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    FIGURE 212 FIGURE 21-3 2m Per Lynch 1 read the lates: quate reports from all 21 comparis, and 1 called most of them, Some stoves ha gone fa, while others were ‘more ening then efor, aad in fem ease ny researc led me to other companies tht I liked better than the ones Ta reeom- read, Thats how iis with socks, ts fui situation in wich nothing is absolucly certin. proceeded as flows: ‘THE nopY SHOP. Back in Jnvary determined thatthe Body Shop was a wonderful ‘company, but overpriced relative to curent caring. I was lookg fort drop in prise as a chance to buy more. I did't tke long % {pt oneby July the stoek had fallon 12-3 porent rom 325 pence fo 253 pence. The Body Shop was now selling for 2) times the timated 1998 ets. I dont mind paying 2) times for eanings in-a company that's growing at «25 percent annua sat. AS of this ‘wrtng the elie New York Stock Exchange was sling a 20 tines ‘aunings, for companics that om average mere rowing st a 8-10 pent rate “The Body Shop is Britsh stock. But stocks had taken = terrible beating in recent months, and the Body Shop had gotten ‘ome Bad publicity chitin rs the Ks non ribo, mbih the Body Shop had hired to produce Braat mut fair condittones. ‘was arested in London and charged with raping the Portuguese anny for some of his merous chlren. No matter how hard You try to imagine the next vent tt wil make trouble fo a company. it usualy something you havent thought of. Checking the price history of his stock, [noticed it had sufferest ‘ovo major setback, one in 1987 and he othe in T980, bot insite ff the Tut that the company was perking alongwith no si of 2 Terp. (attribute these exaggerated sell tothe fact tht British shareholders are nots falar with smal growth companies we fre, and therefore abandon them more realy in @ marist eis, ‘Also, ice the Body Shop iss plobal entre Britis investors may suite it with several notable failzes st expanding abroad, e+ Marks & Spencer "Evenifyou tought sharesiathe Body Shop after the 1950 setback, youhad iste propared for farther declines, when You mht consider Tying more Butte fundamental tl hd to be tavorabl, which Beso mm Sane 289 1, STOCKS SELECTED FOR 182 BARRON'S ROUNDTABLE: pen -SDEMONTH CHECKUP, ~ ase Paes Sond ears rough 7122) if Raced pm «RE a i ee a i (Coons on S038 Po age Fan me oe EEE ame iin o Ter daut be ney Slate vs 8 Core Sos nk si Bm romeo a8 = Pen ims Fen oo ancy seer ‘So Detrans Cas B 3358 Sh ets ce 33 inet sam “ow ry natal (IIA) te Rina SS onc hac pang aa or as NHR 0 Peer Lynch sea Sapa ro (evaf 132) i 6 ey a ol one ee eS Foleo Mor Som ek samme ty eatin amy et Satie. | SR ath. rman women ney tate Bacup apa eet tle et a BER oS =a Ror Pls Dodge hanged old i a 5 seperate ew nes tm eae oe cae es Bs as the poi of he chicka, alle he sa. Jc Ket ‘Tattle er: tlt tat se es a eamings tad bth inessd in 199, x cmscrabe achievement given the fit ody Shop sournjor merit are Egon, Atari Canada, and the U.S —all countries stragaling with recession. “Anabe roiog cad bad tuned ore THE company was ug, some of its enh by op suppers of rao poten: and von. {fin sold cu the coo he mechumne Gown tbe iy nd improve the profit marin This was the technique that helped Shaw Tadustries become the low-cost carpe mar. T tthe to Cathy Stephenson, my old friend from the Fidelity titary-nbo onns the Body Shop 2 he Burlington Mall pha the tein uarvatd Square She reported 6 percent gain i ses vee {Re prenowe years resus at Burington ad sid it was f00 cary 10 Tei bhout Harvard Square, Her evstomers were flocking to several thew products, nclding Complete Colo fr eye, ebooks, an ips ind face moisturize with sonsereen; pumice foot seus and mango body but, which she eoulda't seem to beep onthe seli— "i knows what theyre ing wih 1 "The marks for Tetons, potions, amd bath oi stil wast with panty of soem to grow The Body Shop was sticking toi expansion Fla-40 new outlets in th U.S. in 1983, 50 more in 194, 50 per Tear im Europe, an sul nomber in the Far East. 1 placed the puny i te race id ie phose—the second decade of 30 sear of ero PIER 1 IMPORTS Per 1 Imports had made sce run, from $8 198950, den promptly verted. This san example of Wall Steet’ being deaf o good own The anlyts had pegged Pee 1's squatter earings at 18- Socents, Pier 1 ata earaed 17 ents. the stock et lobhered ‘Fhe company wes expected to carn 70 cots For the yar, and thi in'e wall hugging emaronrent Pier Thad strengiened is balance sheet by selling $75 milion ‘worth of eomeribe debsntores abd wsing the procteds 9 retire (ove. Longteron deb, which already had been reduced, was pared ‘dowa oven further ‘re | had ul debt, redueod inventory. and eatin fo expand iis jor competitor, the department stores, wee getting out of {he ome fwnhings business The fonger his recession lsd the hove competiors mould drop by the wayside. Whe the reowery hues, Pict Lay havea ral onopoly on wicker sie tables, Srandinavian place stings, and Oriental room dividers