Wall Street Transcript Interviews with Manager Steve Selengut - Part 3
Submitted by Steve Selengut
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.
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