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These articles by Kathleen McGinn Spring were prepared for the

May 2, 2001 edition of U.S. 1 Newspaper. All rights reserved.

Sanity’s Back In Investing: Larry Cunningham

When Larry Cunningham began writing "How to Think

Like Benjamin Graham and Invest Like Warren Buffett," Internet

bellwether Yahoo! was marching confidently up to $240 a share, in

good company with scores of other soaring "New Economy"

issues.

In his book, just released by McGraw Hill, Cunningham states calmly

that the very term "New Economy" should have been warning

enough that euphoric investors were — once again — taking

part in a collective leave-of-reason that could only blow up in their

tech-besotted faces.

"It sort of turned out to be good timing," Cunningham says

of the release date for his book. "A year before, people would

have ignored it." Good timing indeed. Yahoo! is now trading a

bit south of $20 a share, a better than 90 percent drop that mirrors

the fortunes of a great many Internet issues. Bloodied investors as

a whole are more than ready for a back-to-basics primer like the one

Cunningham has written.

Cunningham speaks on "How to Think Like Benjamin Graham and Invest

like Warren Buffet," at a free lecture sponsored by the Gould

Group, Prudential Securities, on Friday, May 11, at 6 p.m. at Micawber

Books in Princeton. Call 609-688-9673.

A year before he started writing his book, Cunningham began to gather

data to analyze what was going on in the surging stock market. He

looked at "all the usual key business metrics," things like

profit margins, return on equity, and accounts receivable turnover.

"By mid-1998, I could tell things were out of synch," he says.

Given skyrocketing stock valuations, he says, "none of those

things

were as exciting as they should be."

At a time when stories of meteoric stock gains were being told

everywhere

from the sandbox to the senior center, Cunningham began his book.

In it he sets out a case for following the methodical, patient

investment

strategy of Benjamin Graham, founder of the value school of investing,

and of Warren Buffett, one of Graham’s disciples and the legendary

founder of Berkshire Hathaway. "I knew I was going against the

tide," he says.

Cunningham decries the logic — or lack of same — that led

early-21st century investors to believe the old rules of stock

valuation

outmoded, and to exuberantly embrace New Economy metrics like number

of website hits. But he doesn’t condemn newly-chastened dot-com

stockholders.

"These things build on themselves," he says. "People want

to be in on it, and it’s hard not to be. We’re very social animals.

We want to learn; we listen to one another. It’s hard to keep a dose

of skepticism."

Cunningham himself remained skeptical of New Economy riches, avoiding

investing even in Amazon.com (52 week range $68 to $8; current price

$16), a company whose website he loves, and whose management he

admires.

He is watching the Internet E-tailer, though, and is inclined to buy

in when — but only when — it starts to show a profit.

An attorney by training, Cunningham is director of the Samuel and

Ronnie Heyman Center on Corporate Governance at Cardozo Law School.

He earned his undergraduate degree in economics from the University

of Delaware and his J.D. from Cardozo. For four years after he

graduated,

Cunningham worked in corporate law for New York City firm Cravath,

Swain. He wife, JoAnna, is a novelist and freelance Washington

lobbyist

who is just finishing her first book, "Staffer," which he

describes as a "coming of age political thriller."

Cunningham got his first stock tip from one of his grandmothers, both

of whom were investors. A Kimberly-Clark employee and shareholder,

his grandmother sent his family a bundle of the company’s products

— tissues and lotions and the like — each Christmas.

Cunningham

enjoyed the gifts throughout his childhood, and looked into the

company’s

financials when he was in college. He liked what he saw, and started

buying stock in the company, which, he says, "has done well year

in and year out."

Another of his holdings that did well was Justin Industries.

Cunningham

found that one as part of his research on stocks to buy for his

nephews.

One of the boys is named Justin, so the name of the company caught

his eye. "It’s an awesome company," he says. As soon as he

looked into it, he realized it was the manufacturer of cowboy boots

he owned, and liked. He then discovered that the company, which has

headquarters in Texas, also makes Acme bricks, a brand his friends

in Texas knew and respected. After examining Justin’s financial,

Cunningham

decided to add it to his holdings. That was 15 years ago, he says.

Confirming his opinion of the company, Berkshire Hathaway just bought

it lock, stock, and cowboy boots.

In his book Cunningham analyzes the just-past technology stock

euphoria,

and offers guidelines on finding — and hanging onto — long

term winners the markets have underpriced for all the wrong reasons.

Pick companies carefully, he advises, and then relax. This is what

he does. "I’m 38. I’m going to live for a long time," he says.

He sees any price decline as an opportunity to load up on a company

whose fundamentals he likes. "It can go down big time in the next

two years. I don’t care," he says. "It makes me happy."

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