The following is
the text of an interview with The Wall Street Transcript conducted on October
8, 2001
NEW:
Read the January 27th
'03 WST Interview!
Or:
The
February, '03 Charleston Regional Business Journal Interview.
TWST: Could you just give
us a brief description of Sanco Services and your responsibilities there?
Mr. Selengut:
Sanco Services is a small and private (unaffiliated
with any Wall Street firm) Investment Management firm. I own the company and
manage roughly $30 million for 70-75 clients. I only invest in individual equity
securities, no open end Mutual Funds of any kind. Fixed income securities
include individual preferred stocks, corporate bond unit trusts, closed end
municipal bond funds, Government securities, etc. Every account is different
from every other. Each client account has its own set of goals and objectives,
and its own asset allocation; no two accounts are identical, although many will
own the same issues.
For
equity investments, I deal exclusively with New York Stock Exchange companies
that are B+ or better rated by Standard & Poor’s (investment grade), held
by major institutions, and dividend paying. Those are the quality guidelines and
they never vary. Client requests to do other things are discussed and rejected
nearly 100% of the time. Every portfolio is diversified; no equity (or fixed
income) position will exceed 5% of the portfolio assets.
TWST: What are the
specific characteristics that you look for in potential investments?
Mr. Selengut:
They are quality, as measured by S&P, their ability to pay their
debts, their profitability, and the fact that they pay a dividend. And that’s
pretty much it. If they meet the selection criteria to get into what I call the
“Selection Universe” (i.e., the list of stocks that I choose
from), I then look for their price movement to determine when I’m going to buy
them. I only buy stocks that are down from their 12-month highs. They must be
down at least 20% before I’ll even look at them, and at that point I create a
list of 10 that I feel are the “best buys” for me that day.
Now what determines the best buy for me at
6:00 AM is a little bit unusual, totally not mainstream. I’m not interested in
a “story”, or “news”, or someone’s opinion of management. No creative
research or technical analysis either. It’s not any of these popular Wall
Street “givens” that people use for their more educated guesswork! A stock
is a “best buy” for me if I’ve been able to turn it over rapidly in the
past with an acceptable profit. I’m looking to, like I said; buy a stock
that’s down at least 20% from its high, with the intention of selling it as
soon as I can net 10%. No buts, no outside opinions, and no greed allowed! So,
in nearly any market environment, I’ll be buying and selling the same stocks
over and over again. I’ll be taking profits when other people are just
starting to feel comfortable about getting back into the market, and I’ll be
buying when they panic or react to temporary bad news on one of “my”
companies.
Just over the past week or ten days, for
example, I was in and out of Chubb for a quick 10% profit. The same was
true with Nucor, Exxon-Mobil and Nike recently. But this is going
on all the time. “Instant Winners” are so much fun, but you’ll never do it
if you get bogged down in research, timing, and analysis of any kind.
Disciplined decision making is the key element for success in the market.
TWST: What are the
specific benefits and risks of investing in this way?
Mr. Selengut: Well, the benefits are so, so many. For one, you never get
caught with your chips on the table as nearly all private investors and Mutual
Fund managers did in 2000. Most investment strategies say: “We’ll, buy this,
and hold on to it, or keep adding to it through dividend reinvestment”. Others
specify “core holdings” that
you should go to your grave with. I don’t believe any of that is true. I
don’t have any stock that I consider a long-term hold, although some hang on
longer than I would like. I don’t buy anything unless I intend to sell it as
soon as I can.
Another
benefit is that you don’t wind up (as many pre-retirement portfolios do) with
an impressive bottom line value in non-income-bearing securities and a huge tax
burden when they have to be translated into a retirement portfolio. When a
client brags: “Hey, I’ve got a million-dollar portfolio, now I can retire
and live off my income.” Does he really have a “useable” million bucks?
Not necessarily, because now that wonderful Microsoft has to be sold and Uncle
Sam gets his cut first! So if you have Exxon sitting in there at an
$11.25 cost basis, you are going to pay a lot of taxes when you really
shouldn’t have to. So I think this is (ironically) a credible long-term
strategy for retirement, even though it thrives on short-term trading. At
retirement age, you’ve already paid your taxes. In other words, you’ve paid
your dues, the money is all yours, you have a proper asset allocation where you
have income coming into your portfolio already and you can pick and choose what
you need to sell to increase your income if you need to increase your income.
