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Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host -- Ignore unavailable to you. Want to Upgrade?

To: Tim Bagwell who wrote (19613)	10/17/2003 10:02:23 PM
From: E_K_S	Read Replies (3) \| Respond to of 42834

Hi Tim - I am a long term investor and although it can be painful for the portfolio, these secular Bear Markets provide excellent opportunities to cherry pick bargains. In my thirty years of investing, you find out that many of the long term macro economic cycles tend to repeat (ie boom bust, interest rates, inflation) (but not always in the same fashion or in the same way as in the past but in many cases just a variation with a new twist!). You are quite correct that IF you are able to find the good growth company and you hold for many years your returns can be quite outstanding. The key is to discover those companies that can maintain that growth over several years, that has a management team that is able to adapt to the changing environment (ie technology, interest rates, global conditions), and has tangible assets (some times hidden) that when leveraged can help the company maintain their lead in their industry. I have found that during secular Bear cycles many good companies get trashed with the bad ones. Even today I am finding good companies with terrible management (greedy and dishonest) and selling at a discount. As a long term investor, you learn that management can be changed but good management with a good long term growth plan is much harder to find. I also focus on hidden assets in the company that have yet to be discovered by the investment community. One area is real estate owned by the company for 15 or more years. Land is carried at cost not market value in the balance sheet. Sears is a great example of this as all of their stores include the land the building sits on. Many of their stores were acquired before 1979 and the land value carried on their books is grossly understated. When you look across their 880 stores this becomes a number approaching $5 billion. ABS is a similar story but only have store owned properties that represent 65% of their sites. However, they have many more stores than Sears so the ir real estate holdings become quite significant. Anyway, my successful long term buys have always had some type of hidden asset play be it oil or natural resources in the ground or now where land is reported at cost not true market value. You are probably already aware of many of these things. Sears was a steal at $18 in March of this year and I believe ABS at current levels is too. Like a plant, it takes time for companies to grow and the investor must be realistic with your long term growth rates and targets. It does help when a hidden asset is discovered by the financial community too. Here are some observations on companies I have owned and how they have grown over the years. My target is to achieve a long term annual rate of return of 10%. Your portfolio should double in value every 7.2 years. AAUK - AngloAmerican a natural resource company. It attracted me as they have a lot of their assets in the ground. They have always paid a good dividend (ranging 3%-6%). I began accumulating shares in 1980 with a cost basis of $1.75. Last week they hit an all time high of $20. This industry sector was out of favor (in it's own Bear market) between 1995-2001. XOM - Exxon/Mobile a diversified oil company. Purchased my first shares out of high school in 1976. It has always paid a good dividend ranging between 3%-6%. My cost basis is around $4.00/share. The stock is near it's 52 week high at $36. CVX - Chevron Texaco another diversified oil company. I purchased TX stock over the years and made my first purchase in 1980. I always liked this company because they paid a large dividend compared to their peers. Split adjusted my TX shares when converted to CVX shares have a cost basis of around $19/share. CVX is around $73. You could probably go on with a list yourself. I have bought Sears, CVX, JnJ, HON, EP, GT, ABS, GLW (to name a few) this year. You will not hit a home run every time and you expect some losers in the group. Like working in the garden, you must weed them out and constantly review your companies to make sure that management is changing to the times and economic conditions. I have structured a core portfolio that have many of the companies I plan to hold for growth as long as they perform and have hidden assets that have not been discovered. Separately, I do allocate some dollars for pure speculative investments which have a much higher failure rate and generally do not pay dividends. To summarize, it has been a long time (perhaps since the early 90's) when I have seen so many bargains. That's not to say that there are still a lot of over valued companies too. So once every 7-10 years a good Bear market is healthy. It allows me to pick up more bargains to add to my core portfolio. The good Bear cycle will typically last three years. I believe we are finally seeing the end of this Bear cycle and the good solid growth companies will begin to show better relative earnings for several years. So, I hope you have been accumulating some good investments as it may be another 5-7 years before we get such an opportunity again. EKS