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During the past 20 years, the author has watch China move from being a developing country into an industrial superpower
Money Moves, 5/24: Chocomize Co-Founder Fabian Kaempfer talks with Bloomberg’s Deirdre Bolton about the business of customizing chocolate
The president's campaign has a new rule—no cell phones allowed
In honor of remote control inventor Eugene Polley, we recognize other influential but neglected inventors who have felt the sting of stolen glory
Forget Adderall. Traders now pop chia seeds to stay focused and energized
The Italian automaker and others are adding hybrid technology to elite cars
The storied bridge that links San Francisco and Marin County changed the face of California
Schools cultivate ties with startups before they're big successes
Dave McClure's traveling venture capital show scours the world for promising startups
Get Four
|  | DECEMBER 23, 2003
Basic Materials for Basic Investing [Page 2 of 2] Q: What are your criteria for selecting a core holding? And what are some you haven't talked about yet? A: We look at companies where we like the management, we like the products, we think they're in a good business, where, longer-term, they're going to create value for shareholders. We want to hold them for at least three to five years. Our turnover is 15%, maybe 20% a year, so on average we're holding stocks four or five years. When we look at that, our core holdings, for example, are companies such as Exxon Mobil, Coca-Cola, Cisco, Dow Chemical. But there comes a point, where in the case of Dow, when they start reaching peak earnings, you're going to have to cut back. These are not companies to buy and hold for 20 years, they are ones you hold in a cycle. Our portfolios contain 50 to 60 stocks, and when one becomes more than 4% to 5% of the portfolio, we start trimming back. Q: Any thoughts on Harley-Davidson (HDI ), Carnival (CCL ), or any other "baby-boom" plays? A: When you look at companies like that, that are dependent on discretionary income, the valuations...can get skewed, especially when times are good.... Our view is that a lot of money now, especially on the discretionary side, gets spent on entertainment -- the family aspect. A lot of our attention is spent on finding stocks that will benefit in this area. We look at a media stock, such as Time Warner (TWX ), where people will spend money to see movies, cable on demand, etc. Or Disney (DIS ), where people will go to spend time with their family and the like. Q: Give your view on Lucent Tech (LU ). A: We think Lucent's a great restructuring play.... They've restructured out of this downturn, pared back the balance sheet, and have a good product line. However, when Lucent competes with some of the newer tech companies, they're at a disadvantage because of their pension plan and post-retirement benefits, which can be a burden to the overall value of a company. While the company's not there yet, for an aggressive investor there's an opportunity that Lucent, with its relationships in the service-provider area, can actually survive and increase shareholder value. Q: More on tech -- how about Oracle (ORCL )? A: Oracle's an interesting play, because all through the downturn they didn't get hit as hard as everybody else, and now the company, which has a good balance sheet and good products, is trying to find a place to grow. But the market's not convinced that they'll be able to sustain a double-digit growth rate. Time will tell, as they spend more time on R&D, whether they'll be able to develop new products that will gain customer attention. Oracle's having an analyst meeting next month, and I'll be there. It'll be interesting to see what insight they could give investors as to their strategy. Q: Do you have any holdings -- or recommendations -- among the small- and midcap stocks? A: One of the companies we like in that area is Jacobs Engineering (JEC ). They provide services to all kinds of industrial companies. It's very well run, with an international focus, and could do very well over time. Sonoco Products (SON ) is also excellent -- they make things like Pringle's boxes, your Maxwell House cans, the list goes on. They're well run, with a dividend close to 4%, and as the economy picks up, they'll have good operating leverage. They've got good sales overseas and strong ties with its customers, such as the Gillettes of the world. Q: Any thoughts on Qualcomm (QCOM )? A: They're a core holding of ours -- we have held them for many years. As the world moves more toward wireless, both data and voice -- not just in the U.S. but China and India, etc. -- Qualcomm has huge potential to grow its earnings. It's always a rich stock, it always has been, but more and more people are seeing value in its intellectual property and the position it has. Its balance sheet is excellent, it has a lot of cash. We like the company, and we like its products. Q: A quick last question, Sarat -- what's the best strategy as we move into 2004? A: I think the best strategy is to look at your portfolio, make sure you're diversified, exposed to the right sectors, the right stocks. And don't fall in love with stocks. Don't make it emotional. Make sure that you're planting seeds now, such as in basic materials and consumer staples, so that these can grow and be fruitful later on. If you've got weeds, get rid of them, or prune them back. The idea is to keep the garden growing, but make sure you maintain it.
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