WSW: Louis Rukeyser's Wall Street Summary &amp; Discussion $treet

Top 600. Jan 11, 2003 9:00 AM

» JeffChristy - Re: 1-10-03

In response to message posted by SteveT:

Steve

Thanks again for your summary. I saw your comments about the tax cut on that thread. I agree with you about exempting CD income as well a dividends. The candidate I supported early on was Steve Forbes. His plan would have done that and more:

Online NewsHour: Summary of Steve Forbes' Flat Tax Plan
:http://www.pbs.org/newshour/bb/congress/...

Hope you got to see the show that followed Lou's on my station. It was an interview of Sen. Bill Frist by a WSJ reporter. Based on what was said plus Lou's guest's comments and what I have heard on Fox this morning, I am convinced that the vast majority of the plan will become law. Upper income rate reductions may not survive the final cut but I feel strongly that most of the rest of it will. I will not go into my reasons here. Later today I will post these thoughts on the tax cut thread. My first post will not include the reasons why I feel this way. I will go into that when others disagree. I really feel getting this passed in the Senate is a lot easier than most people here think.

-- posted by JeffChristy

Top 601. Jan 18, 2003 5:43 AM

» SteveT - 1-17-03

As usual Lou started by reviewing the weeks news touching on Iraq, the President’s tax cuts, and economic news. He did say the pace of economic growth over the past three months seems to have been even more anemic than previously believed. With consumer confidence down and factory output slow it is not the end of the world or the recovery.

Bob Stovall thinks 2003 is going to be another tough year for the markets, saying we could be down for the fourth year in a row. According to Bob we just might be near the top for the year. Stovall hopes he is wrong saying the market is acting better and absorbing news that makes sense. Admitting if the Geopolitical situations are resolved soon his current views could be to pessimistic. Bob would be a buyer of gold and oil stocks that pay dividends. Stocks he likes are Total Fina Elf (TOT), American Barrick Gold (ABX), Dial (DL), and American States Water Companies (AWR)

Liz Ann Sonders says Iraq has everything in a holding pattern. She advocates buying defense companies like Lockheed Martin (LMT), Microsoft (MSFT) below $50, and University of Phoenix Online (UOPX). Sonders would take profits in pipeline companies that have had YTD returns in the 50% to 100% range.

Barbara Marcin said we are not experiencing a respectable recovery yet. Business is stable but not improving. Marcin says the unknowns this year are valuation and the economic stimulus working through Congress. Stocks she recommends now are Cendant (CD), AOL Time Warner (AOL), and Honeywell (HON).

Lou then introduced special guest Neil Hennessy, President and portfolio manager Hennessy funds. Neil uses a “highly disciplined strategy” Screening stocks daily in his growth fund for Market cap, Price to sales ratio, Earnings higher than previous year, and Relative strength over a 3, 6, and 12 month periods. He holds a year then “refreshes” the portfolio between October and February. If he is holding a stock it does not necessarily exclude it the following year. Hennessey says he lets companies come to him, not visiting with management. Sectors he likes now are Housing and Retail. Stocks he holds and would buy now are NVR Inc.(NVR), Tractor Supply (TSCO), and Ross Stores (ROST). Neil said NYSE listed companies pay out about $250,000,000,000.00 in dividends each year. If the dividend tax break goes through that is money that will be spent, saved, or invested. All good scenarios for the economy. Lou asked him what to sell. He said to be selective and not sell an entire sector. Lou shared portions of a viewer question praising Neil for good returns in a bear market but inquiring why such a high expense ratio (1.11%) for a fund that is computer managed and buys and sells once a year. Hennessey said managing money is easy. Managing a Mutual Fund company for the benefit of shareholders takes a lot of time and effort. With new regulations it is not going to get cheaper for investors. He said if it can hold the line on expenses at 1.11% he doesn’t see any reason to complain.

Bob asked if by using his quantitative approach he gets blind-sided by not knowing the company product or service and visiting managements. It can happen but that is only one company out of fifty or 2% of the portfolio. Neil said what he lacks in that area is made up for by his discipline. Liz Ann asked if he is seeing stocks in his screens that are both good values and qualify for growth companies as well. Yes but the list is getting slim. He looks to buy companies at reasonable prices and adding in momentum. Barbara asked if dividend tax relief goes through would investors expect companies to payout more cash to shareholders. Yes, it will prop up stock prices and give consumers more confidence due to rebounds in portfolios.

