WSJ - We Call in Some Big Guns for Bid To Knock Off Four-Time Champ
March 23, 2001
Money & Investing
We Call in Some Big Guns for Bid To Knock Off Four-Time Champ
By ERIC BELLMAN
Staff Reporter of THE WALL STREET JOURNAL
Call him Alexander the Great.
Andrew Alexander, a Hong Kong hedge-fund manager, has just bagged his fourth consecutive win in Weekend Journal's Stock-Picking Challenge. It's an unbroken streak of victories stretching back to October 1998, when markets were still smoldering from the Asian financial crisis. Along the way, he trounced everything we threw at him. That included a duo of stock-savvy dentists, a pair of Buddhist monks and, most recently, two high-flying Internet executives, not to mention the five top fund managers we partnered him up with.
"It could just be luck," demurs the 34-year-old Australian. "Four times in a row is not statistically significant." Yeah, right.
In a last-ditch effort to knock him from his throne, we went looking for some big guns, literally. For this next contest, Mr. Alexander will do battle with some military brass. If these two don't have enough firepower to defeat him, well, we might just have to retire his spreadsheet and crown him stock-picking champion for all eternity. Either that, or we ask Warren Buffet to take him on.
In the past, though, Mr. Alexander has always been nimble enough to outflank his foes, no matter what the financial terrain. This he does by flouting conventional market wisdom so blatantly that he can appear foolish .. at first. When others bought shares in Hong Kong real estate, he sold them. When the pack flocked to tech stocks, he bought a fast-food company. When the rest took up defensive positions in property shares, Mr. Alexander bought oil companies. His greatest stroke of tactical genius? When Pacific Century CyberWorks, the Hong Kong Internet and telecom stock, was heading toward the stratosphere, Mr. Alexander shorted it. Six months later it was down 40%, and he pocketed a 20% return. That was more than enough to send his opponents packing; they all lost money that round.
Still, Mr. Alexander claims that it is his reasoning, not his record, that's important. "Winning the contest is not the objective. It's to demonstrate a style of investing and a thought process that most individuals can relate to." For him, the thought process goes back to his training as an actuary for an insurance company. It's a job that looks at probabilities and long-term compounded interest rates to determine insurance premiums. Or, as Mr. Alexander prefers to describe it, "We count dead people." But that job, he claims, gave him the necessary "discipline and rigor of process' to turn him into an investing powerhouse.
Here's how the contest works: Every three months, Weekend Journal chooses two professional money managers to go up against two individual investors. Six months later we check to see who won. (Hence, we have two separate competitions going on at once.) Each contestant starts with $30,000 in play money to buy or short-sell up to three stocks from the Asia-Pacific region. The investor with the biggest gain (or smallest loss) after six months is invited back for another round against three new contestants.
Too bad it's only play money. Anyone who invested $30,000 in Mr. Alexander's first stocks two and a half years ago and reinvested in his subsequent picks as he made them, would now have around $320,000. (No, we weren't smart enough to follow his advice either.)
His opponents this time around -- Capt. John Taft, the U.S. naval attache in Manila, and Cpl. Wong Hoong An of the Singapore Armed Forces -- are itching for a fight.
"I have information as good as any fund manager's," boasts Cpl. Wong. Though the 22-year-old Singaporean isn't exactly battle-tested (he's only been in uniform for a year) he claims to have a winning strategy: "I look at more than just rumors. I look at profits, and even then I'm careful because numbers can be massaged, so I check with people in the companies."
Cpl. Wong first took a shine to investing when he was still in grade school. His one Singapore dollar-a-day allowance wasn't going very far so he started investigating which careers and companies made the most money. That led to an interest in the stock market. When he's not learning how to throw a grenade and doing survival training in the jungle he's watching CNBC and reading financial newspapers.
His mother doesn't approve. "She thinks the stock market is just gambling," he says. But that hasn't slowed him down. His picks for the contest are a bold frontal attack on the professional team. He is buying one ailing Japanese car company and shorting two tech picks. "I want to win big or lose big," says the corporal. He is putting $16,000 of his funny money into Nissan Motor Co., guessing that its alliance with AB Volvo will make it more efficient and open doors for its cars in Europe.
