A Bear likes Alterra
Dow 6000
Bernard Condon, Forbes Magazine, 10.15.01
Seth Glickenhaus has been jumping headlong into bear markets since Roosevelt was President. So why is he so cautious this time?
Seth Glickenhaus digs into his Caesar salad and cocks an ear. The man sitting at the table behind him at the Princeton Club of New York is lamenting the millions he just lost in the stock market. Glickenhaus stands to leave, introduces himself as a fellow investor, then parts with two simple words.
"Good luck."
Coming from one of Wall Street's most acerbic critics of financial folly, it's a restrained comment. Glickenhaus has been witness to the ill effects of "mindless investing" for decades, and he isn't shy about speaking his mind. This is a man, after all, who in a 1934 job interview at Salomon Brothers offered a most impolitic opinion of J.P. Morgan--"Al Capone in a top hat"--and to cofounder Herbert Salomon no less. (He got the job.) But Glickenhaus prefers to listen now. It's a week after terrorists leveled the World Trade Center. The Dow Jones industrial average has just hit 8962, down 7% in two days.
At 87, the founder of money manager Glickenhaus & Co. has seen everything the market has had to offer. And he knows lots more bad news lies ahead. "That man at lunch won't be sustaining the economy anymore," he says.
For those thinking of buying on the dips, Glickenhaus has a sober forecast: The Dow will still be hovering around 10,000 a decade from now, and is likely to take a trip to 6000 along the way. Businesses have overexpanded and consumers are too indebted. He sees a parallel with the aftermath of the Dow's last runup, from 177 in 1949 to 995 in 1966. By 1982 the market was scarcely higher--and in real (inflation-adjusted) terms a lot lower. Only then were investors ready for the next bull market.
"It took 16 years for the market to recover last time," he says. "It's going to take at least that long to consolidate gains this time."
His advice to investors now is to buy bonds: triple-A-rated corporates and municipals and Treasurys with maturities no longer than four years. That's not to say that he thinks all stocks are unreasonably priced now and he expects some buying opportunities as the Dow bounces around, (see table).
He likes natural gas companies like Anadarko and Devon Energy because of the fuel's limited supply. They're off their highs lately because of softening oil prices and the overall market slump. Yet he thinks investors will eventually oversell these companies when the market falls anew. So you may want to wait until they're cheaper still to buy them.
His other picks are two chipmakers, Altera and Texas Instruments, which are suffering with the rest of the tech stocks. But Glickenhaus knows that chips are cyclical, and now marks a time when these shares are cheap enough to buy. TI in particular has been hurt by the collapse of cell phone sales. Sales should pick up once the new generation of technology renders current phones relics. Glickenhaus also is impressed by Altera's prowess in the types of chips that allow customers to program them. An upturn in the computer industry should make these winners, he says.
Glickenhaus knows about winning and losing in the market. After doubling his investors' money in the three years through 1997, he turned bearish and started shifting into real estate investment trusts and convertible bonds. His longest-running investment partnership, the Dorchester Fund, lost 2% in 1998 versus a gain of 29% for the S&P 500. Last year the fund rose 11% compared with the S&P's loss of 9%, but some clients had already fled. Glickenhaus now manages just $400 million of the firm's $1 billion in assets, which is down from $4 billion in 1996. This year Dorchester is off 4% compared with the S&P's decline of 25%.
"We're sowing the seeds of recovery," Glickenhaus says. "A fall in the stock market isn't going to really hurt the country. After all, it's gone down before."
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