Trt tke much wishfal thinking to foresee Pet Teasing 60 cont nate from is wn stores pun adional 10-18 cents {fom a revved and drisihoff Sone Nursery. company in which 292 Pe hyn Pir 1 continucs to hold a substantial stake, Tha’ buck share, which, glen a easonable pesto of 1, makes Pier 1a $1 stock (GENERAL HOST, SUNBELT NURSERY Gover Host another stock that rose yp and then did back tot atre ae Frum Ne ind ten !Paperent yan whl longterm esr aw paper profits win Se om $24 hae to 50 es ae “a isappeiming ind ad tered ovr. Ea April the compan ‘nse $48 milion worth of «now comertle prefered ck with fn percent sii. This mis xs what Per had done, expe thar Gener tha pays ter ee te ae Stareholr in comertbe isk or debenires ave thereto trae these for she nthe common sek tn ed prc ome tine inthe fur "This ceses more shares of common, which Sines te args forthe extn sharcholdes ofthe coamon. Erk, Gonral Hest bad bought ack some of common shaves ‘eich wat a postive move ani nw it bad revered eel by Ke {he coment, which ws a nope move. ae ‘whereas Per {had we the proce fom is covert sale to py off debe thas Todacng trent expense, General Host was ‘sing proceeds to further renovate fe rani’ Nursery sores ‘This nar chan proportion, sith n meas hens Meare, sles tthe ans nue re sap to mor sv theron he hong mare! had Deg ee Back fn lanasry, ben the sock wes sling or $7.7, the sompeny was pected to een 6 cents or the ea, But now it was an 38 Sock inva company that was cepted to arm 48 cents. Sul eral Hest hada strong ca os dividend had ben cane forthe ath year nro the stock a selling fr Js than took valu, and tbe expansion was proceeding scoring 10 pan From punching up GHom my Quoron, [lars tht Mano Gabel ‘ag bough mibion shares for is secrete on eoonted thi socks ol. ‘Sunbelt my ocr secommendation from the nursery, Bal kx soon Jun. ore rina the Southwest, where Sab rented, ha dampened peop ets fr working in the ea ‘Beamo meSmecsr 2 ava ns $2.91 sc nai et ap, Wt oS, Sl eso Pim cafe th ese me shee re nn sips fa : st ane um mdb mr Se weep cana a tei tte Ce me a ac tees A acs ie ti eect Sonn te cies en Neem ince ale we et oe nth Sato eer Be See pee gape eRe ic cnn se coer enw er cn nay tan tenn tl ot etiam oi So er aS ay he SUPERCUTS eso oan ecto sock lit, SAREE, 10 ‘er at a ary pice Toes case me aa et at Pl Faber, he apt om Compt Te At ll on cs, el he coma, The teeta alr eto dete hin 9 ogg Ho aeration spt eel commons Se arb mathing {ste in he poe oa Fen oie eater A oup cae Cao 298 Peer Lynch Ices oan. no shares of Siperassock:Imoxt that Caton part of Dre Barman ar sh an We Sire fm. Drees csr wl erly emnd Cons gos dation, whic means bt lng with everything eee aon shares of Soper willbe so. Tis wil ex the ie to al. it. the pe ry ley hae fan on furs ohana ‘hich hat Wal Steet le hp hk of shes tats soto Be damped on th market “he emp inl e avng god year, Supers was aac “Ota Salon Sri sips fr ine Opmyeas"no mente the sume son who sped i cur ett she Swimmers beads, The allinortant came re sl ep 2 eres nthe ist quater of H82. Several nem Spars ha Spend in se Nw ork, whee the Sano Roses pts ee crema hae. “As oa Same slore ses ime an the company ses in now market, Tl omy psn, although Cen Begg ‘omy that the company tay etpand tno fs. Between 8 a 0D te rae re lad for 198 Tre aenty cen several promig Sasi, om Color Tk Fnclers to Bac, Some by creeper omen conga {adores Iya ve cae twee acing jou gol ne arate a, Mono ke! Tied CO oe perc ‘THE SEVEN Sas. So far, the best performers of my 21 Barron's picks ate the S&L ‘This is no accent. Take the indastsy that's surrounded ith the most doom and loom, and ifthe fundamentals re postive, your find sone big winners. With ietrest rates fling 5 heen ¢ happy ea for nancial institutions in genera. They're making huge me ings thanks to the peat betwee the nares ees they charge for mortgage loans and the rates they pay on stings scouts a for mora oT: ings id Since I recommended it, Germantown Savings sup 59 percent, Sovereign has deciared two 10 percent stck dividends and sso fs sp 04.5 percent, Eagle Financ hae advanced from St SIG, Glacier Bancoep has climbed over 40 pence, and People's Savings Financial i p26 percent. Bore mn Stace 28 Of my ono longshot SLs, Lawrence is up 37 percent and Fist see I up 70 percent, proving that the ikke stocks offen carry the greatest rewards, I eled CEO Leonard Wibon at Fist Essex to sc how things ate going. This the man who earlier described bis predicament as “otiom sag witha sichundred-foot fine,” tout by ne spring hed reduced the length ofthe line 10 6 fet. "Wilson reported improvements several fronts foreclosed prop" cries ae selng,nanperforming ans ste dow, andthe mortsaze market picking wp. Not only hae Fist Exex managed to break ‘ven n heise quater, actully dred fo make a new consiruction Ioan, ‘Thoggh {normally dike construction loan, the fet hat First Essex feel optimistic enoigh to make one ater having been driven close 19 the poornouse meas hat somebody thinks this