THIS IS THE UNITED SERVICES CONFERENCE CALL TAKING PLACE TODAY, JULY 31 AT
4:15PM EASTERN TIME WITH ART BONNEL. GOOD AFTERNOON EVERYONE AND WELCOME TO THE
UNITED SERVICES FUNDS CONFERENCE CALL. ALL PARTIES ARE ON A LISTEN ONLY MODE AND
THE FLOOR WILL BE OPEN FOR QUESTIONS AND ANSWERS FOLLOWING THE PRESENTATION. AT
THIS TIME I WOULD LIKE TO TURN THE FLOOR OVER TO YOUR HOST, MR. ART BONNEL,
PORTFOLIO MANAGER OF THE BONNEL GROWTH FUND. SIR YOU MAY BEGIN.
Thank you Jill. Hello. My name is Art Bonnel and I would like to welcome all of
you who are online today. It's a pleasure having you here. I'm going to get
right down to what I think you called in for and that's basically the current
market environment and what we're thinking. What I'm thinking and going to be
doing with the portfolio.
First off, where interest rates are concerned, I know there's a lot of news on
that and what's going to happen. Will the Fed raise rates? Won't they raise
rates? I personally am in the camp that they are not going to raise rates. It's
an election year and if they did raise rates I don't think that would make the
Whitehouse very happy. If they're going to do it they would do it probably after
the election, but I really, really do not see any need for rates to go up. The
purchasing managers index came in today. That was down. They were looking for
that to be up. The bond market rallied on that news. If you look at the CRV
you'll notice that since the beginning of this year the CRV has not risen at
all. It started at around 240. It's still at that level. We're not having
commodity prices rising so if you don't have commodity prices rising there isn't
inflationary pressures in that area of the market. Unemployment...National
unemployment claims are coming in at 350, 370 thousand, I should say. That is
very close to 400,000 level and as an old economist they say when you hit the
400,000 level that is a recession. So if you start getting initial unemployment
claims running in the 400,000 range that means you're in a recession and with
them hovering slightly below 400,000, that the economy is perilously close to a
recession. The Fed dare not raise interest rates. If they did, let's assume they
say 'Hey, we have to do it for whatever reason,' I think that would really panic
the market. The market has been anticipating a raise, but there's a lot of
(gunsitters?) there. And that would cause, I think, a real selling climax. That
would be an opportunity to pick up a lot of stocks very cheaply. And speaking of
selling climax,' I think there's probably a lot of technicians out there and
being a closet technician, as I refer to myself, if you look at technical
analysis 101, two weeks ago, on a Tuesday, we had what could be considered a
selling climax.
The New York exchange had around 680 million shares. That was the highest
trading day ever on The Exchange. The Dow went down to around 5180 and it turned
all the way around and closed up on the day. A lot of you have your Wall Street
Journal's. Just take a peak at that and you'll see this massive amount of
volume. A sharp sell-off turning around and closing up on the day. Now I know
that other index's did not, but the Dow did and if you do look at the technical
side of the market that would be defined as a selling climax. We then last week
had a test of the lows, both the Dow Jones Industrial's and transportation held
the lows so, to me, it looks like that may have been a selling climax. What are
the odds of that? I would give it a 50 to maybe a 60% chance of that being the
bottom. At least I'll say I'm hopeful, that is, that it is the bottom. There is
one thing in regards to that. If we go lower you will see a great deal of letter
advisors, market letter writers becoming very bearish. And right now, the latest
Investors Intelligence that I saw which was actually last weeks was 41% bears
and 41% bulls. If we could get those bears up to 45-48% that, I think, would
really lock this in and we could then start going back up again. I am not that
pessimistic on the market. I really believe this market has a long way to go on
the upside and one thing that could really get a fire lit under it would be a
test of those lows, perhaps a 1-2 day break of the lows -- get everyone
pessimistic and even Elaine Garzarelli would start saying 'See. I told you so,'
and she would get a lot of headlines and that's what we need to really get this
market really moving on the upside.
So, interest rates, I don't think, are going to go up which is positive for the
market. If they do that would also create this selling climax. Another climax on
top of the one we just had and, like I said, I am very bullish on the market.
Another reason for my long term optimism on the market is that we did a study
going back to the mid 1920's and including dividends, seven of every 10 years,
in other words 70% of the time, the market was higher on a year to year basis.
If you look at a 5 year running balance there, for 5 years, the market is up 92%
of any 5 year time period. That is including, like I said, including the
dividends on the Dow Jones average. To try to bet on the downside, I think it's
very, very hard to catch these swings and I really believe that the long-term
trend of this market is up.
There's a couple of cliche's that I think some of you may be able to use and
give to your clients and I would like to go over a couple of them. One of them
is 'In bear markets, great stocks, good stocks, fair stocks, poor stocks go
down. All stocks go down'. Another cliche is 'Fortunes are made in bear markets
and realized in bull markets.' And when you think of that, where do you get the
bargains? You get a bargain in a bear market. You don't get bargains in bull
markets. Well, we've had a good little correction and there are some bargains
out there. Another saying is that 'The true genius to investing is recognizing
the direction of the trend and not trying to pick market tops and market
bottoms.' And, like I said, I believe the true direction of this market is up.
