A good interview.c
YOUR MONEY by Robert Barker
Millennium's Dowlett: One of Tech
Investing's Young Turks
Fund manager Robert Dowlett tells how he stayed on
top in '98
Old guys running old money the old-fashioned way got shoved
aside in 1998. The year instead belonged to managers like
Transamerica Premier Aggressive Growth Fund's (TPAGX)
Philip Treick, whose appreciation for such wonder stocks as
Amazon.com (AMZN, $158.88) drove them atop the annual
performance derby. Profiled here last July, Treick finished first
among active managers of diversified U.S. stock funds with an
84.07% total return, according to Morningstar -- not bad for a
35-year-old in his first full year running a fund. To Treick, it
was simply "awesome."
"There are some wonderful older investors, some here at
Transamerica," Treick told me by phone from Phoenix, where
he attended a conference on network software. "But the
difference is that this business is not a static environment.
Things change, and the best investors change with the times."
That's why Treick, even as he concedes that Amazon's soaring
stock "is hard to rationalize," has no plan to sell out now.
"There is going to be a significant destruction of value to other
retailers... You want to be on the right side of that earthquake."
Right on Treick's tail -- in fact, just 0.0083 of a percentage
point behind -- was 31-year-old Robert Dowlett's Millennium
Growth (MGFQX). Like Treick, Dowlett operates from San
Francisco, where he presides over Millennium Capital
Advisors. At $40 million in assets, Millennium is to giant
Transamerica as bulrushes were to the pyramids of Egypt. Yet
with a keen sense for tech stocks, Dowlett showed himself to
be nobody's orphan.
How did he do it? What does he own now (see table
Millennium's Bets)? Why is more than 30% of the fund idling in
cash? And will the fund flame out with the millennium? For
answers to all that and more, I reached Dowlett by phone.
Here are excerpts from several conversations I had with him
this week as the stock market burst out of the gate:
Q: Millennium Growth started in July, 1997, right?
How'd you do in your first half-year?
A: We were down about 10%.
Q: Then, in 1998, a huge swing up. What happened?
A: It's the same story we've been talking about forever: It's a
large-cap, growth-oriented, more technology-flavored
strategy. We've been sticking with Dell Computer (DELL,
$78.19), we've been sticking with Lucent (LU, $116.50),
we've been sticking with Cisco (CSCO, $103.62).
Q: Those names are popular all over fundland. What's
different for you?
A: Because of the $10 million size of the fund, it allows us to
be more flexible. There are a couple of things that we're able to
do that, let's say, a $10 billion fund would not be able to do.
We were able to take advantage of certain market
opportunities. I'll give you an example. We executed a trade in
Amazon that [alone] added a few percentage points in return
to the fund. We were able to get in and get out a couple of
days later to ride the trend. These trades are just not possible
in a $10 billion fund if you want a meaningful effect on the
fund's return.
Q: Who are you and where did you come from?
A: I started at Shearson Lehman Brothers back in 1992. I
actually got in as a retail broker. And I got trained through their
program only to find out within six or seven months that that
just wasn't the kind of business I wanted to be in. It was more
like a marketing position, and it just didn't sit well with me. So I
got into this program called the "guided portfolio manager" that
they had at that time.
Q: What was that?
A: You get to train to be a portfolio manager. After being there
for about three years, I looked around and looked around and
decided I really didn't want to work for someone else. I
decided I could do a better job. And I've been managing
money ever since.
Q: How do you do it?
A: Well, first, you can't be stagnant. You have to be changing
all the time, and you have to change with the market or else the
returns are not going to be there. The second thing is, we
refuse to be boxed in with any sort of capitalization bias. A lot
of people are trying to put you in a small-cap, or large-cap, or
mid-cap box. We will go where the growth is.
Q: I see. How do you find growth?
A: We look for major, major trends in the economy. And once
we have a trend established -- the Internet would be an
example of that -- then we figure out which companies will be
benefiting. Then, we start looking at the companies and figure
out who are the leaders. From there, we start analyzing the
companies: What kind of finances do they have? What kind of
marketing plans? What kind of management? That's probably
the most important thing -- how is their management? And
once we do that, we bring it down to a universe of 55 or 60
[companies] out of which we might pick 10 or 15.
Q: With the Internet, doesn't that lead you to pricey
stocks?
