February 24, 2004  Email this  Print this
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Bargain Hunting With Attitude
by Steven Goldberg  When I listen to Bob Olstein, it's easy to imagine myself stuck in the back seat of a New York City cab with a guy who just won't let an argument end. The Bronx is in every word and gesture -- and, especially, his attitude. But the truth is Olstein is a first-rate money manager. So he must stop talking long enough -- at least once in awhile -- to soak up corporate financial reports.
Just look at his record: Over the six years he's been running Olstein Financial Alert C (OFALX), it has been above average against all other stock funds in every year but one. He's beaten Standard & Poor's 500-stock index over the last five years by an annualized 15 percentage points. Those are staggering numbers, particularly for a period when the S&P 500 didn't earn a nickel.
But, alas, Olstein's fund boasts another staggering number: it's expense ratio. The fund charges investors 2.21% annually. That's way too high in my book. Olstein, naturally, doesn't agree. "Every fund manager reports returns after fees, so my returns must be even better than someone who charges less." Ready for an endless argument? Let's skip to the next subject.
A broad stock picking style
Olstein refuses to be pigeonholed. He buys stocks of all sizes-and, while he has a value bent, some of his stocks are on the growthy side.
His argument: "I'm going to tell you something that'll make you laugh. Suppose I told you that short doctors, under 5 feet 6 inches, are the people to go to this year. So why don't you laugh when people tell a fund manager to buy only small stocks?"
His point is a good one: A stockpicker ought to buy the best stocks he can find, whether they are elephants like GE or mice like Maverick Tube, an Olstein holding at the end of last year.
But when I analyze funds, I can't come up with a sensible way of sizing up a manager who specializes in small-cap-growth stocks -- except to compare him with other small-cap-growth managers.
After all, suppose such a manager returned 40% last year. The small-cap-growth benchmark, the Russell 2000 Growth, returned 49% last year while the large-cap S&P 500 returned just 28.9%. In my book, that manager had a subpar year. In Olstein's book ... well, let's not go there.
Olstein, 62, is hardly a neophyte. He started investing in 1968. A self-described "financial sleuth," he pored over financial statements ferreting out companies with problems. He published the resulting work for big money managers. He says he uncovered problems in such time bombs as Penn Central, Sunbeam, Boston Chicken and Lucent.
He brought that same green-eye-shade approach to managing money, first at Smith Barney and now at his own shop. He works with six analysts.
A unique approach
His approach -- I bet you're shocked -- is unlike that of most managers. "We never talk to management. We care what management is doing, not what they're saying, and we can find out what they're doing by reading between the lines of their financial statements. We look behind the numbers."
He hunts for bargains. "You make money by buying bargains. You don't make money by buying when everything is okay." With the market up sharply from its lows 12 months ago, Olstein is finding fewer bargains. Almost 20% of the fund is in cash.
So, what does he like now?
Weight Watchers International (WTW) has fallen in recent months because "of this current misperception that it's going to disappear because of Atkins. That is wrong."
Mattel (MAT) sells at half the price it did a few years back largely "because of disenchantment with Barbie." But Olstein has faith that Barbie will come back, and Mattel is "a huge cash machine."
Hasboro (HAS) "has gotten religion," and is returning to "its basic games," such as Monopoly. "This company is just coining cash."
Interpublic (IPG), the giant advertising agency, "went into ventures it never should have gone into," but it has returned to its roots. Olstein thinks it should earn $1.25 when advertising recovers.
Manitowoc (MTW) makes cranes. "Their industry is in recession, but it's coming out." He says the company should earn $2.50 to $3 when times are better.
Janus Capital (JNS) "is a tainted name, but it's moving in the right direction. They have no debt, and money management is a great business." He thinks it should earn $1.25 to $1.50 when it recovers.
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