Your Quarterly E-Zine
Edition 11 • December 2019

This website contains the latest edition of Forsyth Barr Focus, a quarterly on-line magazine written by senior members of Forsyth Barr's investment team.

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Gather no moss

It's been suggested that the era of the rock-star is over. In his book "Uncommon People”, which describes the rise and fall of the rock stars from the 1950s to the present day, David Hepworth observes that "like the top-hatted banker, the rock star must finally be consigned to the wardrobe of anachronistic stereotypes.”

In a rebellious dismissal of this suggestion, 57 years after embarking on their first concert tour in July 1962, the Rolling Stones have just completed their 48th tour. With the collective age of band members Mick Jagger, Charlie Watts, Keith Richards and Ronnie Wood now 295 years, one media commentator rather unkindly pointed out that in recent years they have produced more children than hits.

The current tour was temporarily suspended while Mick Jagger had a heart-valve operation following a routine medical check-up, but at the age of 76, despite reports suggesting more of an on-stage scamper than a strut, Jagger appears to have lost little of his chutzpah. As Hepworth admits “we wanted rock stars to be glamorous but also authentic.” What the Stones may have lost in vitality, they have not lost in authenticity.

Rock star investments can grab headlines and cult followings, a lot like rock star musicians. At about the same time as the Stones embarked on the first of their tours in the 1960s, investor attention was drawn to a group of United States stocks which became known as the Nifty Fifty, companies characterised as “one-decision” buy-and-hold stocks, largely based on their stable and consistent earnings growth.

By the early 1970s they had become the post-War rock-stars of the stock market. Such was their popularity that at their peak in 1972 the Nifty Fifty traded at more than 40 times earnings as investors clamoured to become part-owners. The feverish fan-base was understandable. Each of the companies had a proven growth record, had generally shown consistent increases in dividends since the War, and all had large market capitalisations.

The oil-shocks of the mid-1970s, accompanied by high inflation and political turmoil in the United States broke the spell that had entranced Nifty Fifty investors, as the equity risk premium narrowed and stocks became less attractive to investors in preference to bonds. In today’s low-interest-rate environment, it’s worth recalling that the United States Federal Funds Rate peaked at 19.1% in mid-1981. Nearly four decades later, the stock market is enjoying its longest bull-run in history, in part inspired by a new generation of companies that have captured the imagination of investors.

The Rolling Stones were among the pioneers of the rock-star era last century, which has mostly been replaced by the androgynous, synthesised sound of the current popular music era. In the present day, music is perhaps less rebellious, with fans more likely to be identified by social media clicks than sold-out stadiums. Yet the Stones continue to be one of the most popular musical acts on the planet. Their fans identify with their music, marvel at their resilience, (and perhaps also yearn for their past youth).

Can the survivors of the Nifty Fifty still be considered rock-stars?

Around two-thirds of the Nifty Fifty are still listed companies today and represent some of the more familiar names to global consumers such as: Black & Decker; General Electric; IBM; Johnson & Johnson; 3M Company; McDonald’s; Pfizer; Procter & Gamble; Revlon; Sears, Roebuck and Company; Texas Instruments; and Walmart.

Like the surviving rock-stars of today, they’ve developed brands that have maintained their authenticity and identify strongly with those who consume their products and services.

Rather than the audacious, rowdy “hip-hop upstarts” of the tech-era, they are (for the most part) businesses that have successfully traversed multiple market cycles and innovated where necessary, in doing so meeting the needs of more than one generation of consumers and delivering steady earnings growth over time.

Chart 1: Relative Share Price Growth of Nifty Fifty stocks following their peak in 1972, (Base=1)

A little more fragile than “nifty” (and closer to eighty than “fifty”), Mick Jagger and his band-mates continue to deliver consistent musical performances to a fan-base that now spans multiple generations. With youthful optimism, Jagger once said “a good thing never ends”; with the wisdom of experience he has also recognised that “one day the tours will be over.”

But the music will live on.

 

Gordon Noble-Campbell
Director, Private Client Services 

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