A: There's so much to the Internet. I see people on CNBC all
the time talking about Amazon, trying to compare Amazon to
Barnes & Noble (BKS, $42.31), making fun of Amazon. It's
not that I'm a great defender of Amazon, but I just look at this
company and I look at the market in general and I kind of feel
like a kid in a candy store. There's so much opportunity to
make money... I look at this company and think yes, they may
not have the earnings, and, yes, they may have gone up quite a
bit because a lot of people are showing way, way too much
enthusiasm for the stock. But one of the things about Amazon,
for example, that I really like a lot is that these guys have the
management, they have the foresight.
Q: How do you spot good management?
A: By basically going out there and shaking hands and getting
to know them. And the second thing is you talk to the
competitors. Sometimes you find out a lot more about the
company by talking to their competitors. What makes the
management really competitive is not whether they're
silver-haired and been around for 50 years, but how aggressive
they are and how much foresight they have into the market
space that they serve. Case in point is Michael Dell.
Q: Let's talk stocks. Besides Amazon, what other stocks
really worked for you?
A: USWeb (USWB, $29.38). It's a small company locally.
We purchased the stock in the very, very low teens.
Q: What does the company do?
A: USWeb is an Internet-based service provider to other
Internet companies. What makes it a really, really good
investment opportunity for us is we really like the management.
They have the capability of really going out there and looking at
other undervalued companies within the same sector and
actually buying them out and adding them to their own
portfolio, which makes the company even more attractive.
Q: So you see it as a potential "roll-up" consolidation of
other little Internet companies?
A: Yes, I do.
Q: Do you still own Lucent and Cisco?
A: Yes.
Q: How many stocks in your portfolio now? And what's
the biggest position?
A: Seventeen. Microsoft (MSFT, $150.50) is the biggest,
about 7.7% of the fund. And then the next one is Lucent at
7.67%.
Q: How do you decide to sell?
A: The fundamentals have to change... If the company misses
earnings [estimates], we won't sell, but if there's a major
deceleration in earnings, then we would get rid of that stock, if
there's a major shift in management -- anything that would
derail the strategy of management or ability to compete
successfully.
Q: What was your worst mistake last year?
A: My worst mistake -- I can tell you this from the bottom of
my heart -- was not having a far bigger position in some of the
leading Internet companies.
Q: Such as?
A: Yahoo (YHOO, $320) and Amazon and Broadcast.com
(BCST, $132).
Q: What have you been selling?
A: We pared back Cisco and Lucent. They would've been a
bigger percentage of the portfolio than we felt comfortable
with. At one point, Cisco was as high as 12% of the portfolio,
mainly because of the gains it had racked up.
Q: Where are you investing in now?
A: A good 30% [or more] of the portfolio is sitting in cash.
We have liquidated some smaller positions. For example,
Rambus (RMBS, $108) we have pared back, and some
others, such as OnSale (ONSL, $53.81), where we had
profits, and we have locked those profits in.
Q: So you don't mind sitting on some cash?
A: Well, we're going into this year with the market fully valued.
And the question was whether any external shocks, like any
possibility of the impeachment process going any further, could
have a negative impact on the market... I just really felt that the
market has been running up for a good 60 some-odd days,
and there was some room for fear, and that would allow us
some opportunities.
Q: When fear takes hold, what will you buy?
A: Some more technology names, because I really think the
earnings are there. And I would probably also look at some
Internet companies.
Q: OnSale or Rambus again, or Yahoo or Excite (XCIT,
$55.31)?
A: No. I'm looking at companies more like Pixar (PIXR,
$40.25) or At Home (ATHM, $105.69) or Broadcast.com.
Or companies like Network Solutions (NSOL, $216.50) or
InfoSpace.com (INSP, $38.50).
Q: But aren't they too expensive now?
A: Yes, well, the thing with the Internet is that so many people
have gotten so excited about it that some of the companies
have really, really run, and the trouble is, it's easy to get
trapped. As a money manager, you're not buying 1,000 shares
of something, you're buying 10,000-share blocks. And if
you're trying to get out of something, there can be no bids for
you. So I think you're better off letting some of the steam work
its way off.
Q: What else should an investor know about your fund?
A: Well, one of the drawbacks that we have is that even
though we've had a great '98, a lot of people question whether
the performance is going to be there for '99 -- whether it's
going to be a one-year wonder. One has to use common
sense. If you look at the companies that are in the portfolio,
such as Cisco and Lucent and Microsoft, these are really
leader companies.
I've heard so many people for so many years coming on TV
and saying this year is going to be the small-cap year or the
mid-cap year and the large-caps are going to be out of there.
But it simply isn't happening. There's a consolidation going on
in the technology sector that a lot of people are not seeing or
they just don't realize it, but it's just bigger companies that are
able to offer more products. And the managements use their
stock to hire the best talent. And they're able to compete,
bringing better products to market faster.
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