Wriston’s Law
What’s in a symbol?
Retailing Brazil
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Walter Wriston (b. 1919, d. 2005) was a distinguished banker for most of his life. He headed up Citibank/Citicorp from 1967 until 1984. He chaired the Economic Policy Advisory Board from 1982 to 1989 and was reportedly offered the post of Secretary of the Treasury twice, but turned it down. He was also an Eagle Scout and received the Presidential Medal of Freedom, but that’s not really relevant.
Wriston was also something of a visionary about how the information revolution would change the world of business. He started offering MasterCard to his customers in 1969, ultimately mailing out 20 million cards to consumers and losing $1 billion before the program generated a profit.
The trouble with MasterCard was that the usury laws in New York restricted the amount of interest Citi could charge its users, which meant that the double-digit inflation of the 1970s kept eating up the profits.
And here’s where his insight into info tech served him well. He saw that electronic fund transfers gave capital--both monetary and intellectual--the freedom to flow wherever it wanted. He even created a nice rule, which has now become known as Wriston’s Law.
It says: “Capital will flow where it is wanted and stay where it is well treated.”
The practical application of Wriston’s Law (although Wriston was too self-effacing to call it that himself) was that he moved Citi’s credit card operations to South Dakota, which didn’t have a usury law. Many people think that this decision saved Citi.
Under Wriston’s leadership, Citicorp’s profit mushroomed from $145 million in 1970 to $890 million in 1984.
The application of Wriston’s Law to China and the emerging markets is interesting. Capital obviously doesn’t care about the politics of the people who run countries. It will flee from a democracy to an authoritarian regime if the conditions there are better. That seems to be the case in China right now.
But if the rulers of the authoritarian regime interfere with the free market, which is what’s happening in Russia at the moment, capital will fly away.
Capital likes different conditions for different purposes. For example, in the 1960s a cheap yen attracted global capital to what was called the “yen carry trade.” That meant that people borrowed Japanese yen at relatively low Japanese interest rates and used it to buy a currency that paid a higher rate. Someone who borrowed yen at the effective rate of 0.0% in Japan, converted the money to U.S. dollars, bought U.S. Treasuries that paid 4.5% (back in the good old days) and leveraged the investment at 10:1, could achieve a 45% profit with relatively little risk. Of course if the currencies shifted their relative valuations, the investor could also get a brick to the head.
Ironically, the U.S. dollar is now the low-priced currency being used for the carry trade. How things change.
And capital always notices these changes.
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Kurt Vonnegut, the late, great (and fairly cynical) fiction writer, actually incorporated a unique stock-picking system in his early book The Sirens of Titan. In the book, a character named Noel Constant builds a huge fortune by investing in stocks that he picks because their ticker symbols match the letters that form words in the Bible. His first investment was a stock called International Nitrate. His last was Sonnyboy Oil, which he chose because “SO” formed the last word of Genesis 1:16.
International Nitrate and Sonnyboy Oil don’t exist, of course. IN is the symbol for Intermec, a tech company in Washington state. SO is the trading symbol of a Georgia energy company called Southern Company.
But the idea that symbols ought to have some kind of power is a popular notion. I imagine the number of parents and grandparents who buy lottery tickets based on their offspring’s birth dates is enormous. (Personally, I prefer the numbers that appear on the slips inside Chinese fortune cookies, but they haven’t produced the big win yet.)
I also haven’t bought any Procter & Gamble (PG), even though its trading symbol matches my initials. I’ve been tempted by Chipotle Mexican Grill (CMG), whose symbol happens to be my wife’s initials, but not because of that. Chipotle is just a good growth company.
Anyhow, I’ve been fascinated by the symbols that represent companies on stock tickers and I thought I’d do a little research and report my findings.
It turns out that companies can choose their own trading symbols, which should make for some interesting meetings around the Board of Directors’ table. Those thinking about listing on the Nasdaq can reserve up to three symbols up to two years in advance.
I would have thought that single-letter symbols would be hugely popular, but it turns out that there are seven single letters (H, I, J, P, U, W and Z) that aren’t in use. U used to be the symbol for U.S. Airways until its bankruptcy in 2002. Plus, for every single-letter symbol that represents a grand old company (F for Ford, K for Kellogg, X for U.S. Steel), there are others that aren’t that familiar. (What do you know about Eni SpA that trades under E, or the Realty Income Corp. that uses O?) C used to be Chrysler, now it’s Citigroup; Gillette used to have G, which now represents Genpact; Sears Roebuck was once R, but now R is Ryder System.
Some symbols just feel right. I’m sure Randgold Resources is quite happy to trade under GOLD, and AU is periodically correct for Anglogold Ashanti. But who decided that SXC Health Solutions was SXCI? And wasn’t there anyone to warn Tongxin International that TXIC was a little too close to toxic?
Your chosen stock can be FREE, HOT, HIT, BIG, BEST, REAL or GOOD. It can be medical like MD, RX or, in the spirit of overkill, MDRX. You can trade a CAT, DOG, COW or DEER, but not many other animals. You can even buy NFL or MLB. And I’m sure a sufficiently creative person could write a story using only stock symbols, as someone did with California vanity plates a few years back. But it won’t be me.
But on to a more serious topic, which is today’s stock pick.
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In hard times, people tighten their belts and curtail their buying. But some product lines resist the urge for tightening, and groceries is one of them.
My idea for today is called Companhia Brasileira de Distribuicao (CBD), which is the second largest retailer in Brazil, a giant chain of nearly 600 stores with about 66,000 employees. The company operates a number of different chains that target different demographics, including Pao de Acucar (high-end supermarkets), CompreBem, Extra Perto and Sendas (value supermarkets), Extra (hypermarkets, which put all classes of merchandise under one roof), Extra-Eletro (electronics and home appliances) and Extra Facil (convenience stores).
The chart for CBD is breathtakingly steady, rising from a late-February low of 22 to a recent high near 65, with only a couple of dips under the 25-day moving average to mar the advance. The company is benefiting from the steady growth of the Brazilian economy, which should only get stronger as preparations for the 2016 Olympics get underway.
CBD is fairly thinly traded (just 226,000 shares a day, on average) and the company will report earnings on November 4, which will determine the stock’s path for the immediate future. But it’s been a genuine tractor, chugging higher for nearly eight months. It’s certainly worth a look.
I look at CBD every week--along with every other stock of an emerging market company that trades on a U.S. stock exchange--and I pick the cream of the crop for subscribers to the Cabot China & Emerging Markets Report. We’re currently the #1 rated newsletter for the last five years, beating the market handily! If you’d like to see the results, clicking on the link below will get you started.
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Sincerely,
Paul Goodwin
For Cabot Wealth Advisory
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