“What goes up must come down.”
― Isaac Newton
Rarely has this idiom been more accurate than in describing this past week on Wall Street. But the fear and bloodletting in the streets got me thinking – which is dangerous in and of itself. What if the usual suspects are not at fault?
This is not to imply that China or Greece or Puerto Rico don’t have a hand in stirring this kettle of fear. They do. Or the Feds inaction on interest rates doesn’t play a part. It does. What if the volatility is a result of Activist Investors – or if you prefer a term from yesteryear – Corporate Raiders?
A stretch perhaps, but a plausible theory. Let’s look back in history a little. Once upon a time, there was an unwieldy beast by the name KCSU. One day it was decided that shareholder value could be unleashed by splitting into three. DST and JNS (Stillwell) arose from the ashes. In the short term value was unleashed at a cost of increased volatility. There was a counterbalance in place offsetting business cycles between Industrial (rails), Technology, and Financials. A similar argument could be made in keeping Frito a part of Pepsi (although YUM was also once a PEP company). Finally look over at the oil patch. The split between pipelines, refineries and drillers has resulted in weaker companies/partnerships less able to weather the storm.
One way to play a contrarian is to hold the spinoffs. My portfolio continues to hold PEP/YUM, KSU/JNS/DST, KMB/HYH, BAX/BXLT and ADP/CDK. Another concept on the same idea I recently completed on AMC/EPR. Going forward, my holdings will be allocated at 10 shares AMC to 1 share EPR. This approximates the value of AMC’s former real estate now owned by EPR.
It is kind of food for thought …