the stock make a lot of money.
Just my opinion.
JJC |
