Olstein reveals why he tossed old media stocks

Posted by: Aaron Pressman on September 21, 2006

Following up on a post from the spring, when I noticed that money managing legend Bob Olstein had lightened up on newspaper stocks, the guru of balance sheet scrutinizers has now given a fuller explanation. No doubt that Olstein is a great a fund manager, as his Olstein Financial Alert Fund (Symbol: OFALX) has beaten the S&P 500 by over six percentage points A YEAR for the past 10 years. He was also way ahead on calling out some of the stock market’s biggest busts like Enron, Lucent and Boston Chicken. So pay attention to his latest annual report (PDF file) where he writes at length about the importance of fessing up to investing mistakes and dumping them. Specifically, in his case this year, old media stocks. Olstein said his fund sold its positions in Journal Register Co. (JRC), Knight-Ridder (KRI) and Tribune Co. (TRB). Why?

“The Internet has continued to make rapid inroads into the traditional newspaper industry advertising model, resulting in reduced free cash flow expectations and reduced valuations, and a sell decision with 25% losses since we began buying these companies three years ago. We did not expect the Internet to make such rapid inroads into the stable cash flow models of the old media companies. We were too optimistic in our assumptions regarding the cash flow bases of these older companies.”

For those interested in which fund managers have yet to get the word, Morningstar data shows Allianz NFJ Small Cap Value Fund (PSVIX) and T. Rowe Price Small-Cap Value Fund (PRSVX) were top fund owners of Journal Register at the end of June. T. Rowe Price Equity-Income Fund (PRFDX) and Ariel Appreciation Fund (CAAPX) were tops for Tribune. Knight Ridder was put out of its misery in an acquisition by McClatchy (MNI) earlier this year.

P.S. Tip of the cap to VInvesting.com for posting Olstein’s latest opus.

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Businessweek’s Emily Thornton, Amy Feldman, Ben Levisohn, and Ben Steverman focus on matters great and small for investors, from the views of a hot fund manager to an explanation of the latest products devised by Wall Street’s rocket scientists. Exploring trends in any area, from bonds and stocks to closed-end funds and futures, always with an eye towards giving investors a better understanding of the sometimes confusing and often chaotic world of finance. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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