The long-term trend is up. Another good saying that you can use is, 'You can
make more money with patience than with brilliance.' When you buy something
today you're not trying to buy it today to sell it tomorrow. The big dollars are
made long-term. So don't try to look at a short-term basis. You have to invest
for the long haul. So those are a couple of cliche's that we like to give to our
people and tell them how we feel about the market and they can relate to these
cliche's.
The main reason for our optimism on the market is the baby boomer's. And these
people are not going to go away. The past couple of months they've been scared,
a little bit. They haven't been putting as much money in the market so the
market has sold off. You haven't seen the cash flow into mutual funds. But they
may be scared, but they're going to come back. When you think about the market
and investing you have to realize where is money place when it goes into a
retirement plan. Most people are now funding retirement plans. You have about 3
choices. You have the stock market, you have the bond market, and you have the
Real Estate market. And where do people really invest? They basically invest in
the stock market. Real Estate is secondary. So you're looking at the stock
market with some in the bond market. Once the boomers start to feel a little
more comfortable, this correction is over, I think you're going to see a massive
inflow of money into the stock market again into mutual funds. And this is going
to start the ball rolling all over again.
I'm very, very pleased that we had the sell-off in June and July. I feel very
comfortable that we may have bottomed out. Like I said, a 50 or 60% chance that
we may have bottomed and if this market would have kept running up, if it would
have gone higher, I think there may have been a chance that we would have had an
even more severe correction. But this sell-off, in my estimation, has helped set
up 1997 to be an excellent year. Most people are saying, 'Hey, the year after a
presidential election cycle is negative.' I think, because of the sell-off, it's
going to be a very good year. The market average is down to levels which look
very attractive. There's more bargains out there. We have found quite a few more
bargains and we made some switches in our portfolio so we are extremely
optimistic. These boomers are going to be coming back and when they do, you're
going to have to be fully invested. No one is, as they say, going to ring a bell
that 'Hey, we're at the bottom.' We are going to be at the bottom and you'll
know that in hindsight. Our hindsight is always 20/20 and mine is perfect. I've
got perfect hindsight and I'll be able to say 'Yes. That Tuesday, a couple of
weeks ago was the bottom or it wasn't the bottom,' but we will know it. But I
don't think we should time the market.
We are not going to, if any of you are looking to invest in a growth mutual
fund, we will be 100% invested. 99 to 100% invested. In fact, I run my fund
approximately 99% invested and 99 1/2%. We have a good cash flow and I feel that
is the best way to take advantage of these bull and positive markets that we are
going to be having for the next 5 to 10 years. My long-term call on the Dow is
I'm looking for the Dow to hit 20,000 by the year 2007. And I say 2007 because
if you take a compounded rate of return on the Dow Jones average of
approximately 11-11 1/2% from the beginning of this year you're going to get
real close to 20,000. And people say, 'Wow, how can that happen?' But here's a
great way to use that. If you lob off 3 zero's where the Dow Jones average is
right now, we're at about 5. In other words, $5 per share. If the Dow goes to
20,000 and you lob off those three, you get 20. If you buy a stock today, if
someone buys it in their portfolio today and in about 10-12 years from now it's
at 20, that's a great deal. Suppose, though, you say well I think there's going
to be a 10 percent correction in the Dow's 5400-5500, okay so it goes down to
5000. Does it matter in the year 2007 if you pay $5 for something or $5 1/2? At
any conversation around, you will probably say 'Hey, I paid $5 for this and it's
now $20.' You can take advantage of that and get your clients to take advantage
of it. Everyone is going to be very satisfied with the long-term results. So we
need to focus long-term. And that's what we're focusing on is the long-term. And
I do, I sincerely believe that we can get to 20,000 on the Dow. And all it is is
a compounded rate of return of around 11-11 1/2% on the Dow Jones Industrial
Average. So we have to take advantage of this.
The baby boomers, all 76 million of them, are looking to retire. I don't know
one person, I'm sure none of you out there know of one person, who feels that
social security is going to do the job for them. Everyone I talk to is saying,
'Hey, how can I protect myself, my children and fix my retirement up?' They're
not counting on social security and it's like kicking a dead horse, but 76
million people focusing on one thing is going to really have an impact on the
way we live and our results of what we do with the money and how the fund and
market act. So they are focused on this and I think they're going to continue to
focus on it and it's going to be a great boom. We are in a super, super
business.
