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Get Four
|  | JANUARY 25, 2005
Simple, Straightforward Investing "It's not exciting, but the results have been exciting," Farr, Miller & Washington's chief says of his growth-at-a-reasonable-price approach Pick your stocks carefully -- and stay invested for the long term. That's advice from Michael Farr, president of investment-management firm Farr, Miller & Washington, who looks for growth at a reasonable price and shuns market timing. "Sharp moves in share prices are always unexpected," says Farr. Looking ahead to 2005, Farr sees a gain of almost 10% for stocks, however. Among the sectors that look good to him are health care, financials, and technology. In health care, one of his choices would be Pfizer (PFE ), which has been knocked down by the furor over Vioxx. "Everybody hates the stock -- it's probably a good time to buy," Farr notes, pointing out that the fundamentals are still in place, though it's "not for the faint of heart." On another issue, the performance of mid- and small-cap stocks, Farr is cautious about predicting that their long run of gains will come to an end. "One of the most perilous things that a strategist can do is call the end of a trend," he says. "Trends never end on cue and always exceed expectations." These were among the points Farr made in an investing chat presented Jan. 20 by BusinessWeek Online on America Online, in response to questions from the audience and from BW Online's Jack Dierdorff. Edited excerpts follow. AOL subscribers can find a full transcript of the chat at keyword: BW Talk. Q: It's Inauguration Day, so what do you foresee for the market in Bush's second term, Michael? A: In that Wall Street hates surprises, they should meet very few from this President over the next few years. He has been exceptionally clear about his agenda, and all of us can expect a dogged approach. Encouraging for most Wall Streeters is that the Democrats are presenting healthy opposition and are not singing from a bipartisan song sheet. As counterintuitive as that may sound, markets always seem to do better when there's gridlock in Congress and less is able to change. So we anticipate certain changes in Social Security, and we will watch and wait. The trend in the marketplace continues to be positive, and trends always last longer than anyone thinks they will. Q: What sectors do you favor in 2005? A: I like to take a balanced approach. I think health care and financials continue to present strong opportunities, largely because they've been out of favor, and the fundamentals in those industries are strong. Moreover, I like technology stocks and consumer stocks as the additional two legs of what I think will be a rather strong stool. Q: What's your forecast for the technology sector? And any specific names? A: I like the technology sector, and I think that the prospects continue to be strong. Technology has added to capacity and to cost savings on corporate balance sheets for well more than the past decade -- and should continue to do so. Some names that I like in that group are EMC (EMC ), Dell (DELL ), IBM (IBM ), First Data (FDC ), and Microsoft (MSFT ). Q: Does the Social Security reform proposal have a chance? Is it good for the stock market? A: Yes and maybe are the answers. It certainly stands a chance with a Republican Congress and a Republican President. Will it be good for the stock market? I guess ultimately it will be, because it means there will be a lot more money available to buy stocks. It also means that the government will have less to spend.... If we have individual Social Security accounts, then the dollars you put in will be available to your name and not put into the general coffer. I think it could work, but there are many problems. One is that many Americans do not have, or will not choose to gain, the sophistication necessary to make these investment choices....The greater conflict of interest issue bothers me as well. Is it appropriate for the Social Security investment fund to own shares in tobacco companies? Is the government then liable to shareholders of the Social Security investment fund if they sue tobacco companies and therefore reduce their value? Q: What was the investment performance in 2004 for Farr, Miller & Washington? A: I direct you to our Web site at FarrMiller.com. The preliminary number is right at 10%, even for our large-cap growth equity composite. The average large-cap fund was up 7.1%, the Dow was up around 3%. The final audited numbers aren't in, so please check them and please read our legal disclaimers. My brand-new Farr View Newsletter is now available online as well. Q: How about telecom stocks? A: I think telecom by and large did very well in 2004. I think the industry is undergoing a transformation as it comes under pressure from VoIP [voice over Internet Protocol] and the cellular carriers. For those who want to remain invested in that sector, I think they have to do rather close research on a company-by-company basis. Three names I like are Qualcomm (QCOM ), Nokia (NOK ), and Vodafone (VOD ).
BW MALL
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