region ba a futur ‘Wilson is considerably cheered by the news that Shwanut Bank, his Bgoest competitor ta the area also has recovered enough ‘ue the nancial intensive cate unit. Fis Esex sil aso book ‘ale of $7, ad the stork cling for $35. Ifthe realestate market ‘Stinues to improve, Fist Essay ould eventually ear SI share. Then the tock wil be worth $7-810. "Lawrence Saving, the ocr S&L with wars, Lcontactein Apait and again in Some. in Api, the CEO. Paul Mier, reported that even pages of nonperforming Loans had been reduced to one and ‘hat new morgage fuses was stong. He sounded optinisic. In She, he sounded discouraged, "At this pons, Lawrence sil had $55 milion i commescia real ‘xt lon outanding, and its net worth was downto $31 milion. If half ofthese commersa loans go Sou, Lawrence wil be wiped “Tiss the biggest itference between Lawrence and Fst sex, Firs Essex had $46 milion inet worth snd $86 millon ia com: ‘meri foes outstanding 20 half of its commercial oars deal, Tins sex may manage to survive, Lawrence si more precarious postion. If the recension gels worse and there is anaher wave of ‘etaus, Lawrence wll dsappeat. First Federal of Michigan ‘ix moots Inter 1 conned six of the seven SALs I poked in Baron’ soles, mostly because they'd alvady gone up in price, ‘itt 296 Poser Lynch ‘Abo, better buying opportunity had ented the picture: Fit Federal of Michigan (FFOM). PEOM was brought my attention by Dave Ellson, Fidetiy's S&L omy, during a plane ride to New York we shared back ia January. Tees 10 late fo do the homework then, 201 pat the ea aside. Pen glad Tid because while all these other SALs had ine eased in Value, FFOM hadn't budge. fal stocks weat up a the same rate here would be nothing Ltt ‘o buy and stockpickers everywhere ould be out of tusiness. For sate this noe the case These alway gga To fll back fon once you've sold @ stock that his gotten ahead of se Avo ‘uly 1982, FEOM was jus such sock This it 89 billion Simm Stewart ttt that has voided com ‘metcat ering and has minimal operating sows Iti being held ‘ek by two negative fartors: the money # borrmed fr) the Fed «al Home Loan Bank (FHI), and some unfvorae incest ae fatuces contact, ‘Mort S&Ls have benefited trom the falling interest ates in oeent year, but not FFOM. Thats because FFOM financed its operations in part with loans ftom FHLB, and these loans cary’ fed rate FROM must continue to pay FHLB 510 percent through 1094, ‘whee allthis high-priced paper comes duc. Meanie is own borrowers ae refinancing their morgagce a lover and ler Tas ‘This has pot the squeeze on FFOM, ‘When sou own merizages that py you $10 per cent, and you've borrowed money atthe sane lve of nterest you wont mae mach ‘ot prot. This x poi ul esson that FFOM has o learn, Is ‘operations in general are proftabe, but the FHLB "block of gran. 1te" has bee holding down the eacings “This unfortunate situation wil everett once the FHLB debt 1 feted and the interet rate futures contacts expire. "Then FFOM scaring will explode. The esaluton ofthese two pens bs the potential fading more than $2 share toeamings in 994 56, On curtent earings of 32 ashare, this ist S12 sock, so imagine ‘what wll appen f the company eons SH Moreover, FPOM has « book vnc of moe than $26 shat, Back in 198, it was #touch-and go operation with efor ‘uel rtio ofonly 3.81, Since then, it hascrossed the mage thes ‘id of 5 Iecinstated the ode ad in eal 1992 und then prose to ase it Is nonpeorming ous are les than | percent of assets, ‘Bearso'me Sacer 297 It stor-erm rates continue to doting, the stock might well all tek 1, but ivestors io know the sory wil be prepared Wo ay ‘ton the way down, There's no coverage from the maj broke rte homes COLONIAL GROUP [An are bho in The Wat Set ounalon fe 30 reminded {ne tht blo of dlls were pouting ito the bounds The Colona Group species in bond funds partly he ces ‘pt ard tal many WS. goverotent fund, wich joy Stuesread propor thee dane Only 9 perce ofthe ney omen men nck fr ene Dea mah ‘many people nom pric, vestors bo ae sca oa of stocks ‘Tree nt Gon fds and Coon Group wl bene een Ibove potable than ead ‘Davey Scoon the esse, lls ett sale of Colonia Group fun te up 58 percent Inthe scent are. now manages 9.8 ‘hon worl of uss oppncl othe $9: allow tana a eae corer Tere 4 share inch, withthe stock nw sling fora $20, Sarating the cash, this becomes S16 stn empany tats eect fo carn aan $1.80 1982. To 9 Yo {be good sows, te company hs announted S10 millon sok beech CMS ENERGY Sereees cemoat ower tase aaen Scere fees fy ote ee oa eee eee eae noe 208 Per Lynch in advance wo respond to sucha drop by buying more shares is best aot omn CMS darag thin uncertain sage Inthe Tong run, Tm convinced CMS wil do well, The company ts making plenty of money, and its exces cosh flow eventually Feadto higher earings. Everay demand growing inthe Midwest and few fay new plants ae Being bul to mect i. With eded Soppy an incest dean, you ko wh wi happen 0 ce tet prices ‘As with several other socks