A lot of you are wondering and I know a lot of you have called in with regards
to what the mutual fund does and how we go about picking some stocks. I have
four basic criteria that I look at when I buy a stock. I want to see earnings
going up. There will not be one company, and there is not one company in the
fund, that has lower earnings. We only buy stocks where earnings are up. A lot
of people say 'Are your earnings momentum driven?' It is, but we don't really
have a set number. I want earnings up and we've gone back and done research on
this and if you even look at companies back in the 1920's the companies made it
through the recession and the depression in the late 20's early 30's where
companies have made money. Very simple. You don't need to be a rocket scientist
to realize how important earnings are. Earnings help pay dividends, pay the
salaries and keep the company going. So we want to see companies where earnings
are going up and, again, we do not have a set number. It doesn't have to be a
set percentage of 20, 30 or 40%. I want them up. We recently picked up Circus
Circus and their earnings are up a penny from a year ago. But they were up, they
weren't down. They had been running negative for a couple of quarters and I
said, okay, it looks like they may be doing what they're supposed to be doing.
We'll look at it and take a small position in the company. In the next quarter,
earnings, if they continue to grow, we will add to that position. But that's the
reason we bought it. I would not have bought Circus if their earnings had been
down a penny. No way. We don't touch it. If they're flat we don't touch it. We
want earnings to grow. Another thing that we look at is debt. I don't want to
see a company having a lot of debt. We don't like to see much more than 30% debt
to equity. We look at assets versus liability. The other thing that we look at
is current ratio. And that's current assets versus current liabilities. I like
to see them having enough cash on hand. I'm looking for them to have a current
ratio of better than 2 to 1 and that way, if they do have a light bill or a
power bill or a salary they have to pay, I know they're not going to have to be
worried about where to get the money. I want them to have enough money to make
all current payments and make them on time. Rowland Company? does have the
assets, current assets, to make any payment at any time. And they're not worried
about that and they can focus on motivating sales people, getting a better
product out, getting it out quicker and I consider that extremely important. The
fourth item that we look at and we focus on quite heavily, is the amount of
equity ownership by management. Here we like to have about 5% or more where they
have their compensation tied into the fortunes of the company.
Now, there is a kicker here and that kicker is, sometimes companies or
management own a great deal of the stock. If we find a company that has equity
ownership by management or the original owners running 40-50% that tends to be a
real warning sign because then the company is only focused on providing an
income for the family members. If you look at a lot of companies that have a lot
of equity ownership you find that they don't move much. You're tied in to what
the family wants. We don't like companies that have too much. I like it between
3 and maybe 15- 20%. Anything over the 20% mark, it begins to become a family
owned company. Family owned companies, I would rather stay away from. Let them
play their own game. Let's go find a company that has some real growth potential
and that's what I want. I look for companies that are making money, that have
low debt, a lot of cash on-hand and can take advantage of any situation and ones
where the management is focused and they know that their fortunes are going to
be tied into the profitability and the long run growth of that company. So when
you put those four together you not only have a winner, you can't have them all
the time as we all know, but we are looking for good, solid companies. Good
solid balance sheets and when you get that and good diversification you have a
chance to make some real, real money. I'll tell you what, that is a quick
synopsis. I know there's a lot of you out there that probably have some
questions.
Why don't I turn this over to Jill and she can go ahead and let you know what to
do and how we can get a question and answer period going. Jill?
THANK YOU. THE FLOOR IS NOW OPEN FOR QUESTIONS. IF YOU DO HAVE A QUESTION PLEASE
PRESS 14 ON YOUR TOUCH TONE PHONE AT THIS TIME.
THERE APPEAR TO BE NO QUESTIONS.
Well, alright, I tell you what, if you want, I can go into a couple of companies
that we currently hold. What I saw in some of them, the diversification of the
portfolio. Why don't we look at that first and if you think about some questions
I presume they can just hit that. I'm willing to be interrupted.
Right now the fund has approximately 75 million dollars in it and we have over
60 different industries. The main industry that we're in is technology. And that
would actually encompass close to half of the fund, but then where technology is
concerned we have computer makers, we have software makers, the semi-conductors,
so I'm balling technology into one big group and saying it's approximately 50%
of the fund. The other two main industries are health care, and retailing. And
the retailing is an interesting item because if you look at Sears Roebuck, the
detonation of Sears Roebuck is it is a department store. I own some Gap and they
consider that Women's Apparel. I consider the two of them retailing. Gap and
Sears I put them all in one basket. But I think that technology is here to stay.
I don't think any of us want to go back to typing on a typewriter. And I don't
think we will. I can see tremendous advancements in technology. We were just
reading in Business Week, a couple of weeks ago, where there is going to be a
phone that you can wear on your wrist. The Dick Tracey wrist phone. They're
coming up with that and they expect to have that on the market by 1998. Where's
technology leading us? It's just going to continue to lead us. I don't know
where, but I do know that over the next 5-10 years there's going to be some
tremendous advancements and we are extremely optimistic on the technology
sector. Retailing I think, is another good area. What we're looking at is
getting involved in some niche areas. We own one company, Just For Feet, like I
said Sears Roebuck, we're in Neiman Marcus, and various sectors in the retailing
and very, very pleased with what retailing can do. But again, you're going to
have to be a little careful on these. This is one industry which, at times, has
a little more debt versus equity and we do bend a little bit with the retailing
industry. The other main sector that we're in is health care. One of our larger
positions is Merck & Co. The New York Stock Exchange company, Merck. Here's a
company which recently reported very good earnings and their drugs seem to be
doing extremely well, even overseas. That gives us an overseas exposure and,
again, with the demographics I keep picking one horse and it's halfway dead.
