Corrections or additions?
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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