During his recent interview with Tobias, Jon Boyar, JD/President of Boyar Research, discussed the problem with investing in cyclical businesses is that you have to be right twice saying:
Tobias: What sort of businesses are you looking for? Would you consider cyclicals or do you avoid the cyclicals? How do you think about that?
Jon Boyar: Yeah. When you hear about value investing, a lot of people think you have deep cyclical names. That’s not our… We’ll do some of those situations, but we prefer really good businesses that you can compound over time. And that’s because the majority of our clients are US-based taxable investors. So with cyclicals you have to be right twice. You have to know when to go in and when to go out. We prefer looking at companies that you can just compound over time and hold onto them for as long as possible until they get blatantly overvalued. Just because, yeah, everyone they have this focus on fees. There’s fee compression in the industry, everyone wants to pay the lowest matching fees, et cetera. But really the biggest cost that most investors face is to Uncle Sam or at least US investors, and when you have to pay well in excess of a 20% for longterm capital gains and roughly 40% for short term that’s what you should be abhorring.
Tobias: Your uncle Sam is your partner and every single one of the winners, not much help in the loser story.
Jon Boyar: That’s a terrible partnership. I love the United States. I love the country but yeah it’s a painful to have to pay taxes on transaction then something you really should be mindful to us it’s not what you make, it’s when you keep it.
Tobias: Yeah. I couldn’t agree more. Tax off is a very, very large source of return that not a lot of folks think about. When you’re constructing these portfolios, how do you think about diversification, concentration? How do you size that inception? What are you guided by there?
Jon Boyar: Yeah, we’re really an agnostic to S&P weightings. I know roughly what they are but sometimes it hurts us sometimes it helps us, but we’re looking for the cheapest stocks. So we’re just trying to construct a portfolio from the bottom up. I invest slowly over time. We don’t invest everything all at once when a client comes in and we’re stewards of people’s capital, we’re not going to put 80% in media names as we think they’re cheap, but we’re not afraid to put 20 or 30% in media names or highway or let’s say in consumer discretionary financials significantly above the benchmark. If we think that those stocks are cheap and if we think that certain names like energy that we don’t want to buy because they’re influenced by the price of a commodity and that’s not the type of business we want to own, we can totally disregard it.
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