It's the demographics. The population of this country is getting older. It's
going to continue to get older. As you may have heard, every seven and a half
seconds someone is turning 50 this year. The baby boomers are now turning 50.
Well you've seen those ads on television, 'Now you're 50 and it's a great time
to be silver,' blah, blah, blah, and they're selling vitamins, and all of these
health care products and as the country does get older there's going to be more
and greater needs for drugs and medication. So, I think the drug industry from
one end of the spectrum from nursing care to HMO's to the drug manufacturers
themselves, it's going to be a great area to be invested in. All of these areas
you're going to keep a very close eye on. You're not going to let earnings get
away from you or be lulled to sleep where they say 'Well, this is a bad quarter.
The next quarter will be better.' I say, okay fine, show me next quarter. I
would sell any issue which is not making more money because this whole economy
is growing. The world is growing and we will not put up with that. We want to
see the results. We do not want to wait for this next quarter to come up and be
profitable. Again, being redundant, every seven and a half seconds, a baby
boomer out there. That means there's more people who just might be buying
Centrum vitamins. So if you're in a company that isn't participating in that,
there is something wrong and we do want to participate in that.
I will slow down now and check with Jill again and see if there are any
questions.
THE FLOOR IS OPEN FOR QUESTIONS IF YOU DO HAVE A QUESTIONS, PLEASE PRESS 14 ON
YOUR TOUCH TONE PHONE.
MR. MCCALLISTER, YOU HAVE A QUESTION?
YES, I WAS INTERESTED IN HOW MUCH REDUCTION HE HAS HAD SINCE THE MARKETS TURNED
DOWN AND HAS HIS PRICE TO EARNINGS RATIOS CHANGED IN THE FUND SINCE THE MARKETS
COME DOWN?
Well, that is a real, real good question. The redemptions have been, I would
say, flat. We had, from my best guesstimate of this, about maybe 3 million
dollars net redemptions. Every day, of course, we have redemptions, but we've
had more money coming in. But luckily, we were written up by Louis Rukeyser. He
highly recommended us so we got quite a few dollars from that and it's still
coming in there. So, we haven't had many redemptions. Cash flow has offset most
of those. This last month was earnings month, the month of July. Second quarter
earnings were announced and due to that we were selling some stocks and picking
up different positions and as we sold them that kept our cash flow, I'll say,
positive, because I had cash and I did not have to go in the market and sell
something because of the redemptions. They were slow enough, they were gradual
enough where there was not a problem. We had absolutely no problems with
redemptions and I jokingly say that I did build cash up a bit. My fund, and I
know when investment advisors/financial planners are looking at a fund you want
a fund invested in the market. Well, my fund before this correction, I one day
had .04% in cash. In other words, I was 99.96% invested in the market. I have
built it up to where I am running at around 1%, actually a little less than 1%.
So in a sense, you could jokingly say I built cash up 25 fold. Well, (laugh)
we're still basically fully invested. Like I said, a little over 99%, but we are
keeping a fully invested position. I'm looking to buy and commit that capital.
I'm keeping a little more cash because there's been a slight outflow of money,
but no real problem there. I think this redemption may slow down if the market
stabilizes.
The other part of your question was my p/e ratio. Needless to say, the p/e ratio
has dropped dramatically. I haven't done a study on that for the past couple of
weeks, but looking at most of the issues, I would say our average p/e now is
probably somewhere in the low to mid 20's. In other words, maybe 22-25. Prior to
the sell-off I think my p/e ratio was running around maybe 27-28. But I found
other companies now that are selling at some low p/e's and we put them in the
fund and I would say we're running mid to low 20's in the p/e ratio. I consider
that realistic with the earnings/growth rate. We try to find companies, I'm
going to expound a little bit on that question, that when I buy a company if I
find a stock selling at a p/e of 20 I like to see earnings growing at least 40%
on a quarter over quarter basis. In other words, I'm looking at this quarters
earnings versus the corresponding quarter last year. And if I can find the p/e
ratio at 1/2 the earnings growth rate during the corresponding quarter, that
gets me very excited about the company. Then we really start doing more research
and digging a little deeper into that. So, I would say that earnings growth
right now is probably between 60 and 80% and our p/e is somewhere in the mid to
low 20's. So, does that answer your question?
YES IT DOES.
Good. Thank you.
MR. YURSEE, YOU HAVE A QUESTION?