His next $9,000 goes to shorting Sony Corp. He says it's a hedge against a collapse in the Japanese market, and he is guessing the U.S. slowdown and tapering demand for the company's PlayStation 2 game will slam Sony's stock price. He will use the remaining $5,000 to short PCCW (was he watching the champ?). Even though the company's shares have plunged by more than 80% from their high early last year, he's convinced they haven't hit bottom yet, as the company sells more shares and investors wise-up about company president Richard Li, son of the Hong Kong tycoon Li Ka-shing. "Richard Li thinks he knows everything, but he's just some rich guy's son," says the corporal.
Capt. Taft has flown planes and helicopters for the U.S. military for 30 years. But this veteran still has plenty of fight left in him. Though he invests most of his own money in mutual funds, he often moves it between different funds depending on trends he spots. One of his smartest moves came in the mid-'90s, when he noticed the planes he was flying around Southeast Asia for a private cargo company were filled with Compaq computers. He figured that much demand all over Asia indicated a strong trend for tech companies, so he transferred much of his savings to high-growth high-tech funds in the U.S.
"My broker told me it was a risky move," says the 53-year old naval attache. "I told him he wasn't my mother and went ahead anyway. Lucky for me." He said his investments more than tripled. His funds have taken a hit over the last year, so he's switched some of his money to ones filled with non-tech blue chips.
For the contest he is keeping a safe distance from the Internet. His first $10,000 goes to Singapore Airlines Ltd., which he would fly monthly from the U.S. to Asia when he was piloting planes that carried the airline's excess cargo. He says its service is so good that, "even if there is a recession they will be able to fill their planes." Another $10,000 of his imaginary portfolio goes to Formosa Plastics Corp. He likes the Taiwanese plastic maker because its profit grew by more than 60% last year but its shares are trading near their one-year lows. The last third of his money goes to Canon Corp. "I'm on my second Canon camera now and I like the product," he says.
On the professional team, Mr. Alexander is joined this round by Halena Ng, executive director of Harris Fraser International, a Hong Kong firm that helps rich individuals manage their money. Over the past 15 years, she has made a lot of rich people richer by using a top-down approach to stock picking. First she finds a country or industry trend, and then looks for shares that will benefit. She also likes to pick stocks with price/earnings ratios lower than others in the same industry. Right now, the biggest trend she spots is a fear of recession, so she is splitting her imaginary money evenly among three defensive stocks.
Her first pick is the Hong Kong railway- and property-company, Mass Transit Railway Corp. She says it has some promising projects on prime real estate in Hong Kong and won't be hurt by a global economic slowdown. "People can stop using technology but you still need to catch the train to work," she says.
Her second pick is CNOOC Ltd., China's third-largest oil company. It plans to double production capacity over the next five years but is still agile enough to grab the most profitable markets from its giant competitors, like PetroChina Co. Ltd. Her last $10,000 goes to DBS Group in Singapore, which will get a boost in its bottom line from falling interest rates.
And our champion, the mighty Mr. Alexander? (OK, this time we're taking notes.) He's got plenty of ammunition for this round, too. In fact, $7,500 of his money is going into Poongsan Corp. a South Korean copper-products company that makes bullets for the South Korean military as well as unstamped coins. Even if there is a global slowdown, Poongsan has a stable demand from the army and can expect a surge in demand for its coins with the launch of the euro in Europe and a new one-dollar coin in the U.S. His next $10,000 goes to the Singapore-listed Del Monte Pacific Ltd., a growing brand in Asia that may be buying back its own shares to defend itself from a takeover. It's also a defensive move because, "no matter how bad things get people still have to eat," says Mr. Alexander.
He'll park the final $12,500 in Affco Holdings Ltd., a New Zealand meat exporter which will be able to send more beef and lamb overseas thanks to the weak New Zealand dollar and concerns that European beef may be tainted. Plus, he reasons, "people by nature are carnivores, not vegetarians."
Write to Eric Bellman at eric.bellman@awsj.com1.
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