Big Companies

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Most of you may have noticed that I usually write about small companies. Although I’m vested in United Health, which is the largest company I own, I don’t bother writing my own analysis on them. There are already too many analysts and individual investors writing about the company that I just don’t feel the need.

A Big Herd

The number of analysts covering UNH, MSFT, AAPL, FSLR, INTC are 14, 19, 22, 20 and 32 respectively. The greater the number of analysts, these companies are subject to greater coverage and headlines. However, with so many analysts covering the same company, I find it hard to believe that there are going to be 20-30 different views and conclusions.

Small Moves

Big companies offer some attractive opportunities if the company follows a series of misfortunes, and then as it recovers, big moves can occur, but this is the exception rather than the rule.

The reason people refer to blue chips as “stable” and “non risky” is because they don’t drop much in price. Conversely, they don’t go up much either.

The only reason I would put my money into Exxon Mobil, Microsoft, GE or Walmart without waiting for a big drop is so that I can

  1. beat the GDP
  2. hopefully stay above inflation
  3. anchor my portfolio to ease my emotions in rough times (but proven lately that this isn’t always the case)

I don’t invest in large companies hoping to triple or quadruple my money.

Hard to Please The Street

Regarding GE, minus their struggling reinsurance unit of late, this is a company that has done so many things right. They expanded into virtually every business and came out on top yet for the past 8 years, the stock price has been declining. With so many shares outstanding (9.95billion), even the EPS is too diluted to get analysts and the Street excited. GE just continues to inch along at best.

Everything else being equal, you’ll do better with the smaller companies.


No positions in any companies mentioned

[tags]big companies, blue chips,ko,ibm[/tags]

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6 responses to “Big Companies”

  1. thats why everybody plays large-caps with options. its easy to get a quick 200% with options or leverage.

  2. Luis says:

    I agree with your statement regarding coverage and slow growth of some of the majors. However, when the majors get beat up for whatever reason and they can produce consistent gains to the tune of 15% a year as Buffet has proven many times. Look at past Buffet trades such as KO and current ones such as UNH, WLP, WFC, BNI, IRM, etc. All big companies that the voting machine has discounted at one point or another allowing for great returns (well above GDP) over time.

  3. Jae Jun says:

    @ Mark
    I’ve been tempted to play with options, but just can’t bring myself to do it yet.

    @ Luis
    I got into UNH for the exact same reason you mentioned. Large companies offer great opportunities when beaten down but I still prefer a beaten up great small cap.

  4. Dominican says:

    Jae Jun, Happy new year. I have been out of town and have not had a chance to check out your site since the last update. It looks great.

    In respect to your decision to invest in UNH, what did you think of it competitor WLP? Why UNH versus WLP when it is a smaller (your preference) and well managed company who has also been beaten up. Also, its exposure to government sponsored programs is less than that of UNH. What do you think?

  5. Jae Jun says:

    Happy New Year. Nice to have you back.

    The decision was tough between UNH and WLP. I understand why Buffett and many other Gurus hold both. I was also contemplating holding both but just chose UNH from a numbers point of view. They both have good moats so I chose UNH which was more contrarian as they were going through the whole stock option scandal thing to make things cheaper.

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