YES, I WAS JUST CURIOUS, MR. BONNEL, ABOUT THE STYLES OF FUND MANAGEMENT. YOU
APPEAR TO BE VERY MUCH AN EARNINGS/MOMENTUM KIND OF MANAGER, AS OPPOSED TO THE
OTHER SIDE OF THE SPECTRUM, WHICH WOULD BE MORE VALUE ORIENTED. AND I JUST
WONDERED WHAT YOU THOUGHT AS FAR AS THE RELATIVE SUCCESS OF YOUR STYLE VERSUS
THE VALUE STYLE AND THE KIND OF MARKET THAT WE HAVE RIGHT NOW. IF WE ARE
SOMEWHERE NEAR THE TOP, OR AS SOME THINK, THAT YOU KNOW, THAT WOULD SEEM TO SAY
THAT THE VALUE STYLE MIGHT BE MORE SUCCESSFUL. BUT IF WE STILL HAVE A LONG WAY
TO GO, MAYBE YOURS WOULD BE RIGHT. I WONDER IF YOU WOULD JUST COMMENT ABOUT YOUR
STYLE.
Well, yes. My style is earnings driven. It is not value driven. We are looking
for companies that are showing good earnings increases. Will value start to
overtake the earnings style? Let me take the devil's advocate side of that and
say 'yes, it will,' which of course then puts me in a box. However, I don't
think it will put me in a box because we are still going to search out some of
these small, mid-cap type companies which can benefit from technology
innovations, building up market share, and so forth. Value style, you are
looking more at the blue chip companies, the solid dividends and that, and I
don't know, I've always believed in earnings. If you buy value and you don't
have earnings the company isn't going to go anywhere. A perfect example of that
is if you take a look at a long term chart of General Motors. In the mid 80's
and early 90's that stock was absolutely nothing. That was a great value stock
counting dividends, but it didn't do anything because earnings peaked in like
82-83, something like that. And they didn't go anywhere and that stock just
languished. So, I sincerely do believe that earnings are always going to be one
of the driving factors behind the market and individual stock prices. And I am
not going to change my style. We built up a good track record by looking and
focusing on earnings that are at least growing. And, you know, to change -- I've
been in the market now for about 25 years. Actually in 1973 I became a
registered investment advisor and I've been following the market even when I was
in high school and college and it would seem like they are always changing.
Well, what should you be in now. Should you be in value, should you be in
earnings. Should you be in the cyclicals. And if you keep trying to find those,
once in a while you may catch it before the curve starts up, but I think the
most important thing is to stick with a philosophy. Stick with it. Don't change.
And you will be rewarded in the long run. I don't know. I guess I can say this,
but if you look at my long-term track record, I was 5 star by Morningstar when I
managed a prior fund. I had one of the top rates of return of any fund manager
in the country and that's because I stuck with one style. I didn't try to catch
this trend, the value trend, or the cyclicals, or something like that. I said
'Hey, I'm going to focus on one.' And I think we've been averaging something
like 22% compounded rate of return over the last 7 or 8 years. I can't give you
the exact figure on that. That is not an audited figure, but I know it's real
close to that range. And, you know, some say, 'What do you do? Is value going to
come back?' If it does come back I'm going to stick with the model that brought
me to where I am today and I think that's important. I just don't think anyone
can catch earnings versus value or cyclicals.
WELL, FOLLOWING UP ON THAT COMMENT THEN, WHAT IS YOUR SELL DISCIPLINE. HOW
PRICEY WOULD A STOCK HAVE TO BE FOR YOU TO WANT TO SELL OUT OF IT? OR IS THAT
NOT A COMPONENT?
The sell discipline is very easy. And in fact, I find selling easier than
buying, to be perfectly honest with you. Now most people don't look at it that
way, but if anything which gets us in the stock suddenly breaks down, if we look
at equity ownership by management, you know, they've been buying and all of the
sudden they start selling, hey, something's happening. Goodbye. I really don't
care. And I'll sell the stock. If earnings are going up, like Circus Circus --
this last quarter their earnings were up -- when they report their next quarter
earnings, if they're down, like I said, even a penny, I'm out of it. So my sell
discipline, if anything happens that got me into the stock that's no longer
valid, I sell it. It's gone and I think that's most important. I literally find
it easier to make a sell decision than I do a buy decision because of all the
things we go across. When we have them there, I have them lined out, I know what
the numbers are. When they announce their quarterly earnings and they're not
there, I'm out of it. Selling is much easier. At least it is for me. I think
that's one thing that has helped give me a good track record and I don't wait
around. It's gone.
WHAT KIND OF TURNOVER DO YOU HAVE?
Our turnover is approximately 150%, I think. I think it's running around 150.
OKAY, WELL THANK YOU VERY MUCH.
Thank you for listening today.
WELL I ENJOYED IT. THANK YOU.
MR. KOMAI, YOU HAVE A QUESTION?
YES, ART, HI, I HAVE TWO QUESTIONS. ONE IS, YOU WERE TALKING ABOUT THE BABY
BOOMERS AND MONEY COMING IN. WHERE IS THE MONEY COMING IN BECAUSE THE UNITED
STATES IS CONSIDERED HAVING A VERY LOW SAVINGS RATE, SO THE LAST FEW YEARS WE'VE
BEEN PUTTING QUITE A BIT OF MONEY INTO THE MUTUAL FUNDS AND I WAS WONDERING
WHERE YOU THOUGHT THE MONEY WAS COMING FROM.