on our Fst, the pric of Sun TV moved higher at firs, and then seta eck to helo where I rvomae ded it Tealled Bob Oyster, the CEO, on June S. He reminded me that ‘Sun TY tas only $4 milion in total deb. "Thi i 4 ve) slong company, and its weaker competitors continue to cappes. Since Janiary, one competi has eesed al hs stores he Ohio aes, lng another has gone completely oa of Busines Sun TV making mone inspite of the ressson. It might hive ‘made mote excep tht cold weather athe spring amd erly unmet hurt sr coadiioner sles. People who are freezing do aot bu it cendoner Bu hey aes ing religrton atd kwon sets, and Sun TV is sticking plan fo open four tose new sores saa 3s plan To open so Mr, Oyster noted that Sun TV has the wherewithal to pay for seweral yeas’ worth of expansion without selling more sock oF aking 08 more dt ‘THE MASTER LIMITED PARTNERSHIPS: SUN DISTRIBUTORS, TENERA. Lou Cissone, Sun's vice-president of finance, went dom the Ut of the various divisions. Hs report sounded so pessimist that Ios surprised the company a a whole hada profiable fst quater, The big issue isl the debt, $22 milion of whichis dat in February 198, Sun has been prepsting for ths payment the some way you and I would—cuting eos and repressing the stint to go shop. Beare nie Sess 299 ping. Sun continued to esi from making any new aequsitons. ‘Ths wat too bad, according to Cssone, because many companies fn Sun’ line of isines sass, hydra, and avo pats--could be Bought at hargin prices “The story here a: yOu may reals that the Cts A shareholders got back S10’ share tm 1997, ereas the Clas B shareholders get {he remaining asics. Ifthe economy improves, 1 gure thatthe ‘Ges H sara could be worth $58 spits nthe current urket they continue to sll for $3. "Meni, I remind mel hat Ifthe esonoms gots worse, Sun «an easily sll off ay numberof ts previous acquired divisions to Fase the cash to covert debt payments. These vluable franchises ve the company some esate protection "Tenera, the nuclear eoasuling rm in distress another vies ‘of good news. The company announced two new Sntrcts, one with ‘Martin Marista and one with Commonwealth alunn, the lgest ‘operator of naceat power plans inthe U.S. This prened that Te ‘eras consiting busin tl ablo—otherwise, wi would Mor {in Marietta snd Commonwealth Essom be wasting ie ith hese people? Then the company announced it wis close to a settlement Sta clas action suit, which i going to os ess than some investors had feared, and ontop ofthat it broke even nthe st quarter. The sock responied by going nowhere Tremetter what attract me to nera inthe fist place—the company had no debe and valuible conn busines, oven "hough the software dvson was in samen ad the tock was 82 1 enera can make just $40 milion in anual revenues, which seems ‘more likey now thn tdi n Jonsry he company cold arm 0 ‘ess share, Tis slong sho for whic the story fgeting beter fd the pice has stayed the same, Tht puts stom the Buy list Cedar Fair | ant review one or two master iit partnerships without check fng in oma few ofthe others thi T have owed ad esommen ded inthe past The high eke nd the tas advantages make th 9 very attractive group. ‘This time, ITound two more to elevate tothe ty tet Cedar Ft and Unimat. ‘Cea Fair ran the Cedar Point amsement pas onthe shores of Lake re, My family and I go there 1 ride the roller coasexs in corly August. This is my aril summer rexeareh, Cedar Fit his just made a9 Important smmounetient: iis 9c quiring Dorney Park big amement place outside of Alletows, find aoher place to-do summer research. This company hast adopted the stock symbol FUN for nothing. ‘Wat stopped me rom recommending Cada Fair athe beginning ‘of 1992 was that T could tase lw the company was ging to boost its ermings. The Dozney Park acyotstion isthe ansnet. Cea Fit snl take over Dooney Park ad new rds, me the proven Cat Fle techlguos to atast more estomers, nd cut costs, ‘Whereas 4-5 milion people ine within diving distance of Cedar Point on Lake Ere, 20min can reach Dorney Pak in les han three hours The Cedar air people arent exsetly aequstion bapps—this i the second they ve made in 2 year. The ma looks very avrable, “The purchase price for Dosey 1s $48 milion. Since Dovacy exned nearly St lion in he prio year, the ple ofthe acgusion i T2- ‘Cedar Fair is not paying all Cash tis ping $27 milion in cab, financed by deb, ant the balance ina mln Cedar Flr shares, 19 to vento the onners of Dorney Park. Hew's how f analyze the deal, Cedar Far was earning S180 4 shure prior to dhe purchase Wit 4 milion new shresom the BOOKS, it wil have to cote up wich an exe SL mailon in earnings fo maintain the satus quo. It will sso have to pay $17 millon in interes onthe $27 elon it borrowed to mike the atstion. ‘Whete will Cedar Fi et this $3.5 milion a extra earings his interes payments? From Dorney Pak’ estimated $6 milion annual ‘atnings: Othe fe of i this deal adds to Coda F's eating. ‘80 wht happened whea the Dorey Park sale we annonce? ‘Cedar