I
like to bring my clients into retirement where they don’t have to change a
thing. They’ve already got the cash flow that they thought they would need,
and they’ve got a growth portion of their portfolio that will continue to
generate money. This isn’t anything new; it’s just not exciting enough to be
“sold” by The Street.
TWST: And how would you
expect the portfolios to perform in both up and down markets?
Mr. Selengut:
In up and down markets, again, it’s a matter of definition. We had what
the world liked to call an up market, two-and-a-half to three years ago. It
really wasn’t at all if you look at meaningful (non index or average) numbers.
There were twice as many losers as there were gainers on the New York Stock
Exchange during that time period. The S & P increase was based on the
movement of less than 15 stocks, and so on. But all the speculation, all the
fever that Wall Street generated at the time, put people into very speculative
positions and they just kept buying, and buying, and buying in these stocks that
really didn’t have any intrinsic value. Then the “pigs” got slaughtered,
as they always do. Well, the value sector went down during that period of time
and it was a down market for them. But starting in March of 2000 that sector of
the market, the market that I invest in, went crazy.
My
portfolios were up in value by 22% in 2000, supposedly one of the worst bear
markets in history. This year, through the end of August, I didn’t have one
account that was down in value. And again, the media has dubbed 2001 as a
continuation of a bad market. So, you know, it’s a matter of definition. Wall
Street likes to see indexes go up, and they manipulate them to make it happen; I
like to see individual stocks go up, and that is a function of an investment
strategy as opposed to a search for the holy grail!
TWST: How much of your
research is generated internally versus externally?
Mr. Selengut:
100%. Research that is produced outside is self-serving sales propaganda.
I’ve always thought that it is useless. There was an article recently in Vanity
Fair, of all places; an expose’ on analysts and their recommendations. A
“must read”! I quoted in a book I wrote recently (looking for a publisher)
in a section that addressed research and research analysts, the paid
representatives of houses on the Street. Individual investors must learn that
Conflicts of Interest are part of the Wall Street landscape. I think research is
the rationalization of the speculator, and securities marketing managers know
this all too well. “OK, here’s something we’re bringing public, now
let’s make up a story why the investor should buy it. Then we’ll give our
best retail brokers a trip to Hawaii for selling it.” I don’t look to
research produced by any source.
What
I look for again is just those basic fundamental numbers that tell me a company
is profitable. And unless I see those ratings erode, I expect it to continue to
be profitable, naturally, in what I’m interested in. I’m not interested in
stories, particularly new issues. Now there’s a real crapshoot! Research
stories are not for investors you know, and most people aren’t really
investors at all. They’re just speculators out there looking for a hit. It’s
treated the same way as a roulette wheel, a gambling casino. I don’t approach
the stock market that way at all. Too bad brokerage firms don’t treat losers
as well as the casinos do. After all, the businesses have become quite similar.
TWST: You had mentioned
diversification, but what other means do you evaluate and control investment
risk?
Mr. Selengut:
An emphasis on quality in a selection process that includes strict
diversification rules is the key risk control mechanism. Control is a management
term, and I think you’ve used it properly. You can’t eliminate risk and
still be investing, but you certainly must minimize it. The way you minimize it
is with the three key elements I’ve mentioned. The first factor most people
would mention is diversification, and I mean diversification by industry, by
position size and age, and between Equity and Fixed Income securities. But a
diversified portfolio of junk bonds is still junk, and a portfolio full of story
stocks is just another hand of stud.
The
absolute best way to minimize risk is to maintain the quality level of the
portfolio. Finally, I also consider the generation of income by a security a
factor in minimizing risk. And generally, I would say that’s it. I think the
concept of trading equities, of taking profits, is a risk “minimizer” as
well because what is risk after all? Eventually, most securities are going to go
down in price, a) because they become overpriced because of various stories and
then those expectations don’t pan out; or b) something happens that prompts
Wall Street to say: “Oh, well, the retail stocks are all going to go down for
this or that reason” and the whole group gets weak.
For
whatever reason, real or contrived, stock prices do fluctuate. And if you are
trading with a managed and disciplined approach that includes taking your
profits “when you see the whites of their eyes”, that’s risk minimization.
You don’t want to wind up holding something that’s overpriced. Take your
profits and find something else to invest in that has not yet gone up in price.