Well, one, it's coming from me. Every month I have a monthly investment plan and
every month I put in some dollars. I happen to put it in my own fund. The people
I talk to, we're working very hard to get 401K money, IRA money coming in and,
gosh, I can't tell you how many people I know who just recently started
retirement plans. One of the brokers who is a friend of mine here in Reno
(you're talking to me, I'm in Reno, NV, right now) said that in the last year he
knows maybe 5 or 6 of his friends that just started saying, 'hey, I want to
start saving.' This gentleman is in his early 30's. So where's this money coming
from? A lot of people are getting really involved with it. Last year, USA Today
ran an article on the boomers and their retirement. I'm not sure where they got
the figure, but they said the average baby boomer was saving $1000 a year
towards retirement. Now that was average. If you look at what has come out this
year, practically every magazine, including USA News & World Report, has had
major articles on how to plan your retirement. So, I really think that average
has gone from $1000, and maybe up to $1500, close to $2000, but there's a
tremendous awareness that there wasn't 5 years ago in regards to retirement.
People are starting to look at it, you know it's a wake up call when you hit
40-45 and 50, that, hey, maybe you're not going to live forever. Now a 20 year
old is going to live forever. We all know that. And when you maybe first hit 30,
you still think you're going to live forever, but when you hit 40 you begin to
say, 'Hmm, maybe I'm not going to do it,' because a lot of them then have kids
who are about ready to go to college and say 'I remember when I was there.' So,
this wake up call comes on, and people say, 'We've got to do something about
it.' With USA Today saying $1000 per boomer per year, I think that quickly, if
not real close to $2000 now. People are just starting to focus on it. Also, when
you reach a certain age level, like the 50 age level. Generally speaking, your
children are probably out of school. They're no longer in the next so you don't
have to support them. Your home is probably just about paid for, if not paid
for. You already have the dining room set, you have the Landrover, the BMW. You
don't need these, so there's not the demand for those goods. So you suddenly
say, 'Hey, I've got some extra money. What am I going to do with it?' So then
you start to look around and say, well I think I should start planning for my
retirement. And that's where I think it's coming from. The aging of the boomers,
they now have more spendable money because they don't have the obligations. Or
they're getting close to getting out of them. And this is going to continue.
This is a wave that's just starting and over the next 5 to 10 years there's
going to be tremendous savings. Now everyone says, 'Well, what about in 10 years
from now? 10-12 years from now when the boomers start to retire and get to that
age?' Well, my response to that is, I'll worry about that in about 7 years when
I see something happening, but over the next 5-7, maybe 10 years, I think you
have to put the pedal to the medal and say 'Hey, let's go for this and let's be
invested. Let's look for good quality companies and, you know, there's some
money to be made. So, I think we're in a super business. You had a second
question.
YES I DID, ART. THE SECOND QUESTION WAS, WHAT ARE YOUR TOP THREE HOLDINGS AND
WHY DO YOU HOLD THEM?
Top three holdings? Oh, let's see. That's a good question. It's interesting what
they are. The first one is Jones Medical. Medical supplies, drugs, and that,
it's about 2 1/2% of the fund. Maybe slightly more, but it's under 3% and I'm
glad you asked that question. The reason I say I'm glad you asked that is
because this stock I've held, it's approximately, I don't have close today, but
it's about 32 bucks a share, something like that in the 30 range. My average
cost is something like $15. When I buy a stock I just buy it and I let it go and
I let it do its thing. I've held this stock for about a year now. Earnings have
been good and like I say, thank you very much. So, this has become the largest
holding in the fund. If I see it getting, I'll say, totally out of line, I might
start to liquidate part of it, because I don't like to get any large position.
Since I've been running the Bonnel Growth Fund, I don't think I've had one
position that is 3% of the Fund. I think it's very important to be diversified.
I have 120 plus companies in the Fund. And, like I said, the largest one is
around 2 1/2%.
The next two happen to be software companies. One is BMC Software and the other
is Peoplesoft. Again, here is a couple of companies which have appreciated for
me and, you know, I like them because they're going up, but no specific comment
on them because, you know, these are slightly under 2 to, say 2 1/2% of the
Fund, and I look at them, I say 'They're doing their job.' I think software is
going to become, is and is going to continue to become very important in today's
environment. People want user-friendly software and these companies seem to have
that. So those are the top three. Jones Medical, BMC Software, Peoplesoft. A
couple of others in the top 10, I have Nautica Enterprises, which of course, is
clothing. We have Chesapeake Energy which has been a real hot stock this year.