Pars tock did't budge from $19 for weeks. You don't ave to ean insider fo get inom this deal. You can read about itn the rewspaper, take your time soassing the situation, and ill buy ‘Cedar ar sock al prea! prise, Unimar Unimar has no employees. The payroll nonexistent. Thi is a holding company with simple job clleesing the proceeds fom the sale of guid natural gas that comes rtm Indonesia, These proceed re cist quartet to shasholens a big vid, ‘hc eens Ben nang a nie 20 prceot a ear in thet guvtr of 199, the contact ht Uni has with Indonesia ol and ps producers wil eae, andthe stock wil Be ‘ont Thins rae agin the how much gun ean be traci om sid, aoe tany vide wil be pal ort remain si and thal oars Bor the contract rs ot ‘et wet th, Uninar sock meting Tor 86 1 by 199 the shareholder rscves $6 worth of divdonds, then Uninar hs aot ‘een much of an smestment fhe or she rece woth of Alvidepds, wl be deen vemeot, anda $12 bn aed Unimar bein opt eig Thea the viend depend on wo fats how moh oa 28 Unimar cn exmet trom the Indonen felt oct te emp has expanded the utp, whi so the racers St tock) and ot wht pre canal the gio tnd Dros go up, Uninar’ payout anes upif pees delin, 50 dows Te pop Umar offers imestrs chance to profi om a fru isons int pes ond reve a handume dens so the wey TNS tet Buying an eft, whi am expe aod more ngs ge FANNIE MAE Anoxter bobble in the stuck price gies imestrs the umptcenth ‘hance topic up shares inthis remarkable company a out. The stock as allen tothe ink- $5 because legation favorable 19 Fannie Ma bis stalled im Congress, Meuse, the company has enjoyed good fst quarts and & ‘good second quarter andthe mortgage-backed securities porloko he gown fo S47 ion, Inthe mit homing recession, Fannie ‘Macs loan delinquencies are'3 mingscsle ax tenths of 1 perce, half the level of ne years carer The company wil arn $0 193 1d $675 993: cs maining its double-digit growth at, and sill was selling at «ple of 10. Teale Janet Point, eomporate spokesperson, on June 23,1992, to get the scoop on this stalled leisation. She asses me i's 8 ‘onevent. A bl at defines the roles of Fnnie Mae, Mee Mac, MO Pee Lynch te, is alinot sre to pet through Congress, but whether it does or ‘does’ io tle consequence 0 Fannie Nao, which ea get slong perfectly wl without ALLIED CAPITAL IL “These are the paople who make venture capital loans in return for Stake in dhe companies that borrow the money. What atacted me to Allied Capital I was its plan to acquie some of the better ans that oxginally were mae by fale SEL. These loaas were being auctioned off by Resolution Trust often ut s discount Sine I recommended Allied Capt Il, 49 eatiely new Aiea fu, Allied Capital Commercial, fas becn launched to puree alferent types of loans. There ae now five fonds in the Allied {amy Tas proliferation has geen we interested in Allied Capital ‘Advisors, separate company that gets the management fees from the other Aled ventures. Alled Capital Advisors is also pubily leaded, and ths is where dhe execuives who have created the fe und wl rep dei ewan ‘THE CYCLICALS: PHELPS DODGE AND GENERAL ‘MoroRS, You can't hold on to eyeiastock the wy you hold on treater in the mit of expansion. Phelps Dodge Was up SO percent in ix months. Tis une ofthe biggest winner of my 21 selections, bat T fear that athe easy money his already been mae. Rewas extremely sheapat the Begining of 1992, bse 1692 earings, otis future Prosperity depends on what happens to copper prises in 1933 Talked te Doug Yeatly the CEO, who noted that asthe price ofthe stock ose, the Wall Steet amass increased their earnings ‘estimates fo the compary. This san example of toring the mess tothe ends, Since oabody can predit whether copper peices wil | higher or lowe, might well be soottayers who ae making the estimates. Twonkint be buying Phelps Dodge ot this price. Ta rather be puting my money into Pier 1, Sun TY, or Fst Federal of Michigan. Genecal Motors advanced 37 percent rom the January price, hen Doxrwe-ra Sacer 3b began sing up part ofthe gain. With cr sls sil several mlion ‘under tend, foresee some good yeas ahead forthe autos. Demand ‘ugh to be bigh, and the Tver colar td the problems in Japan srl elp the U'S automakers win hick alayger shat ofthe math ike GM and For, bul my epost recat inguiies have conence sme to put Chrysler tack onthe op of my Ist doing ths in spite Sf the fact that Chrysier= sock ready doubled in pice in 1992, Seeding he te oars Tam sd by "jest sock because the price has doubted riphed, or even quadrupled inthe recent pst canbe aig mistake Whether milion itsestors mad or lot money on Chrsler fst moath has ao bearing fn what wll happen next month Ite Ho tteat cach otal it testmcat a i had 0 Wslory—the “be here no” approach Whatever occurred caer i relevant. ‘The important thing is wheter the sock cheap or expensive today at $21-$22, based on ie earnings potent of $5 to $7 share ‘On tit sore, the Ines nes fom Chrysler was exciting. While this company tis Boon skating