TWST: How many issues are
typically held in your portfolios?
Mr. Selengut: The
largest portfolios, over a million dollars or so, and even a million just in the
equity portion of a portfolio, would probably have a maximum of 40 different
positions. The smaller portfolios probably would have 20 or less. It varies.
But, generally, I would say, that it wouldn’t go beyond 40 at any time.
TWST: Do you have a
sector and geographic allocation process, or is it specifically bottom-up
companies?
Mr. Selengut:
In the sense of the sector, the way I see the stock market working,
it’s very much of a “group” market. If one sector gets weak, my buy list
will probably contain many stocks in that sector. In other words, when the
retailers are going down, I’ll wind up buying Wal-Mart, Home Depot,
Lowe’s, and May Department Stores, among others; similar
companies for different clients, with control of the overall allocation to the
sector. Strong sectors, conversely, disappear from my portfolios as a result of
profit taking. And then, all of a sudden, they (the retail sector) will get
strong again and none of them will appear on my buy list until the next cycle.
They may well be replaced on my list with drug companies, banks, insurers, etc.
So, although I don’t actually make it a point to look at sectors, I do
find myself looking at companies in the same sector because of what the market
is doing.
TWST: What are some of
your recent buys? Some new opportunities that you have identified and what are
the reasons?
Mr.
Selengut: My buy list today, for example, contains a pretty diverse
group of companies, Air Products and Chemicals, Bell South, Clorox,
Coca-Cola, Franklin Resources, IDEX Corp., ITW, TRW Corporation, Lennar,
and Roper. There’s not a whole lot of sector similarity there, which
tells me (something that has been pretty apparent, I would say, since September
11th ) that pretty much all companies
are “down” except defense contractors. I had Raytheon, I think, for a
total two days before I took my profits on it. So generally, through September,
most of the good quality companies, were down and I was buying as many of them
as I possibly could. I filled up my portfolios pretty much during the month of
September. And during October, so far, I’ve already been able to take a lot of
profits. For example: MBNA CORP, ALLSTATE, BRISTOL MEYERS, ROYAL DUTCH,
CITIGROUP, HARLEY DAVIDSON, and several more. Actually, I’ve taken profits on
over 120 different companies this year, which is just a hair better than usual.
I
know you’re going to ask why I sell such great companies when they are just
starting to move back up. I sell out of “love”, not of the companies, but of
profits! I hate to see a profit disappear because someone has greedily looked to
make even more. I establish trading targets and stick to them
TWST:
How do you determine if these companies have just gone down for valuation
reasons rather than underlying fundamentals?
Mr.
Selengut: Well the fundamentals are pretty well reported in the S&P
Guide weekly. I mean, you could look in the S&P Guide and each month they
tell you if a stock has fallen in rating. It can also get a pretty quick clue if
you hear about changes in their dividend policy. So those are the things that I
look for to determine if it’s no longer an investment grade security. Frankly,
when you see companies like Illinois Tool, or Clorox, or one of
those companies, when they are falling in price, it’s really very rare that
you see it accompanied by a change in the S&P quality rating. In fact, back
in 1987, and my strategy has pretty much not changed since I started back in
1979.
Back
in 1987, these companies were all down 30%-40%-45% and not one of them lowered
its dividend. And many even raised their dividends during that period of time.
So, I’ve found over the years that so long as you place quality with a capital
Q as your first selection criteria, you rarely wind up buying a company that’s
in financial trouble. Most investors react to negative news about a company with
a “knee-jerk” market order to sell. I always have a wheelbarrow ready to
catch shares of good companies that others are tossing out the window. Is it
easier for a company to improve on a record quarter or a dismal one? Think about
it. How do I react to positive earnings, or other news surprises? That’s where
a buy list comes from.
TWST: Dividends are
important in your selections, I believe. Can you talk about the dividends as an
investment criterion? Mr.
Selengut: The dividend is an important thing because I feel is it’s a
measure of the financial capabilities of the company. If a company has the
ability to pay a regular dividend each quarter, out of its operating income, I
want to invest in it because it’s obviously profitable, as opposed to possibly
profitable. I chuckle a lot when I hear “growth” companies posture that they
maintain their growth by plowing back profits (or, more likely, cash flow) into
the company. Well, most of the companies that I invest in have grown pretty well
while paying dividends. The only thing that you can be sure is growing in the
“growth companies” that don’t pay dividends is the salaries of top
executives.
