Where John Buckingham, Ace Stock Picker, Is Investing Now

As exceptionally fast and sudden as the February-March market decline of more than 30% was, compared with other bear markets it was average in size — and perhaps 80% of the worst of the downturn is over, suggests ace stock picker John Buckingham in an interview with ThinkAdvisor. The fund manager has been buying equities throughout the upheaval.

Buckingham, chief investment officer of Kovitz Investment Group’s AFAM division, is characteristically bullish for the long term but clearly braced for further market decline in the short term, depending on the unpredictable course the coronavirus pandemic takes.

In the interview, the Aliso Viejo, California-based manager reveals market sectors in which he has bought equities new to his portfolios, where he also made consolidating swaps (think oil). In addition, he names eight of his larger holdings (think diversification).

Further, he opines on the trajectory of a potential market recovery (think turbulence).

The editor of The Prudent Speculator newsletter, Buckingham has been manager of the Al Frank Fund (VALUX) since its 1998 inception. Through Dec. 31, 2019, it posted an annualized return of 10.17% versus the S&P’s 7.61%.

ThinkAdvisor interviewed Buckingham by phone on March 26. The long-term oriented manager unsurprisingly argues that now is indeed a perfect time for long-term investors to increase their equity exposure.

Here are highlights of our interview:

THINKADVISOR: Have you been buying stocks during the downturn?

JOHN BUCKINGHAM: We’ve been buying all through it. With some cash that we had, we’ve been adding to our portfolios. We still have a modest amount of cash left; so I’m waiting to see if there’s another leg down, or maybe a downturn in a particular industry that’s affected, which will allow us to deploy the rest of our cash.

What’s the biggest challenge to stock-picking right now? 

All the analysts, including us, are trying to figure out how to model valuations of companies that may not have any revenue for a quarter or two — for example, going from having maybe $3 billion in revenue to $300 million. That wasn’t something analysts modeled. So rather than looking at what earnings will be, it’s: Can this company make it through to the other side, and how long will the economy be closed?

What stocks have you bought over the last month or so?

They include Lockheed Martin (LMT), 3M (MMM) and Pinnacle West Capital (PNW). We’ve also bought a couple of other stocks in the last two weeks or so that [we didn’t own before], but they haven’t been disclosed yet to readers of our Prudent Speculator [investment] newsletter. So because of compliance reasons, I can’t state those names now. They’re in the financials and industrials sectors, the areas that have been hit hard. So we’ve added exposure there.

How else have you adjusted your portfolios?

We’ve made some swaps. For instance, in the energy space, we consolidated out of oil service stocks and moved those dollars into integrated oil stocks Exxon Mobil and Total. Those are the two stocks in which we’re concentrated in terms of energy exposure.

Why did you make that move?

When the price of oil is $25 a barrel or even lower [as it has been], we’re concerned that the Halliburtons and Schlumbergers [of the world] aren’t going to make it to the other side; and we’d rather focus our attention on the integrated oil companies that have fantastic credit ratings and access to capital, which are going to make it through without likelihood of eliminating their dividends. [Therefore], we sold National Oilwell Varco, Royal Dutch Shell, Halliburton and Schlumberger.

If an individual with money to invest asked which stocks to buy, what would you tell them?

Here are eight that we own and like: Apple (AAPL), Google (GOOG), General Dynamics (GD), Target (TGT), Merck (MRK), Disney (DIS), Abbott Labs (ABT) and JPMorgan (JPM). They’re some of our larger holdings, but we didn’t go out and add to them. We’ve been buying new names only.

Do you think we’ve seen the bottom of the decline? 

If I were a betting person, I’d say that maybe 80% of the worst has been seen — but anything can happen. We always have to be braced for more downside. I would never say, “Don’t worry! Be happy!”

It seems as if this bear market has been rougher than most. Is that so?

The magnitude of the decline — about 34%-35% — is normal; the speed of the decline is what’s abnormal. It happened so quickly. Many individual stocks were down 70% or 80%, depending on the industry. The overall market, which was down about 35%, did better than the average stock, which got crushed, having lost about 40% from Feb. 19 through the bottom [to date]. But in the financial crisis of 2008-2009, from peak to trough the average stock was down even more: 55%.