om the edge of bankroptc, it has ‘managed to amase $3. blon in cash, enough to payoffs Tong team debt of $53.7 billion. The Chrys nancial criss new ver fated. With the company in Beer shape than before, is nance futidiary, Chrysler Financial, will be able to borrow money st ‘lecent tes Thin wil prone Chester’ earings. “The revamped Jeep Cherokee i so popular that Chrysler hes no taouble sling i without the Tete, The compuny makes several thousund dollars on each Jeep aa ho oa cach miivan. These two predvets lone bring ip $4 bli a yea ina dificult ea math. The F300 fallsized pickup, which car buts are ealling the “oft the oad BMW,” ges Chrys is st stone challenge nthe track market, where Fors and GM have made thei bigest profits. Cys Ter never had a fllazed tock belore. Is medioere salar lines, the Sundance and Shadow, are being phased out. It ha introduced the st realy new basi car design in decade, the LH system, “The LH cars—Eagle Vision, Chrysler Concorde, and Plymouth Inirepd—are all priced igh enough to return a decent prof, If they turn out to be as popular asthe Saturn ofthe Tauras have been, they wil havea huge impact on Chrysler's earings IF aything holds Crysler hock, 3 tho mullons of shares the ‘sompoy hash 0 sell reo yas to ase eas. Tn 1986, here SH Peer yh ‘sere 217 million shares oustanding: now ther are 340 milion, But IE Chrysler lives up to 18 promise, the hie casings in 1993-95 willbe move than enough toed the burden of extra sates 1 was back on “Wall Street Weok with Louis Rukescr in Sep ‘ember This mas the Ith ansiversey of my inital appearance on that show, and another chance 1oreormment a nex posel of stocks {id several wecks of homework, jst Ido for Boron, ad was ready to share the results with Lot's millions of viewers ‘On “Wall Street Week” you have ao ie wt they e going to 4s, and you havea limited time to respond. Hibeylet me, could {0 on foram entire Rall hour wih my atest pieks, the sobs way ‘ramdparens goon abou her grandciren. Awit mas, spent so Imoch tive struggling to pronounce Aw Bon Pan that I ditt pet to mention Fannie Mae, or First Federal of Mish, or set other of my favorite Sis managed to gon 9 good word about Ford ad also Chrysler ‘stock I ecommended the rst time Las on Wall Sree Weck spsist the advice’ of several colleagues. T gues we've come fll cite 25 GOLDEN RULES fore tar off my word processor, Tea resist tis ast chance to summarize the most dnportant lessons Pe Teaned trom two ‘decades of esting, many of which bave been discussed this book flere Thin my version of the St. Agnes good bye chorus + Imvetng is fun, exciting, and dangerous if you don't do ny vor + Your investors esis pot something you get fom Wal Stest exports Ie something you already ave. You can outperform the experts if you use your edge By imestng in companies or industries sow already understand + Over the past thre decades, the stk market as come to be dominated by herd of profesional ivestors. Conary to popular hele this makes it cater forthe amateur investor. You ean best ‘the market by ignoring the her 1 Hind every stock 9 compan: Find out what ts doing. + ft, there fs no coreation between the suecess of a com puny’ operations and he succes of stock otra few months or then fw eas nth long ter, there #100 percent coneation between the ssc ofthe company and the sbcess of it oc, “This dapat the hey 10 making money, it pays tobe patient, si to own sass companies. + You have to know whet you own, an why yo oom it “This baby ea cnc fo go up!” docs’ count, + Lng sors almost stays miss the mak + Owning stocks is heaving cildrer—don' get ivoved With 36 Peer Lym ‘more than you cam handle, The pareaime stackicher probably hos time to follow 8-12 companies, and to buy and sel shares a co Glitions warrant. There deat have to Be more than 5 somos fa ‘he porto a ay one tine + Ifyou cant find any companies that you think are attract, put your money inthe hank unt you disover some, + Never snes n company without understanding is finances, “The bguestosses in stocks come hom companies with poor balance sheets. Always Took atthe alae sheet to sce fa cOmpay Seltent before you risk your money on + Avoid hot socks ia hot industries. Great companies in cold, ongrawth indostis re consistent big winner + With small companies, you're bottr off to wait un they tura «profit before you imest + If you'e thinking about investing in a woubled industry, buy ‘he companies with staying power. Also, wat for tbe industry Show sighs of revival. Bugay whips snd tao tabes were troubled Industries that acter eame back, + you imvest $1.00 in a stock, you can ose i $9,000, but sou stand toga 10,00 or even S59,9N overtime if yout pti ‘The average person can concettate ova fe gos compas, ile the und managers forced o diver By owning toa many socks, yo lose this advantage of eoncerzation. Tomy tas 4 hand of ig winners make & fete of ivesting wortheile + Inevery indus and every region ofthe county, the observant amateur can find pret growth companice