Lou asked Neil for an economic and market forecast of 1 to 2 years. He said he hasn’t looked 1-2 years but did offer a DOW projection of 5 years. Saying from 1983 through last year the DOW averaged 16% annual return. If it does 11% average the next 5 years we will be at 15,000. Saying that is reasonable if the tax proposals pass and earnings will improve. Hennessey finished saying he wished investors would look forward 5 years and not day to day.

Next weeks special guest will Douglas Cliggott, CEO and strategist Brummer & Partners.

-- posted by SteveT

Top 602. Jan 18, 2003 6:19 AM

» SteveT - Re: 1-17-03

In response to message posted by SteveT:

I try to do my summaries in the same manor an objective news reporter covers things. I just can’t contain myself this week. My impressions of Neil Hennessey last night were if you shake this guys hand, count your fingers when you are done. Lou introduced the guy and said “Welcome, pleased to have you with us”. I take it this was his first appearance on the show. If he was on before I don’t remember him.

To me this guy represents almost everything that is wrong with the mutual fund industry. He has a gimmick, his “discipline”. Why is he screening stocks everyday if he “refreshes” once a year? Sure it maybe a way to keep on top of things but once the parameters are set he could run a screen while at lunch. I also found it pretty slick the way he evaded answering what to sell. He is not going to recommend selling a small cap stock he holds. It could cause a panic in that stock. Maybe Lou shouldn’t have asked that one??? If a fund that holds a year and might keep a stock in another year how is it Yahoo reports a 103.33% turnover? Did you get a loada that crap about not complaining about 1.11% expense ratio? He said managing a mutual fund company for the benefit of shareholders takes a lot of time & effort. Make no mistake about it. The shareholders he was talking about are NOT those that hold shares in the mutual fund he manages but the mutual fund company he works for and my guess is owns. Thanks for letting me vent. Now to calm myself down I am going to read a John Bogle speech. I suggest you all try to read one a week. http://www.vanguard.com/bogle_site/bogle...

-- posted by SteveT

http://biz.yahoo.com/p/h/hfcgx.html

Top 603. Jan 18, 2003 8:26 AM

» Kirk - Re: Re: 1-17-03

.
In response to message posted by SteveT:

Good Rant Steve. I agree that the answer Hennessy gave made me chuckle and the "Kirk translator" came on and said:

"I'll charge as much as I can as long as my results bring in people willing to pay it."

Three years ago Lou could have had Kevin Landis on and asked him "why are your very successful funds full of stocks trading at price to sales ratios of 20?" and the answer would have been similar "People want to own these stocks so we package them into a mutual fund and charge 1% or more for the service"

I think all should remember that the mutual fund industry is full of people selling customers what they want to buy, not what they SHOULD buy. This is why most that performance chase end up losing money in the long run.

If you are going to buy a mutual fund, you really should look at the very, very long term track record of the fund manager. I like the Ariel Fund manager Lou had on recently for long track record.

Here is a listing of the Hennessy Funds for people to get more info:
http://finance.yahoo.com/l?s=Hennessy+&t...

His funds HAVE done well but they are not cheap:

Profile - Hennessy Cornerstone Growth (HFCGX)

Total Expense Ratio 1.11%
Max 12b1 Fee 0%

What he charges for a balanced fund is amazing!
Profile - Hennessy Balanced (HBFBX)

It is a DOGS of the DOW fund mixed with a TBill fund and he charges an arm and a leg for it!
Hennessy Balanced Fund seeks capital appreciation and current income. The fund continuously invests approximately one-half of its assets in U.S. Treasuries with remaining maturities of about one year, and the other half in the 10 highest-yielding common stocks in the Dow Jones Industrial Average (DJIA). Stock investments are rebalanced after they have been held for one year; any stock not falling into the DJIA 10 highest-yielding group will be replaced. It may invest no more than 5% of assets in the common stocks of any issuer that derives more than 15% of its revenue from securities-related activities. This fund is non-diversified.