TWST: What is your
approach to the more volatile sectors like technology and telecommunications?
Mr. Selengut:
Well, I own many technology
companies, all of which meet my quality, diversification, and income parameters.
I own Hewlett Packard, for example, I own Nokia and SBC
Communications, and companies of that nature. Again, as long as they meet my
selection criteria, I’ll invest in them, particularly when they’re weak. And
when they go down in price as these have, I will buy more. My initial position
in a stock is never my maximum position. If I’m looking to get as much as 5%
of a portfolio into, let’s say, a Canon or any company, not necessarily
just a technology company, I don’t start off at that point. I buy, maybe, half
that amount, knowing that I’m buying a stock that’s been going down. If it
goes down further, I’ll want to buy more of it. And if it doesn’t go down
further, I’ll sell it as it rebounds. But I am always happy to add to my
holdings in a company when it becomes cheaper.
Wall
Street’s a strange place. The normal sales pitch from a broker is: “Come on
and buy this security! It’s at it’s highest price in history, and if you buy
it now you’ll pay more than any human being has ever paid.”
Well, I don’t consider that a proper investment strategy, so I stay
away from that type of security: those are the ones I’m selling.
I’m buying more Tiffany right now. I just put in an order, just
before you called me to buy some more American Express because they’re
down from what I paid for them by enough that I want to buy more. And I don’t
mind holding them for a year or more if it takes that long for them to rebound
to a point where I can exit with my target profit.
So many of the companies I trade turnaround rapidly, so a few 18 or 24
month “slugs” don’t impact my target turnover rate, which is to keep the
portfolio average under six months. Most years, my average turnover is between
three and four months.
TWST: Would you say that
this is an easy time to find these opportunities?
Mr. Selengut: Well,
it’s certainly an easy time to find things that I expect will turn out to have
been good opportunities, okay? I mean that I never anticipate a very, very long
down market in the quality sector. That sort of bit me hard during the time
period I mentioned earlier when the speculation in the NASDAQ just went crazy. I
had people sell portfolios of municipal bonds to jump into priceline.com
and other IPOs. Some even started doing futures and options! It was really
crazy, and scary. A said “good bye” to a lot of people who eventually got
financially murdered just because they were being greedy. Many were old
management friends who became convinced that my conservative approach was
broken.
Those
who stayed the road think I walk on water. Not quite, but they appreciate the
fact that I didn’t change strategies. So, during that period of time, I
certainly didn’t think that the quality sector was going to stay down as long
as it did. I stuck with it, and I bought more of positions that had lost more
than 30% of their value, and eventually I was exonerated. I wasn’t right or
wrong, investing is not a guessing game or a competition, and I didn’t attempt
to predict the future. I only know this one conservative strategy, and it has
always come through any adversity in the market or in my client base.
TWST: Do you invest in
turnaround situations?
Mr. Selengut:
I don’t know. I guess some people might label an investment right now
in American Express a turnaround. I really don’t look for something
that somebody labels in that manner. A turnaround situation would probably be
something where the company is no longer profitable, where it’s not paying a
dividend, and might even be in bankruptcy. I would say something like that is
quite speculative and that I wouldn’t be doing it. A turnaround situation for
me is a Disney, or a Gillette. Good products or services and sound
fundamentals, but really weak. That’s about as speculative as I’ll get.
TWST: What would you
consider to be some of the best bargains in your portfolios at this time?
Mr. Selengut:
The 10 that I mentioned, for new buying right now. The stocks that I’m
adding to that I think will come back to life and take profits on. Now I’m not
looking for Disney to go back up into the $40s or $50s. I only need it to
go into the mid-$20s and I’ll be out of there at a profit. Right now I’m
adding to positions in American Express, Disney, Scientific Atlanta, and Merrill
Lynch.
TWST: Conversely, what are
some of the stocks that you have recently sold or trimmed back on?
Mr. Selengut: I
don’t trim back: when I’m ready to take a profit, I take the profit. And
anybody who’s in a profit position, I sell it. But over the last two weeks
I’ve taken lots of profits. I can’t think of a loss that I’ve taken
recently on any of the companies I’ve held too long, and I rarely do take
losses on good quality companies. I hold them a little bit longer and they
eventually do come back. If not, I’ll exit at a portfolio “high”.