long here the profes: ‘Sonal hive dncovere them +8 stockmatkot dectine 38 routine a8 a January blzznd in ‘Colorado. If you're prepared cant Burt you A deine is reat ‘epportaniy to pick up the bargains let behind by tnestors who are Aesing the storm in pac. + Beryone has the brainporer to make money in stocks, Not ceveryonc an the stomach Ifyoa are sisceptibl toselingeverything ina pani, you ought to avoid stooks and stock mua funds sltogether, + There isatmayssomething to woery about, Avoid weekend think ‘Busse mee Sse $07 Ing and ignore the nest ie predictions ofthe newscaters, Sell & Stock bscauve te company’s fandumeats deteriorate, not because the sky sain, + Nobex can predict intrest rates, the future direction ofthe ccamomy, of the stack marke, Dismissal such Zoreciss and con- entate om what's actly happening 1 te companies in which sou've invested, + IF yoo study 10 companies, yout ind 1 for which the story is ‘beter han expected 1 ou stad #0, you find 5. There ae aways plessint surprises to he found in the stock mérket—companies Irhowe sebicements are beng overlooked on Wall Sze, + 1f yon dont stu any companies, you have the same success beyng ecko don poker game fou bet aot aking + Time som your side when you own shares of superior comps nis, You can uford to be paenteven i you mise Wal Matt in the fictive yea wes gest tock to own i he ext ie yeas “Time is agiost ou when yoa own options + ff yow ave the stomach for stoeks, but nether he tme nor the inclnaion odo the homes, vest equ tnutual funds. Here, its. good idea to chery. You should own a few diferent kinds ‘Of fants, with managers who pursue diferent styles of ives frowth, luc, sal companies large companies, ef. Lnesting m Sc of the same kind of fund is not dvesifeston. “The capital gons tx penlizasinvestos who do to much wit ing from one mutual fund to another. I you ¥e ives in one Tad for several funds that have done web, don't abandon them eapt- ‘Susy Stik wih hem. + Among the major stock markers ofthe world, the U.S. marke ranks eighth in taal return over the past decade. You cam take ‘ndvantage of the faster sromingesonoras by investing some portion ‘Of your sets in an orercas fund with a good record + Inthe Jong run, «portfolio of wechosen stocks anor equity mots funds wil vars oatporform a portfolio of bonds oF & tmoney-mathet acount nthe long run, & portale of port chosen Socks won't outperform te money Het under de matress. POSTSCRIPT Stoskpicking fs « dynamic exec, an ft has happened sce "ney selections forthe 1992 Rarrn’s Round a sesh inthe otegong ex. Fr starters, Ipuipatedin the 1995 Barron Rouniatie by sectng snow op of oct ining eight pester fom ie 1992 Rounoiabie By he ne you read i $ieay hae done ny resareh for 14 My outa aimayn the sme T seach for componics that are undervalued, and T wal Sd them scr o nate at fe out of favor Fortwo sear ruoning oud no bans among the buch growin stock,» gro ta indudes Meet” Aout Labs, Wal Mat, and Procter & Gombe: Ths por performance of these popular foe spo that the chattseodng ecg de, Sib om poge 182 ably works, Dy looking atthe longer has ofthese companies in 19.- 42, jou would ave seen that thse stock pics ad sec fr ‘jo thlr ene.» ange ipa hat fod ato bac ofr seh ra the Merci, Wal Mara aa grow companies that wete the sar pertnmers ofthe hte 1 but ity hae ioe ‘Whenever popular sock fers big drop in price, espe {stock tars widely bed by pension anand mutual fans, Wa Steet has to make op a reson forte Jie tha pet he fo ‘anaes of the hook for owning, Recenly mew heard athe Sr tomy socks del Beease Wal Sect as Nero bout the Clinton heath plan, and Coce-Ce decned because inestors were worried aboot the fect stung dolar on Cove Cols amin and Home Depot doce boca of sggsiness in the housing mare. Ths real fesnon hee socks deed a they had gen tenilyecipie eae to cue! eaengy Powerit 38 ‘Wat usualy happens vo an overpriced bive-chip growth stock i tha the stock piel aor move sides fr couple of eas {the corporate crsng continue to grow as ua and evenly the pretty earings vl come ack it alee. When a ecu the pce ine andthe camming nel orgs 0 the har ste} for Abbot Labi it 1983 (Se the station mpage 144) Perape thee shp growth sector bas ho ts cor ‘felon and some of thee Mocks cane recmmensed n 198-35. inmy capaci, he pe ofastock the" inthe le cqtain, cannot fon far aha ofthe earings, the "ne ema, ‘oout something hing 1 Eve "While some ofthe larger growth stooks were bid up to high and thon stumbled, many bee sould stl ound among the sealer {owth teks The Now Horio nestor dese oo pages 66- ras continued som the sale stocks the tom ot Bor ‘ie tage tle to te SAP 50 Se the carton page 66) AS Tonga the sal spans remain cheap compared to thei are ounterprt there good chance they wil outperform the get ‘hmpancs atest anil se New Hortons net as 01h "Ahother intresting descent in 19 was tht the mal ga twcins ha rved to te point tha eneay an energy Sree Compares ould do well. These soto enerpises bad been he ‘furoms