Total Expense Ratio 1.87%
Max 12b1 Fee 0.25%

This is highway robbery as you are paying over 2% for a fund that is half in treasuries! You could just buy a dogs of the dow fund somewhere else and then put an equal amount into a TBill fund at Vanguard.

but performance chasers won't know this and they will be impresse with the asset class in this fund that has done well lately.

My compliments to Mr Hennessy for packaging into funds what people want to buy.

I'd LOVE to have him on to debate John Bogle as this is just the type of mutual fund family Bogle warns about.

-- posted by Kirk

Top 604. Jan 19, 2003 10:38 PM

» kevinwaite - wish to share cost of 12-27-02 transcript

Email me at Kevin_Waite@mindspring.com
Willing to share with 1 or 2 others via paypal and
email. My cost was $13.

Let me know if interested.

Thanks

-- posted by kevinwaite

http://cbs.marketwatch.com/news/print_st...

Top 605. Jan 22, 2003 6:11 PM

» Kirk - Re: How wrong is Rukeyser?

.
In response to message posted by KLR:

Here is the URL to the articl you posted

This is one point that is key:

There's a problem in assessing Rukeyser's record. Neither letter specifies model portfolios, so the Hulbert system ruthlessly constructs them by equal-weighting each recommendation on the buy lists. Although Rukeyser talks about the overall market, the portfolios are assumed to be fully invested all times, because no specific instructions are given to the contrary. Letters that tailor themselves more precisely to the Hulbert criteria -- which are, after all, a proxy for what investors need -- tend to get better results from their successes.

Moreover, Rukeyser's mutual funds recommendations are grouped in four categories. So Hulbert constructs four mutual fund portfolios. The result cited above is an average, but there's considerable variation.

The Specialty fund portfolio actually beat the market while Hulbert was monitoring it. But the Growth fund portfolio grew (ahem!) negatively, losing 10.1 percent vs. the Wilshire's 61.3 percent gain.

I've read Rukeyser's newsletter and didn't subscribe as I felt there was no "OBJECTIVE" way to measure his performance. It reads more like a "tip sheet" with good ideas for research if you think you might value what Rukeyser suggests as an investment, but how to implement the advice such as asset allocation, are all up to the reader.

Hulbert's way of giving all recommendations equal weight is quite bogus as most good investment advisors will say to put the MAJORITY of your funds into solid index funds or very low cost managed funds if in IRA type accounts. You might have 80% of your portfolio in 3 funds (Total US Stock index fund, Total US Bond Index fund and Total International index Fund) Then you add smaller amounts of funds or individual stocks with increasing risk. More risk and you add a smaller amount. It is very, very simple minded to give all recommendations equal weight and I think it is wrong for Hulbert to rate Rukeyser this way.

Thus, I don't think one can give Rukeyser any performance rating on his recommendations which is why I enjoy the show for investment ideas but don't recommend following him. I think Hulbert rates Rukeyser because Rukeyser's followers and fans might buy Hulbert's report on Rukeyser or subscribe to his newsletter, not because his rating has validity.

-- posted by Kirk

Top 606. Jan 25, 2003 4:01 AM

» SteveT - 1-24-03

The stock market climate was a little chilly this week and Lou took advantage of this to share some meteorological humor. A clever viewer e-mailed Lou suggesting we have not been experiencing either a bear or bull market, but a duck market. Saying it isn’t all it is quacked up to be. Lou added it might be a little chicken too. Any way you slice it we did have a fowl week. smile

Mary Farrell thinks the geopolitical events unusual and have things on hold. Next week we get a lot of news on the economic calendar and the U.N. inspectors report. Mary thinks this week investors sat on the sidelines hence the light volume. Farrell says earnings are slowly improving and now is the time to be a selective buyer. She likes Weyerhaeuser (WY), Lockheed Martin (LMT), and BEA Systems (BEAS). She would sell companies with bad fundamentals and mentioned Amerada Hess (AHC) as one example, citing their costs structure and debt.

Brian Rogers offered words of encouragement saying even the ice age ended. Brian said we had a mild economic downturn and we can only expect a mild recovery. For now uncertainty equals volatility but there are opportunities. Rogers likes Home Depot (HD) and McDonald’s (MCD). Saying each is beaten down but offer compelling values. He would sell previous safe havens such as consumer non-durables like food companies and real estate. Hershey (HSY) being one.

