Bob,
Paragraph in this Barron's story gives the best clue for the extent of the price correction I've seen yet; yet helps explain PRIA's relative recent outperformance.
Seems the fund managers have been selling simply because the stock price started moving down. Sounds like a self fulfilling prophecy and explains why some stocks briefly moved down toward their cash value.
Since Fidelity filed showing it had recently doubled its stake in PRIA, PRIA has been relatively strong. Perhaps the fear of missing out on the next rise is almost as strong as the fear of being the last to sell for the fund managers???
Struggling to find rationality where there is none.
Ian.
++++++++++++
NOVEMBER 6, 2000
Writing a New Chapter
An author tries to make the leap from investment theorist to
adviser
By Neil A. Martin
The world of Harry Dent has expanded rapidly since 1993, when he wrote
his first book, The Great Boom Ahead, which correctly predicted a 10,000
Dow by the end of the decade. Five years later, he penned a sequel, The
Roaring 2000s, an enormous best-seller that predicted a bull market that
won't end until 2008 and a Dow that could leap as high as 35,000. And now
he -- and at least some investment professionals who find value in his
stock-market approach -- are putting money where his mouth is.
While Dow 35,000 might seem a little remote given the Street's recent ups
and downs, Dent isn't fazed. In fact, he argues that, as outlined in his books, a
major correction will provide the respite the market will need before it
continues its leap toward previously unimagined heights.
"It will probably get worse before it gets better," Dent asserts. "We have been
warning since the start of this year that the Nasdaq composite could test new
lows, possibly dropping down to the 2300 level," he says. "But that would
end up creating a tremendous buying opportunity and give the market
momentum of the past two years a tremendous boost. We definitely think this
is a possibility."
Whatever happens, Dent's two tomes, and a third, The Roaring 2000s
Investor, published last year, have generated celebrity-like status for the
Harvard MBA, along with enough money to ensure his survival during any
temporary market setbacks.
The success of his books has enabled the
47-year-old futurist to command as much as
$50,000 a speech for corporate events (a
one-hour conference call can cost
$10,000-$15,000) and turned him into a kind
of mini-conglomerate as the head of his own
$10 million private foundation that invests in
non-profit business ventures. He's also an
adviser and consultant to a number of
investment funds and Internet-based
financial-service operations that utilize his
demographics-based investment strategies to
determine where to put their money.
"I tell them what ponds to fish in, but it's up to
them to catch the fish," he says.
For example, Dent provides investment guidance to a series of unit investment
trusts created by Van Kampen Funds. Appropriately called the Roaring 2000
Trusts, these are passively managed vehicles that hold a limited number of
stocks for a specified period (15 months to five years depending on the
series) in the four priority investment sectors favored by Dent -- technology,
health care, financial services and international, especially Asia. All but two of
the 12 trusts issued so far have outperformed the S&P 500 by margins of
2%-20% during their existence.
Dent also is a sub-adviser to the $1.7 billion AIM Dent Demographic Trends
fund, which has outpaced the S&P 500 and Nasdaq by 60% and 22%,
respectively, since its inception on June 6, 1999, generating an annual average
return of 48.01% through September. This year, the fund is up only a little
more than 1%, but that compares favorably with the showing turned in by its
benchmark, the Russell 3000, which is down by more than 1%. "We are
basically stockpickers, but we use Harry's top-down sector analysis and
demographics research to help us pick companies in those sectors," says
Lanny Sachnowitz, senior portfolio manager of the Dent Demographic fund.
Dent's sector selections were well-represented among the fund's top equity
holdings, according to the latest available public listing. It showed that, as of
August 31, the fund had made major bets on Veritas Software, Intel, Pfizer,
Cisco Systems, Morgan Stanley Dean Witter, Nortel Networks, Chase
Manhattan Bank, Citigroup, Brocade Communications and Oracle.
Obviously, many of these stocks have been tossed to and fro during the
market's recent tumult.
"Demographic trends drive earnings growth," says Sachnowitz. "Harry's
theories are just one more filter that we as growth managers can use to screen
companies. The partnership has been a tremendous success."
Indeed, AIM is using Dent's demographic theories in a new variable annuities
program, and also has launched a clone of the AIM Dent fund in Canada.
"The AIM fund is on its way to becoming a $10 billion fund," boasts Dent.
"As it diversifies within sectors and subsectors over the next few years, its
asset base will grow very, very rapidly." And that's not just cheap talk from
Dent.
In addition to what he terms -- without providing specifics -- a "major"
investment in the AIM fund that bears his name, Dent has put some of his
"modest seven-figure" net worth into Dallas-based Mutuals.Com, which sells
mutual funds over the Internet using his theories to help its customers choose
the right fund.
