- what Heinz stock tells us about playing the cyclical rotation; and
- the cyclical trades that have gone unnoticed.
My Heinz Catch-Up Lesson Posted at 7:18 p.m. EDT on Friday, May 3 Do we need to "play" this rotation? Or can we be more like Warren Buffett and be long-term oriented and just own Heinz ( HNZ) right through it? I picked Heinz for a reason. I picked it because at the beginning of 1987 we had a very similar spurt in industrial activity and employment, not unlike we had this week. I had just started my hedge fund, and I told people I was going to do it differently from other hedge funds. I was going to think long term. I had liked the stock of Heinz for ages because it was a great domestic-going-international play. People forget that at one point companies like Heinz were largely domestic and they had such fabulous brands that they decided they could take the world by storm. Heinz had one of those brands, and the company was beginning to deliver consistent, smooth growth as it picked up share in country after country after country. I want to own it through thin and, yes, thick. I gave it as an example of the kind of company that I thought I could operate.
Within the first two months of the fund I had lost 9%, and the market was only down about half of that. I had gotten hit by a massive rotation out of the Heinz and into companies like Phelps Dodge (now Freeport- McMoRan ( FCX)) and Reynolds Metals, Alcan and the Bethlehem Steel. All storied names, names that I thought had little value because they had nothing proprietary and blew with the cyclical winds. When I told the same people who had put money with me that I was down because of my long-term strategy of emphasizing best-of-breed stocks, the vast majority of people who had agreed with that philosophy told me they were going to exercise their right to pull their money out at year-end if I were still down like that. Others wanted me to open the fund and send the money back at that very moment.