Merck happens to be one of my top holdings also. So that gives you a little
flavor, some of the different industries in the top 10. You know, the number 10
issue is 1.9%. You can tell I don't take a big position. I've been in this
business for many, many years. I'm going to go into a little more detail on
this, but I, when I was running another fund, I had one position that was like
6% of the fund and one day they came out with some bad news and the thing went
to like 4 1/2%. The stock got hit fairly hard and that did a number to my NAV
and I saw that on a couple of issues where I had larger holdings. I said, well,
do I really need this? I don't need that pain and suffering. And I have found
that by diversifying, I've got a basked with a lot of small eggs and if one of
them drops and breaks, it's not going to hurt and I like being widely
diversified and not taking a large position. That can come back to haunt you, so
if it gets too large I will liquidate it. Going on to another little story, I
was in I Omega this year and I bought that in January at the equivalent of 7 1/2
- -$8 a share. The thing got up to 50, it may even have hit 60. I started
liquidating at the 50 range and it backed off at 40 and 30 and I got out of it
totally in the 20's, but that got to the point where it was kind of ludicrous,
but I will, if these stocks start to take off, I'll hang off. I think that's a
secret too. You just grab on to the thing and you hold on and say 'Go, baby,
go,' and you see what happens. So, I don't have a set parameter where, if the
stock doubles I sell it. I let them run.
OKAY. THANK YOU!
Thank you.
MR. JONES, SIR, YOU HAVE A QUESTION?
YES, ACTUALLY ART ANSWERED THE FIRST QUESTION, BUT I WAS JUST CURIOUS, WHAT
PERCENTAGE OF HOLDINGS HAD DISAPPOINTING EARNINGS IN THE SECOND QUARTER AND HAS
THAT BEEN MOVED OUT OF THE PORTFOLIO?
That's a good question. A very good question, because the second quarter
earnings, I'll say, weren't as good as we had seen in the first quarter, yet I
found some good companies, but the earnings increases were lower than they were
in the first quarter. I would say we probably moved [about 30% of the issues].
The dollar has gotten stronger, as an example. You know value of the dollar
versus the Yen, the dollar gained over 20% in value over the last year and that
is starting to have an impact on earnings. And I think that's what part of the
problem was this quarter and I don't know how long that will continue but you've
got to be, we're being very selective. We're not finding the prodigious earnings
increases that we saw December, the first quarter of this year, and the third
quarter of last year. So it's kind of interesting how there's been a slight slow
down in earnings and I, I relate that to strength in the dollar. Companies are
not selling as much overseas as they used to. They're not having the profit
margins there and it's having an impact. So we have to pick out some of the
companies and I hate to sell them, I like to buy them and hold them, but if they
don't meet our criteria, good-bye. And like I said, 25 maybe 30%. I can't tell
you exactly because I don't keep track of that, but I think it's a pretty close
number.
SO YOU SEE THE RECENT WEAKNESS IN THE DOLLAR AS A POSITIVE.
Absolutely. Absolutely. Well, you know the Japanese Yen, the dollar was buying
85 Yen a year ago and it went up to 110. And it's pretty easy to relate to it
this way. Supposing you're in Japan and you can buy, well let's say, a small
portable televisions (they run in the $100 range). And you could buy it for $85
and there's one made in Japan selling for the equivalent of $85. Then suddenly
the American one goes up to $90 and you're looking at it and saying 'Well, I
like the features of the American television versus the Japanese,' but then it
goes up to $95 then $100 then it goes up to $110. Well right now, the dollar
buys 107 Yen, something like that. But, the basic point is if you can buy two
products, one at $85 or one at $110, and it's the same basic product, what one
are you going to buy? You've got to buy the $85 product. And American products,
what I've actually, I think a 27% increase in the value of the dollar. Well,
what's going to happen? You're not going to sell, the American companies are not
going to be able to sell as many. They might be able to ship it over there, they
may be able to open up some of the trade barriers, but hey, if your product now
is 25% more expensive, you're not going to sell it. Not for the same comparable
product. There are some companies that sell products which aren't, don't have
the competition and they seem to be doing okay, but basically, hey, that's a
tough one. A tough one for the Pepsi's, the Coke's, the IBM's in that business
to compete against. They're competing against themselves. So...
WELL, I THINK THAT ANSWERS THE QUESTION.
Alright, thank you!
I APPRECIATE IT.
MR. CALICHECK, YOU HAVE A QUESTION?
OH YES, ART, I VERY MUCH RESONATE WITH YOUR EARNINGS MODEL. THE QUESTION I HAVE
IS HOW DO YOU MODEL THOSE EARNINGS AND HOW DO YOU KEEP IN TOUCH WITH MANAGEMENT
TO RECOGNIZE THAT THAT MODEL WILL BE FORTHCOMING WITH YOUR ESTIMATES?