His H.S. Dent Foundation is investing some of its $10 million in assets in what
Dent calls "mission-based businesses," including SaveDaily.com, an Internet
site that allows members to buy things at a discount from retailers like
barnesandnoble.com., CDNow, Beyond.com and other sites. SaveDaily
invests the savings -- as little as $5 -- in mutual funds and selected financial
products, some reflecting Dent's theories. "It is consumption-based savings,
something like frequent-flyer miles," Dent says.
Far more significantly, he adds, he has put about 90% of his liquid assets into
a $30 million hedge fund that he and an investor-partner started last
November and named (what else?) the Dent Strategic Sector fund. About 10
wealthy individuals and institutions bought into the partnership (the minimum
invested was $500,000). Dent refers to it as a "relatively low-risk hedge fund"
because leverage has been limited to margin and this has fluctuated between
zero and 40%. "By mandate, we cannot be net short," he observes.
The hedge fund focuses on the same investment sectors as AIM and Dent's
other investment vehicles, but in a more concentrated fashion. "We really look
in the sub-sectors of these main market segments and companies at the start
of their growth cycles and make a big bet," Dent comments.
In technology, in the beginning that meant loading up with stocks like Cypress,
LSI or NSM in semiconductors or Novellus and Applied Materials in capital
equipment -- both subsectors of the technology field. In the international
sector, it means placing heavy bets on Hong Kong.
Such holdings helped the Dent Strategic Sector fund post a 79.75% return
during its first 11 months. But sensing that a market downturn was in the
offing, the fund gradually started taking profits last spring. By the end of the
summer, it had gone to a net cash position.
"You can't fight City Hall," says Dent's partner, George May, who makes the
day-to-day buy-and-sell decisions. "We don't see signs of a bottom yet, but
when we do, we will be back in the market and buy back some of the same
stocks but with much more attractive valuations."
Nasdaq's 19% tumble in August hit Dent hard, at least on paper, reducing the
value of his holdings by more than $1 million, and that market's recent woes
certainly can't have helped his blood pressure.
The gyrations have impressed upon him the dramatic differences between
merely talking about stocks and buying or trading them. "When it's your own
money and prices drop, you tend to feel these things up close and personal,"
Dent notes. "You learn to deal with reality when you actually invest your own
money. It's not just all theories any more."
Greatly simplified, Dent's theory is that consumers drive the economy, and if
an investor can identify patterns in consumer spending in the past and the
environment in which that spending took place, he can detect future trends.
One key indicator, in his view, is demographics, which determines when
consumers buy and what they purchase, from potato chips to automobiles.
Demographics also help determine what technologies and services will benefit
from these spending patterns as they evolve.
"We have an entirely new approach to asset allocation and investing strategies
that is very different from the industry," Dent maintains. "The classic
investment strategy recommended by many experts is horrible-it has you
equal in bonds, international, small- and large-caps," he adds. "But it fails to
take into account that there are different seasons in an economy, stemming
from demographic trends that require different investment strategies for
different conditions, just as you dress differently in the winter than in the
summer."
Traditional "balanced" portfolio models, he adds, tend to rely on data studied
and compiled over the past 70 years to position an investor for the next
decade, but ignore the boom-and-bust "seasons" that mark various periods --
the Roaring 'Twenties followed by the Great Depression, the booming
1950s-1960s succeeded by the inflation-and-recession-wracked 1970s, the
disinflation the 1980s and the booming high-tech economy of the 1990s --
each of which required different strategies.
"Having the same portfolio strategy through all of these extreme seasons
would be like wearing a light raincoat year-round in New York because the
average weather is 50 degrees with 0.1 inches of rain daily," he quips. "You
would freeze in the winter, boil in the summer and almost never have the right
clothes on."
Just as bonds and small-cap stocks did well during the deflationary 'Seventies,
large caps will do well during the roaring 2000s, Dent believes. And growth
will be concentrated in technology, health care, finance and international
investments.
Dent argues that America's 90 million Baby Boomers -- a group he defines as
people who were born in, or emigrated to, this country from 1937 through
1961 -- continue to call the tune for the economy and the stock market. It is
their spending patterns and interest in the stock market that are pushing
price/earnings ratios to lofty levels, he says. And "with more Baby Boomers
now reaching their prime earning and investing years, there is the potential for
the forces of supply and demand to increase the price-to-earnings ratio.
"A lot of sectors have the potential of much higher growth than the market and
deserve higher P/Es," Dent asserts. "The value of the current correction is to
help us more clearly distinguish between those companies that deserve the
higher valuations and those that don't." |
