Muhlenkamp: Plenty of “Cadillacs” Selling on the Cheap

Ronald Muhlenkamp, who has headed Muhlenkamp & Company for more than 30 years, tells Forbes that “we’re seeing great companies at dirt cheap prices. And one thing I’ve learned … if you can buy a great value at a cheap price, just go do it.”

In a wide-ranging interview with Steve Forbes, Muhlenkamp also says he believes the market’s recent plunge was driven by forced selling at hedge funds, many of which require that clients notify them of year-end withdrawals by Sept. 30. “We think they got major redemption notices at the end of September, resulting in straight selling in the first two weeks of October,” Muhlenkamp said, adding that mark-to-market regulations exacerbated the problem. He also gives a good explanation of how Wall Street’s shadow banking system greatly increased the velocity of money — i.e. the rate at which money turns over — even as the Fed was tightening the money supply a few years ago, leading to the dangerously high leverage at the core of the current credit crisis.

Muhlenkamp said his investment philosophy focuses on buying good companies when the price is right, and identifying good values by looking at return on shareholder equity. Usually, he says, that involves buying “Pontiacs and Buicks” when they are on sale, since top-shelf stocks don’t often go on sale. Now, however, he says that even “Cadillac” stocks are on sale. He says he has bought up shares in Berkshire Hathaway, and adds that companies like IBM and 3M are cheap “Cadillacs”. His firm is focusing on U.S. companies that do a lot of overseas business, because the weak dollar makes their products appealing to overseas consumers.