Actually the whole article is not bad -- FYI -- Oates is apparently a pretty sharp cookie:
'Back to the basics' is best strategy
Northeast fund manager William Oates talks picks
By Don Scott, CBS MarketWatch
Last Update: 2:45 PM ET Sep 14, 1998
NEW YORK (CBS.MW) -- One of the few mutual fund portfolio
managers to consistently beat the S&P 500 says there's no black box
secret to investing.
"I think that whenever anybody takes money out of their pocket and buys
a common stock, they are taking quite an element of risk," says William
A. Oates, Jr., who runs the $150 million no-load Northeast Investors
Growth Fund (NTHFX) in Boston.
"Therefore, I would prefer to take that risk with the best and the brightest
this country has," he adds.
Oates has beaten the S&P 500 over the last five years, three years, one
year, and year-to-date through July 31, according to the Morningstar
Principia database of nearly 10,000 mutual funds. Only eight other growth
stock mutual funds marketed to individuals can make that claim.
"I and my family are the single largest individual
shareholders of the fund," says Oates, a Harvard
MBA, "so there's a huge, selfish interest in seeing it
do well, and in the investment strategy."
Oates, 56, has seen a lot of market ups and downs
since he took over the fund in 1980. "One hell of a
lot of gobbledygook has replaced common sense,"
he says of all the different investment styles and
strategies being pushed in the mutual fund business
these days.
"You could obviously fall back on all the trite stuff about growing earnings
and growing sales and consistent growth in earnings and consistent growth
in sales," he notes, "but what really drives that is a good product mix,
items that people use, find worthwhile and that are delivered at very good
value."
He cites Procter and Gamble (PG), which is well off its 52-week high.
"This is the best marketing company in the world," says Oates, shaking his
head that "Wall Street is, in typical fashion, upset that the company is
making some strategic internal moves which will make it a much stronger
entity in the years to come."
Keep eye on products
He says it's obvious to try and buy companies at
lower price earnings ratios, but that when you find a quality company with
an established record you may have to pay up to own it. "We're more
comfortable with PE ratios at 15 than we are with 35," he says, "but
sometimes that doesn't happen."
He also says Gillette (G) should interest long-term investors. "Here's a
company that really reinvented shaving through this new razor that is just
breaking onto the market, the 'Mach3'," he explains, "It's a major new
product."
He also likes the big name drug companies: Bristol Myers Squibb (BMY),
Merck (MRK), Pfizer, Eli Lilly (LLY), and Warner Lambert (WLA).
"There are essentially a host of new products in the pipeline that will be life
enhancing, which will be very helpful to us all," says Oates. "We're an
aging population, and there are more of us, so the market is bigger."
Oates says to take a close look at the regional banks. With all the concern
about global economic problems adversely impacting the big money
center banks, he's noticed a lot of regional banks have gotten beaten up
right along with the city slickers.
What are his favorites? Zions Bancorp (ZION), in Utah, Fifth Third Bank
(FITB) in Ohio, and Fleet Bank (FLT) in Massachusetts would be good
candidates.
When to sell?
Oates says his recent sale of the fund's $1.5 million position in
Amazon.com (AMZN) is illustrative. "We held it for a seven month period
and we had more than doubled our money," says Oates, but "one of the
reasons I sold it is, that I suddenly felt, that while they were working on a
new business paradigm, others were going to come into their business and
basically take business away and drive margins down and I didn't see that
these people could continue making it grow."
Besides, he notes: "It was making no money, so it sold at a huge multiple
of nothing." And worse, his wife and children had used Amazon.com a
couple of times, but weren't re-using it.
Don Scott writes for CBS MarketWatch from New York.
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