fora log a col emenber, bu eas of cocaine Sl comoldatng and shutting down the dling rg ad produced £roming stuton forthe suse "The risreward rato as excellon in thoxe companies. Many 2 tual gs stock hn boon hed so thooushy that they ould Rovly be ean down uch fre, and the es ee nore that ramet tein woul re an thine. So I vocommendat Oe nergy companies Yo 199 two sere companies and tee asd on the pentup demand indicator describe on pages 241- 2, Tako thou tet the st indy wool ell more ees ad tracks than a tof people were predicting. Aer a down sy ia thos, fe noumaly takes ve to euro an up eye before the penrup dopant sate, and we wee entering on the id Fearof th tat pple. Wh that a mind ecommendes tree {Rtomakers pla Harman International, which suppes car treo uipment othe somber “Siaimy csunons with asus salts and alo with executives ‘Te PS. LYNCH 193 RaRROWS PORTTOLIO Posserph 301 Tia Caper Se "i ee ae Pe Tie Tite ibs of vais companies hat by and sl sl 1 ese that tl pon nea ame pris wore safng brn Mote, ihe US. sacle were SSR ANE ee eee arta Bh Siposing the govetaent ote aon Yo rte heaps Is SHE AMS een in ES we “Rim cheap stl ty fori prods in ovr mates (As fn Apanetrpssn ab 8 88 iru ut, they GR et he peeton they wae) Twat 3 Ate Sh Be ‘arnt seco ld ad netfee pant Eup, te EN emencan ae thy win for dans were run h masse ginetamen ube Brio Sut h7e e a $8 ee Tow inner to gr tm of thowandy of woes unproductive oT Betas we a2 38 ‘Ri, wou be cd, Pratton wow cera th ces ee HS RS 28 Sn farther, os woot be bls forse pss wore. 1 Ge Cae ee ae oa ae ae ded up recomeating ice eel emp ud aoe tal Betsy ea ma ea ie ie compan el BNE” Bor SheThuts net ne 8 ‘my 19 Boro’ licap was Bea on he eel, hgh Poe Rete Copa Se ak 1 eo it tea of Bee es a How fmict\etiee Gace cae hat you've supposed to buyin the early slags of an economic Fort Sorts paca sees I fi heed tal he pais ad nes | Pe Cony an & Imes te bet hr mere a cea an tat ere So Sowa Cane Sa Sa Siang evon hee is Sh Sa Cope AS ie “Te soven SLs {oconmend in 192 all mod up. In 193, ety Seutcn he ie {rceonnended tight eon f conus fo be and a bs fe" She iy, a io a performance o then prop—doublen, triples onde a A estate ae ue a8 irom toes that hve ome Pole sce 191 and hard do ARE Hon nace oo ae inthe bane Ube ns Seat ia Many ofthe S&L i sen done wl fo several yess 20 this Me st i ia ae ‘spot asain i uch you ave eget in and get ut A tere Se Mee ene tres et opporunin ss Tm wing ees aot? BE Som ig tn Ses fart of the mart whet so any sod facies te sling for Dine oenncpcem 22 oe ech bok vac and bave good emg ron, wi te ki EN Roan tiany Be og nod tht ome or he upto by kage tan or St Sates ae, ar os Skbsare penium, Chnert dacoered Ste ea ae “Te conentonl wory on Wa Sec that he SAL pry wil Gs Senet 22 2 come to an abrupt end as 3008 as the econoayy gets moving and fr Bret ed Interest rates begin to rise, thus wiping out the profits that SLs {en rot at Rae $e ting on rad fate “re eso awe Sitges A ey seed ecnony wih deg non a NES ie new burt the SLs, but an economy that lopes along aa reasonable pce would “14 wy V8 ig a A ee in fac, S&Ls wl benefit fam a sendy enone mprve eo te et a sate ime case ns bee vests mona hey on eo hel foes ra state more quick an Nh ped ty 312 Paster wil ster fener desis and dlingwencies and thas fewor new foresloaree Tas wil stenathen thir balance shes nd Boos thar carsngs, Beets hey won't hae ost aide as mich money {0 cover thet an Tones. Alo, the economy improves, se thot can ies ther ending to creditworthy boners, which intro al ad to thle caring powen Fay, {toga Uo take a ners Caioroia companies 1983 Ths econ Calon mos in deep rece andthe Dyess reports were 50 negative Jou would have thought the ete ave wat going ot of buses. New Ealing, my own ome ee, sas in pechely he sume predicament i 1980, tad the heads Sere usta ovary, but you sanaged to gre te heads tad bay sharsin depres New England companies, parca tanks fd S&Ls bot aly ew retaler youre Been well ewatded to ate “king the optimistic tht California would smchow susie in recesion the way we New Englanders have saried om (0, sre ¥e done it with Jo growth), put thee Calor company Seay 5 tame CS: Phan son & Co. the nt’ arg it olds company ad the Gees! Guy, ine,» seal chin tht sls TVs, stereos, and tiated cestromie devices Tao recommended Fie Mo, fongte favorite company, whieh owns and packages morigages Ii tock price mus dpreaed boston 25 percent of te Mogae ate writ on Calor cleat “THE 24. MONTH CHECKUP. “oe scmomthetecup ofthe Lynch porio that appear on ge 284-208, we can tow add the 2eonth checkape With so fh tenon gv 1 the apa downs of sock pies easy to forget that oming a socks owning» pose of «company. You sould cw a renal butding without checking every onc i 4 Sl ose th the uns re well malnaned td the plas tat Iling spar, and tewise, when you oma a ceo compary Sou thant sy in tune ad nati for ew development ‘After dingy lass fon of homework on the companies

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