I’ve taken quick profits recently in Allstate, Chubb, Lennar. (I know that I just mentioned that I’m buying it again
today.) That’s the beauty of trading. The price is the same on day 1 and on
day 17, but I’ve taken profits twice during the days between. Kind of boggles
the mind, doesn’t it. Makes no sense at all, but it works. I just got out of
it last week and it’s back down again where I can buy it. Other profits are MBNA,
Nucor, Harley-Davidson, Exxon, CitiGroup, Home Depot, St. Paul Companies, Nike, and
Royal Dutch. Royal Dutch is interesting because that’s one of the stocks
that I originally started with 30+ years ago.
TWST: I was going to ask
if you invested in foreign securities?
Mr. Selengut: Yes,
good quality companies with their ADRs on the New York Stock Exchange,
absolutely. I don’t have a problem with that at all.
TWST: How much work do
you do, Steve, on looking for sectors that are exhibiting growth?
Mr. Selengut: I
really don’t. I’m looking at what stocks that I own are going up. And, for
example, just like they’ll go down as a group, similarly, a sector will go up
as a group. When the retailers get “hot”, I won’t own any of the May
Department Stores, the Lowe’s, or the Wal-Mart, and such
companies because I’ll have taken my profits in them and they’ll no long be
what I consider cheap. At the same time, some other sector will probably get
weak, and the new pariah group will wind up on my buy list. But I don’t go
searching and looking for strong groups. I’d be more likely to be looking for
weak groups than for strong groups.
TWST: And would you call
yourself a market timer?
Mr. Selengut:
Not at all. No, I don’t think market timing is possible. I consider
myself, may be, a fundamental person, or some people have said my selection
criteria and the way I look for a company to be down a certain amount, is
somewhat technical in nature. I don’t even know that I fall into the
Contrarian category because a Contrarian, as far as I know, just does things the
opposite and it could be one type of speculation as opposed to another. And I
don’t do any speculations. I do buy on weakness. I am a firm believer in a
man’s capability of buying things that are low and selling them when they are
higher. And I think that makes a lot of sense. My latest client owns a pharmacy,
and we were talking about my way of running a portfolio and how it’s very
similar to the way he runs his store. With the exception of the prescription
drugs, he has all his over-the-counter stuff on the shelves. When somebody comes
in for a bottle of aspirin, he doesn’t say, “No, I’m waiting for the price
of aspirin to go up so I can make more money”. He sells it. He’s got a
mark-up on it; he sells it; he then finds something else that he puts it on his
shelf. And that’s the same way I deal with stocks. Everything I own at any
point in time is for sale if I get my price. And I’ll find something else to
buy, and if there’s nothing there to buy right then, well I’ll just hold a
little bit more money market than usual.
TWST: What are the
reasons you would not invest in a company’s stock?
Mr. Selengut:
If it doesn’t pay a dividend, if it’s not on the New York Stock
Exchange, and if it’s not rated B+ or better by S&P. And then there’s
company management! What a joke. I’ve been in big business. When analysts say
they like the company’s “management”, or that the company has “good
management”, it only makes me laugh. I just don’t understand that type of
comment. I know an awful lot of bad managers who had an awful lot of business
degrees from all the right schools. It doesn’t give them any more ability to
turn a profit in an organization than somebody who came out of a small school
like a Farleigh Dickinson.
The
Peter Principal is about the most accurate book ever written about management in
large corporations. Many companies now have “co-CEOs”, and “committee
presidents”. This is not management at all, there’s a hyphenated word for
it. I’m really just looking at
the quality of the company’s products and services, its balance sheet ratios,
and profitability (as reported by S & P). How it adds diversification to a
client’s portfolio, and the ability for it to generate income (both dividends
and capital gains) is what I am interested in. That’s what I’m looking at.
TWST: Is there anything
that is embraced by the investment community at the moment with which you
particularly disagree?
