"You Can't Always Get What You Want" Isn't Just a Rock Classic, But a Portfolio Theory That Speaks To Us in 2020

I suspect this will be the first and last time I’ll feel the need to invoke the wisdom of Mick Jagger and Keith Richards as portfolio managers, but there is a lot to this classic rock song from 1968 that speaks to our current investment climate… especially for us value investors. 

In the first three verses the major topics of the 1960s are addressed; love, politics and drugs. The lyrics (like the 1960s) move quickly from optimism to disillusion. Yet, if that was all the song were to offer, I doubt it would still get the attention and airplay it still garners 52 years after its release. What stays with us over the years is the pragmatic chorus (delivered with classic reverence by the London Bach Choir):

“You can’t always get what you want
You can’t always get what you want
You can’t always get what you want
But if you try sometimes, well, you just might find
You get what you need”

Investors in blue-chip stocks have not been getting what they want this year, and despite a very good 2019, most of the last ten years have been a celebration of the growing tech sector… much at the expense of traditional value stocks. Just like the late 1990s, we have gone through a period of time where growth stocks have outperformed value stocks, resulting in some loss of confidence in the wisdom of investing in blue-chip stocks. Our recent experience, now proof, that you can’t always get what you want.

Fortunately, we have gotten what we need, specifically a steady stream of (mostly) reliable income. Six months ago with most equity markets down by a third, we suggested that the real value of blue-chip portfolios would be better measured by their declines in portfolio income, which we expected (as during the Great Recession) to be about 10%. Today, that is where we find ourselves. 

With portfolio income from blue-chip stocks running at 2-3 times what bond portfolios are providing, the pragmatic portfolio owner is in a comfortable position to wait for value stocks to regain primacy over growth. It might be a tough time to feel pragmatic, but if you try sometimes, well, you just might find you get what you need.