A Rant on Predictions that China is The Next Economic Superpower
A Cinema Stock with a Touch of Latin Flavor
Lake Forest University, located just north of Chicago in Lake Forest, Illinois, recently got a gift from an alum, a very nice gift. About $7 million to be exact. The donor, who died at the age of 100, wasn't a captain of industry or a banker or even the founder of an Internet startup.
Grace Groner was, instead, a woman who had been adopted by a family and eventually sent to college at Lake Forest. After graduating, she became a secretary at Abbott Laboratories, which was, apparently, the only job she ever had. She remained single throughout her life, never owned a car and lived in a small house she had inherited near the Lake Forest campus.
But back in 1935, she also did a little investing. Since she was working at Abbott, she bought three shares of the company's stock for $60 a share. Then she held them for 75 years. And that's where the $7 million she left to her alma mater came from.
I am fascinated by this story, and checked out an inflation table to figure out how much $180 in 1935 dollars would amount to today. The answer is that the 1,482% in GDP inflation since then makes her $180 equivalent to $2,667 in 2010. It's still a pretty modest amount. (I don't know all the details, but I'd wager that Ms. Groner just rolled the periodic dividends that she received right back into the stock.)
Ms. Groner was fortunate in many ways. First, unlike many companies, Abbott Labs didn't bite the dust during the Great Depression. Second, she bought her one investment at a time when the market was lower than a snake's belly in a wagon rut.
But if you tell this story to anyone who understands investing they'll just wince and shake their head in wonder.
They know that buying just one stock is a bad idea. In fact, it's just about the highest-risk strategy there is, off-the-chart high.
I know this because, as a growth investor, I'm sometimes taken to task by a friend of mine who's a financial advisor. He sees my aggressive 10-stock personal portfolio as crazy risky. He advises his clients to have dozens of issues in their retirement portfolios, including value stocks, income stocks, sector funds, index funds, Treasuries, munis and cash, all in carefully calculated proportions and rebalanced.
Good idea, of course, but I suspect that there are more investors on Grace Groner's end of the diversification spectrum than on my friend's.
A quick message for the people who are predicting that China is going to rule the economic world, reducing the United States (and the rest of the world, including Japan) to lap-dog status:
Oh, shut up!
I'm not saying you're wrong. I'm just saying that I don't know what's going to happen and you don't either.
I was around when Japan, Inc. was on a tear. I heard the gnashing of teeth when the Japanese bought a U.S. film studio and when they bought Rockefeller Center. I saw the cartoons about them buying the White House and carving a Japanese face on Mount Rushmore. I read the warnings that we'd all better teach our children Japanese, because they were our next overlords.
It was a load then, and it's a load now.
Simply taking the current direction of things and drawing a straight line toward the logical conclusion "if this goes on" is a stupid way to make economic predictions.
China may indeed be The Next Big Dog of the economic world. But there's nothing inevitable about it. And I'd love to lock a few of the Chinese triumphalists in a room with a few of those who think that China will inevitably melt down into chaos and depression and see who walks out the door at the end.
For now, I will keep my eye on the intermediate-term health of the entire universe of emerging market stocks. That's a fact-based phenomenon I can use. When the market is healthy, put money into it. When it's weak, take money out.
And for the people with big predictions about what might happen in China, Russia, Brazil or anywhere else? How about a MUTE button?
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In honor of the Oscars (of which I watched every minute and loved it all), I'm going to point you in the direction of a cinema-related stock.
CineMark (CNK) is a movie theater operator with 424 theaters and nearly 5,000 screens in the U.S. and Latin America, which makes it the world's second-largest motion picture exhibitor (Regal Entertainment is #1).
Revenue growth has been steady, advancing even during the Great Recession. CNK has been outperforming the broad market since the stock's correction ended in August 2009. The steady price appreciation, together with the generous dividend and good outlook for theatrical movie distribution makes CineMark a good choice for the aggressive growth portion of your stock portfolio.
My interest in CineMark comes from the company's Latin American exposure, which accounted for more than 20% of 2008 revenues. China may be the engine of global growth and the home of many of the stocks featured in the Cabot China & Emerging Markets Report, but nothing in stock investing is written in stone.
Brazil is a giant market that keeps moving in the right direction and the rest of Central and South America have enormous potential, but they need their biggest trading partner to healthy up. Once the U.S. economy gets its mojo back, the region will begin to spawn stock winners again.
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