Mr. Selengut:
Is there anything that is embraced by the financial community with which
I particularly agree would be a better question. For example, many advisors,
right now, are going to say: “Well this is a time to wait and see what’s
going to happen. There’s just too much uncertainty.” They talk about
uncertainty as if there was such a thing as certainty. And as far as I know,
that just doesn’t exist, except in rear view mirrors. Management, all
management, is done in conditions of uncertainty. You use certain rules,
strategies, and procedures to reduce risk, but you don’t know anything for
sure until its too late. I might buy Exxon today, or sell Exxon
today. I don’t know if that’s right or wrong by anybody else’s standards.
I know that if I sold at a profit I’m happy. There’s no such thing as a bad
profit.
But
I don’t think there is such a thing as “certainty”, and I don’t think
there is ever a situation where you should stay out of the market because of the
“uncertainty”. Wait and see is not a management concept. There is no room
for non-decisions. There are always opportunities. I can’t think of a time
where I had nothing on my buy list. I create a new buy list every day, and
I’ve never been in that position. And I’ve rarely been in a position where
I’ve had nothing to sell for a profit. Even in the wake of a 500 point decline
in the market, some stocks actually will go up. And in a situation like we have
now, where there aren’t as many profit-taking opportunities as there were
earlier in the year, interest rates have been beaten down, which makes the fixed
income side of my investment portfolios go up. And if I can take a profit on a
closed-end bond fund, I sure will.
So
there’s always something going on, and if you’re using a profit-taking
discipline like mine, you’re always able to generate new, fresh capital that
you can reinvest into weak areas (weak areas in the sense of price, not in the
sense of quality).
TWST: What are some of
the negative or positive surprises that you see that others are not
anticipating?
Mr. Selengut:
I really just go along on a day-to-day basis. I think you plan for the
future by having a diversified portfolio where some of your products on your
shelves are going to do better while others are not doing so well. And you take
advantage of your strong points at the time and add to weaker positions. From
day to day, I don’t try to guess what’s going to happen in the stock market
or in the interest rate environment and I’ve found over the years, over the
long run, that it really doesn’t matter a whole lot.
The
stock market, right now, I guess, is at the same place it was four years ago, or
three years ago? I think that points it out real clearly. During that period of
time my portfolios are probably up 40%, but the indexes are flat. And the reason
is because I generate income, I add to my positions, I take profits when
they’re there, and reinvest and reinvest some more. I really don’t care what
happens in the stock market tomorrow, or next week, or a year from now. The
income generating capital in my managed portfolios will rise steadily. Wall
Street pays thousands of people millions of dollars to convince you that they
can predict the future. They easily succeed at the convincing part. The
prediction part is out of their league.
TWST: Still, what do you
think does lie ahead in the economy? I notice in the last interview, you said
something that struck me, you said, “We live in a world where good news is
interpreted as bad news.”
Mr. Selengut: I think you hear it all the time. The Wall Street media
(press, radio, and television) provides great entertainment! One guy will report
that the low unemployment numbers are inflationary and the market will tumble.
Another time you’ll hear about high unemployment being a good thing because
the Fed will lower interest rates. Lower interest rates are good for some and
bad for others, but this is never mentioned. Still, the prospect moves the
market. Bloomberg radio is particularly laughable. They tell us the reason for
everything. This is where professional investors go for entertainment. Why, for
example, would anyone care about their exclusive New York metropolitan index? If
you’ve in the business, if you’re in this business, you find yourself
laughing out loud on many occasions. Lately, we’ve had the opposite, the
market going down because more people are unemployed. But there are more
problems with what the media routinely reports, so knowledgeably. You must have
heard that one guy on the radio reporting that Microsoft was not going to be
split up. “Well”, he said, “it’s right next to the end of the quarter,
so you are going to see a big spike in Microsoft stock as these
investment managers go in there to pick it up now to show that they owned it, to
show how smart they were.” And you just had to laugh. said, How stupid do you
think the public is? Do you think they don’t know? I used to work for a major
investment management company, and they did similar things all the time. “When
we go to our quarterly meetings with our big clients, our big pension fund
accounts, it doesn’t matter if we’re smart as long as we look smart.” And
that’s what they do. And most people will go out there and buy those mutual
funds that look so smart. Anyway, I always try to take advantage of that
situation. I always write to my clients about this thing that I call the
November Syndrome. Managers getting out of stocks that have been weak push down
prices as do people who are convinced it is smart to take losses to reduce their
tax bite. I go out there and buy on this artificial weakness and, generally by
the following February, I’ve got my profits.
