A look at a brokerage that shuns fast action for the longer haul
New York — Disregard the resplendent bond market rally, which was conveniently sparked by Federal Reserve chairman Paul Volcker's remark about a ``relatively accommodative'' credit policy -- just before a huge Treasury note auction. And, though it may be difficult, try not to be amazed by the Dow Jones industrial average racing toward the 1,400 mark.
While such events may set the rest of us aflutter, money manager Ted Rosenberg has little use for these weekly market palpitations. ``We're fundamentalists; we look for value,'' says Mr. Rosenberg, vice-president at the Burney Company, a Falls Church, Va., firm managing $180 million. ``It doesn't matter in the long run what the market as a whole does. We're buying individual stocks.''
The market timers stand aghast at such comments, but the Burney managers belong to a different school. On average, they hold a stock for two to three years. And they have compiled a commendable record.
Burney portfolios show an average annual return of 25.6 percent since 1974, after all costs, according to Ralph Goldman, a Shearson Lehman Brothers senior vice-president who tracks the performance of 500 money managers. By comparison, the average annual return of Standard & Poor's 500 has been 15.5 percent since 1975. This year, Burney accounts in toto show a 15 percent gain, compared with a 13.5 percent rise in Standard & Poor's 500.
Rosenberg attributes success partly to old-fashioned discipline, a character-trait deeply ingrained in the 20 Burney managers -- most of them Army retirees. The firm's founder, Jack Burney, is a West Point graduate.
Discipline, as any investor can attest, is especially crucial when faced with the sometimes emotional chore of parting with your ``favorite'' stock. Burney managers are spared such agonizing through strict adherence to a set of rules and a computerized stock analysis system.
The system analyzes the financial data and future prospects of a company using some 60 variables (including book value, price/earnings ratio, price/sales ratio). Then it spits out a value or price on the stock of an analyzed company. ``Once we come up with a value, we buy the stock when it's 30 percent below that value and sell when it's 30 percent above,'' Rosenberg says.
Each month the stock is reevaluated. This is where the discipline comes in. The firm assigns a theoretical value to a stock of, say, $10. Thus you buy it at $7 and sell at $13.
Burney today has identified 57 undervalued stocks compared against 400-odd stocks in the summer of 1982. Included are Monsanto (Burney's value figure: $63), K mart ($46), Lucky Stores ($33), Figgie ($53), and CSX railroad ($43).
Besides the Burney Company, Ralph Goldman at Shearson stays in regular contact with the professional portfolio managers he tracks. His soundings reveal a strong buying bias toward stocks in consumer-oriented concerns and stocks with takeover potential. And foreign securities are now generating ``a lot of interest,'' he says.
Mr. Goldman notes that investment pros are generally avoiding oil and oil-related stocks, perhaps because many of them are trading near all-time highs. Exxon hit a new high of $55 a share last week on the strength of its buy-back program. The boom in oil stocks has surprised many who predicted that weaker petroleum prices would undermine earnings. Nonetheless, as a group, domestic and international oil stock prices are up some 20 percent this year, according to Salomon Brothers.
Despite some caution on Wall Street due to the Dow's recent heady advance, Goldman finds that the long-term approach of his managers makes them predominantly bullish toward stocks.
The reasons for this optimism:
``There's a definite business bias in the White House today, and you're seeing that reflected in all the takeovers, mergers, and acquisitions. This activity would have been unheard of in previous years. Now, the word `monopoly' is unheard of.''
``Relative to other investments, the stock market seems very attractive. Real estate, gold, CDs, T-bills, money market funds, have all declined in yields or in favor.'' He notices institutions starting to shift funds out of bonds and into equities.
Because of all the takeovers, mergers, and stock buy-backs in the last two years, ``there has been a dramatic diminishing in the number of listed shares outstanding, while demand [for stocks] seems to be rising.''
A long-term investment approach is certainly admirable. But for those who enjoy an occasional peek at the Dow Jones industrial average, it rose 33.73 points last week and closed Friday at 1,390.25. Chart: Interest Rates. *Yields; Source: Bank of Boston.
Percent Prime rate 9.50 Discount rate 7.50 Federal funds 8.25 3-mo. Treasury bills 7.18 6-mo. Treasury bills 7.27 7-yr. Treasury notes 9.75* 30-yr. Treasury bonds 10.21*