Michael Holland said at some point the bad news will end and the warmth of summer will return. This week Mike rebalanced the allocation of the portfolios he manages, selling some lower yielding short-term bonds and buying growth stocks. Saying this is not a time to be fearful, but sell fear. A stock he likes now is Pfizer (PFE).

Lou then introduced special guest Douglas Cliggott, CEO and strategist Brummer & Partners. The first thing Lou did was acknowledge Doug is now working for a foreign company that runs hedge funds. Doug thinks we will see a fourth down year in a row for the U.S. stock market. This will be due to high valuations, slower economic growth than anticipated, and weak earnings. Lou asked if with such a bleak out look investors might be better off to get out now. Cliggott said not at all. Saying every individual has their own needs and risk tolerances. He did recommend each of us look at our allocation and have the equities near the bottom of our own range. Doug thinks gold is an interesting investment, not as a war play. Historically gold has done well when the FED has short term rates below inflation. He thinks this trend could last for 12 months or more. European bonds are another interesting area to explore. Lou said Doug has always been suspicious of running with the herd and wondered if with all the interest in hedge funds they may have peaked. Cliggott sat on the fence saying many are starting to manage what they call hedge funds but they are not doing it the way it should be done. His method involves actively managing risk and paying attention to value at risk. He uses a great deal of math do something pretty simple, not put all your eggs in one basket. He tries to position himself so he doesn’t have to rely on one particular out come to enjoy an attractive return. Hedge funds are not only for the super rich only. They are available to small investors via mutual funds but Cliggott advises as with any investment pay attention to the risks.

Mary asked for an interest forecast. Doug said the next move by the FED was to lower short term rates. He went on to say by year end the ten year treasury would be about where it is now. If rates do rise it will be a shock to the two areas of the economy that have done well, housing and consumer durables. Brian asked if the President’s dividend proposal passes would it makes a difference to investors and how they invest. Cliggott thought if passed it should push corporate behavior in what he considers the right direction. It would have a positive effect but not in any dramatic way. He pointed out many companies pay little corporate tax so for them dividends would not be eligible for tax free treatment. Mike noted many retail firms are selling hedge funds and asked if they are for small individual investors or if they should be avoided. He answered by saying with any investment read all the fine print and know who you are entrusting your money to before you invest.

Cliggott isn’t sure we have left the 2001 recession yet. He looks a payroll employment as his single best measure of the economy. It is still contracting, not showing year on year growth. Lou wanted to know when he will change his bearish stance. One of his most important fundamental factors is price. A dramatic price drop could do it. He assesses S&P 500 fair value at 640. Cliggott said he would have to change even with a miserable economic environment if stocks where a lot cheaper. As far as getting excited about earnings and other fundamentals, that could be a couple years away. Doug finished by saying he is not so concerned about geopolitical events but more concerned about the fundamental economic situation. If war with Iraq comes he doesn’t see it as a magic elixir that will cure the stock market winter of discontent.

Next week special guest Mario Gabelli, Chairman Gabelli funds.

-- posted by SteveT

Top 607. Jan 25, 2003 10:29 AM

» Kirk - Re: 1-24-03

.
In response to message posted by SteveT:

Lou asked if with such a bleak out look investors might be better off to get out now. Cliggott said not at all. Saying every individual has their own needs and risk tolerances. He did recommend each of us look at our allocation and have the equities near the bottom of our own range.

and

One of his most important fundamental factors is price. A dramatic price drop could do it. He assesses S&P 500 fair value at 640.

Today SPX = 861
Peak SPX = 1553 or 80% higher
If we hit SPX = 640, then it is 26% lower.
SPX chart http://stockcharts.com/def/servlet/SC.we...

I think that is why he says to keep asset allocation to the lower end our your range. We could go much lower than 640 or never hit it and the 750 or so level might have been the bottom... we don't know.

He did seem to be saying "Now is not the time to sell, just be very cautious."

-- posted by Kirk

Top 608. Jan 25, 2003 9:17 PM

» JackSwanson - Re: Re: 1-24-03

In response to message posted by Kirk:

The "Cligster"....he's awesome...and the dow will collapse.

Jack

-- posted by JackSwanson