TWST: Do you use mutual
funds?
Mr. Selengut: Only the
type I’ve mentioned: I use closed-end municipal bond mutual funds, and for a
client who wants me to start an investment portfolio for a child and I’ve only
got $10,000-$15,000, I’ll used closed-end equity funds. Other than that, I
don’t use any mutual funds.
TWST: What other products
does Sanco Services offer to prospective clients?
Mr. Selengut: The only
products I have are my time, and a book or two that I’ve written. That’s
really it. I don’t have any products. I don’t sell any funds. I don’t get
any commissions. I don’t have any conflicts of interest.
TWST: And what are your
clients talking to you about these days? What are their concerns and
expectations on the market?
Mr. Selengut:
Generally, they don’t contact me a whole lot, although I have received
a lot of “thank you”s over the last year or so. It’s just that they’re
glad that I stuck to my conservative guns and didn’t get involved in the
speculative fever that backfired in their friends’ faces. But other than that,
close to retirement, I’ll have somebody who’ll want to come in for a meeting
and see when we want to start changing an allocation. I don’t get a whole lot
of talk because we set up a defined program right from the beginning, and it
doesn’t vary. There are no surprises. They know exactly the types of
securities I’m going to be in and why they’ve been purchased. They know
I’m going to sell a stock as soon as I’ve made a good profit, they know that
there’s going to be a lot of income generated in the portfolio. They know that
I’m going to keep 70% Equity, or a 60% Fixed Income allocation, so there’s
not a whole lot to change unless something happens in their lives. Then we make
appropriate and gradual changes. Rarely does a change need to take place
overnight. It takes place over a period of time.
I
had a guy recently who called me who said his partner was going to need a sum of
cash from the portfolio I manage for them. And he told me that it would probably
be needed in a period of two months and he knew that I’d probably generate
that kind of cash flow thought trading. “But don’t reinvest it because
you’re going to have to take it out.” So that’s the type of dialogue I
have. They know what I’m going to do, they know how it produces, they know
what the transactions are going to be, and they let me know if there’s going
to be a change in direction, or if they need some cash. They call if they are
going to be putting in money also. So I don’t have conversations which are
addressing other issues: “What’s going to happen if we go to full-fledged
war? What’s going to happen if we have another terrorist attack? What’s
going to happen if unemployment gets into the double digits?” We don’t have
those kinds of conversations because they pretty much know how I’m going to
react.
TWST: Is there anything
that you would like to add, to sum up the competitive strengths?
Mr. Selengut:
First of all, investing is not a competitive event. It is a goal
oriented, managed exercise. I think what I’d like to add is something that I
think this interview should emphasize. This is the fact that a very conservative
approach (although very active and based on somewhat boring parameters) has,
over a 25-year span, outperformed any other type of approach out there. And in
the past three or four years, where we had a spectacular rise in things called
averages and indexes, and then a spectacular fall, this particular strategy has
not only kept my accounts whole, but has pushed them to all-time high profit
levels. I think that this is really news!
I
don’t think you will find too many other Investment Managers, no matter how
big or well respected they are, that could honestly tell a similar story. I’ve
written a series of books that really explain to people how this can be done
by anybody. All that they need to do is to develop a disciplined approach
to managing their money, and apply it consistently. They can do it themselves.
I’ve put it all in writing and I think it’s a big story that I can’t
afford to advertise like a Morgan Stanley, a Prudential, or a Merrill Lynch.
I
know that I’ll never get any Street recognition, certainly. I don’t really
want it that bad, and I would never become one of “their” managers. But I
would hope that The Wall Street Transcript or some other
publication that is trying to inform the public would certainly spread this news
around. I have a four part series I call “The Investor’s Creed”, and I’d
like to end with the title paragraph:
“THE INVESTOR’S CREED”
“My
intention is to be fully invested in accordance with my planned equity/fixed
income asset allocation. On the other hand, every security I own is for sale,
and every security I own generates some form of cash flow that cannot be
reinvested immediately. I am happy when my cash position is nearly 0% because
all of my money is then working as hard as it possibly can to meet my
objectives. But, I am ecstatic when my cash position approaches 100% because
that means I’ve sold everything at a profit, and that I am in a position to
take advantage of any new investment opportunities (that fit my guidelines) as
soon as I become aware of them.”
TWST:
Thank you.
