SMARTMONEY.COM: Bauer Wins!
By DANNY HAKIM
Smartmoney.com
NEW YORK -- He bought Qualcomm (QCOM) before it was the hottest
telecom stock on the planet. He picked up obscure tech rockets like i2
Technologies (ITWO) and ESS Technology (ESST), which gained 542% and
343.8% respectively in 1999. And he jumped aboard white-hot
pharmaceutical pick Imclone Systems (IMCL) before its 523% gain over the
past 52 weeks.
Who is this canny investing sharpshooter?
Meet Gary Bauer. Sure, his flagging poll numbers forced him out of the
presidential race last Friday, but according to our Presidential Portfolios
series, Bauer has been trouncing the field. Thus, we declare him winner of
the race we here at SmartMoney.com care most about - who invests best.
And Bauer's victory is no mere squeaker. As of last Friday, his portfolio had
returned 183% since the end of 1998. That's more than three times better
than the performance of runner-up Steve Forbes, who has considerably more
money to play with but managed only a 45.63% gain over the same period. It
also meant that the conservative crusader handily vanquished the 16.7%
return of the S&P 500 index. We caught up with Bauer as he was resting up
a few days after dropping out of the race to ask him about his hot investing
hand. Bauer, it turns out, makes almost all of his own investment decisions,
the product of a lifelong fascination with the stock market.
SmartMoney.com: Did you sell Qualcomm and, if so, when did you sell it?
Bauer: I still have it, but I sold call options to protect the gain.
SM: That's some gain. When did you first buy it?
Bauer: Sometime in the first quarter [of 1999].
SM: Were you worried that after a 2,619% return in 1999 it might be ready
for some profit-taking?
Bauer: It makes me very nervous, but to sell it would have meant giving up a
big chunk in taxes. The options I sold will give me pretty good coverage.
And I can't imagine that it's going to collapse. Unlike some of these Internet
companies that are a wisp, a vision, Qualcomm has this fantastic royalty
story.
SM: Tell me about some of your other hot tech picks. What about i2 - what
do they do?
Bauer: i2 Technologies is a software company, but it's developing software
for the Internet. It's an unbelievably volatile stock. At one point after I
bought it, it was down 40% and now it's up several fold.
SM: How about the telecom equipment company P-Com (PCMS)?
Bauer: I think I bought that at $9 or $10 and it went down to $3. I held on
because wherever I first heard about it, they thought it was going to be okay.
Now its around $19.
SM: At the beginning of 1998, many pundits felt the tech market was
overvalued and due for a correction. Why did you stay with a large tech
weighting?
Bauer: I felt like the cycle had a ways to go and I think it still has more left in
it. You have to be prepared for some major corrections, but I think tech
stocks will be higher at the end of this year then they were at the beginning.
SM: How do you find picks like i2 and the little chip company ESS
Technologies?
Bauer: I come up with them by reading Smart Money and Barron's. I
continue to make my own investing decisions. I have some money with a
broker at Paine Webber, but he tends to be more conservative.
SM: Is that how you do your research, reading financial publications?
Bauer: I read the typical columns, whether it be in the Wall Street Journal,
Investor's Business Daily or Barron's. When I'm on the road I pick up
SmartMoney and Business Week. If I have a day at home, between working
on speeches, I'll watch CNBC. Then I'll go to a brokerage to get research
reports, and then make my own calls to a company, or consult with a friend
about it.
SM: Let's back up a little bit. Where did you learn the art of investing?
Bauer: I grew up in a blue collar family in Kentucky. My father was a janitor
and a truck driver, and my parents had no investments. But I can remember
back in the seventh or eighth grade, I would take out the newspaper and
write down stocks that, if I had had any money, I would've bought. I was
fascinated with the stock market.
SM: So when was your first actual stock pick, and what was it?
Bauer: It was 27 years ago. Knickerbocker Toy, which had the Raggedy
Ann and Raggedy Andy dolls. It was a far cry from Qualcomm. I think
they were bought out. It was one of the most exciting things that happened
to me. Editor's Note: Knickerbocker Toy became a subsidiary of Warner
Communications in the late 1970s.
SM: Well, you've got a hot hand. Could you give us some picks for 2000?
Bauer: I've been so distracted by everything that I haven't had time to do
much. This has been so intense for the last eight weeks, I haven't looked at
anything, but I have the Barron's roundtables from the last two weeks set
aside.
SM: Let's take a look at the other end of our Presidential Portfolio spectrum.
Bill Bradley's portfolio is down 21.2% over the past year, and he's got almost
all of his equity investments in a single stock, Bank of America (BAC). Can
you help this guy out?
Bauer: What? Diversify. The most basic rule is that you never put all your
eggs in one basket.
SM: How about Gore? He has no tech stocks, or equity investments of any
kind, for that matter. What's your advice?
Bauer: Was he relying on Hillary's commodity adviser? We're in the middle
of a historic bull market. It strikes me as curious that an official of a
government that takes credit for America's expansion wouldn't invest in
American companies.
SM: What about you? What would you consider your biggest investing
mistake?
Bauer: I was getting ready to buy Time Warner (TWX) literally three days
before the AOL (AOL) deal. Things were so hectic I didn't get to it.
SM: How about Saks (SKS)? That's down 67% in the past year.
Bauer: It's a small holding, and it's in the broker's account, which I
periodically remind him of.
SM: So what advice do you have for the average Joe investor?
Bauer: This looks like an incredible year, but it would be a bad thing to
expect these numbers. I've had bad years. At the end of the day, people
should look for value and try to be diversified. You have to balance
technology with conservative things out there. There are a lot of companies
trading at 7, 8, or 9 times earnings. I think I'll try to get into some of those
now.
SM: Well, you trounced the rest of the field. Is this surprising to you?
Bauer: I don't know if that says more about me or the other guys.
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