[cough] Excuse me. The, we do all our research in-house. I don't talk to
management. We use rear-view mirror approach to investing. And I'm not trying
to, I don't forecast earnings. I look at what the company did and I hope that it
can continue to do well. And, what we do is if we like the numbers of the
company we get more data from the company, contact them, they'll fax us the
information, their quarterly report and then we'll look at it and say, 'yea,
these are good numbers. We'll take a position.' So we're able to get that data
quickly, but we do not, like I said, talk to management. And you look at it this
way. If you talk to any company, I would expect I would almost demand that the
company be very optimistic. Even if they're making buggy whips they should be
optimistic about their buggy whips. If they're not then something's wrong. Then
you really have a bad company. But, we have talked to a lot of companies. I
don't have that clout, the Fidelity clout to say, 'Hey, I'm going to pound your
stock with 20 million shares or drive it down if you don't tell me what you
think is really going to happen this quarter.' So I can't do that. Some of the
big funds have more clout than me. That's fine, but I'm willing to look, like I
said, rear-view mirror, what happened this quarter, what's been going on for the
past few years. I've got data going back 10-15-20 years on companies. And that's
how we work this. We're not really looking to talk to management. The model is
just a basic model. We're looking at the numbers and it's no big secret. Like I
said, Circus Circus, I saw them earning a penny more than they did last year,
and I said 'Hey, earnings were up and everyone knows that.' Why did I pick that
stock? I think gaming may come back. It has been in a down trend for a couple of
years. It looks like it's turning and that's why you go after some of these
things. But I would not have bought Circus if the earnings had not been up. Does
that basically answer your question?
YEA. ON THE FLIP-SIDE OF THAT, LET ME JUST FOLLOW UP AND SAY, IF YOU TAKE
COMPANIES LIKE A U.S. ROBOTICS IN THE FOUR? WHERE THE EARNINGS HAVE DOUBLED AND
THE SALES HAVE DOUBLED AND THE STOCKS GOT TRASHED BY THE STREET, WHAT WOULD YOU
HAVE DONE IN THAT CASE WHEN YOU HAD THEM, IF YOU HAD THEM? I MEAN THERE THE
RESULTS BEING GOOD AND NOT BEING COUPLED TO MANAGEMENT.
Yea, right. What would I do with earnings still being good and the company being
trashed? I'll tell you what I do. I hang on to them. I don't have stock losses.
I look at the industry as a whole and if I find the industry is breaking down I
say, well maybe, someone knows more than me and I might lighten up, but I have
tried to time the market on a technical basis and do technical analysis of my
companies and I find that it doesn't work so I will ride a stock down. I seldom
take more than a 20% loss in a company. But it does happen. And periodically
that happens to most companies, but being as we reassessed the situation every
quarter, if I see margins being impressed, they're not expanding them, we get
out of them. So we're able to get out of them pretty quickly because we're on a
quarter to quarter basis. So I don't have to ride a stock down too far. But
every once in a while that happens. It's impossible to avoid a situation like
that. We're in the business and I've got a lot of companies. It does happen. But
I normally don't get too involved in one that gets really clobbered. Like Lykron
Technology. I was looking at that at $70 per share and said I don't like this.
It looked like the margins were under pressure. And dang, the stock is down in
the teens. But we're looking for those things. So...that's how we have avoided
that, but I can't avoid them all.
THAT'S FOR SURE. THANK YOU.
Alright. Thank you.
AGAIN, THE FLOOR IS OPEN FOR QUESTIONS IF YOU DO HAVE A QUESTION PLEASE PRESS 14
ON YOUR TOUCH TONE PHONE AT THIS TIME.
Jill, can I make a statement?
OF COURSE.
For the people out there who are interested, we have, shall we call it, an
advisor package, a monthly update, a fax update, and these people can call
800/873-3639 and we can get them on our monthly fax update. We will go and
review our top holdings, amount of cash in the Fund, what we're doing, the
general positions. I think it's, would be very interesting and if anyone out
there is interested they can call that number, again the number is 800/873-3639
and you get in touch with our financial advisors service team representatives
and we will get them a monthly update, a fax update on our Fund. So, we would
like to let people know what we're doing and also if they will call us we will
let them know when we have other teleconference calls and then they can keep up
on my Fund and some of the other funds that are in the U.S. Global Investors
fund family.
I'll open it up again to any questions.
IF THERE ARE ANY FURTHER QUESTIONS, PLEASE PRESS 14 ON YOUR TOUCH TONE PHONE AT
THIS TIME. THERE APPEAR TO BE NO FURTHER QUESTIONS.
Okay. Well, again, I would like to reiterate one of the cliche's that I came out
with at the beginning of this conference, 'Fortunes are made in bear markets and
they're realized in Bull markets.' This market, hopefully is over. The
correction is over, but we'll be able to tell later. We don't know right now,
but I'm not certain it is or certain it isn't. But I know we're going to keep
invested and if the market goes down a little further the only way to really
make money is to get bargains. And the market has sold off and I think this is
an opportunity to pick up some bargains and during the next Bull market that's
when you're going to make a fortune. You'll be able to actually realize that by
buying, taking quality issues now, and buying them and making some money when
the market goes up. But you have to be patient. Patience is a virtue in this
business and we have to, again, focus on the long trend, the continuing funding
of the baby boomers. It is going to be the driving force behind this market and
it's going to be more of a force than it has been over the past 50 or 60 years
because the boomers haven't been around for 50 or 60 years. So if you'll look at
the long-term trend of the Dow, 87 was a blip. If you get a real long term
chart, you know, and the 73-74 bear market was a blip. Long-term this market is
going up and I can't emphasize enough that you have to focus on the long trend.
You might be able to sell out at the top, but then getting in at the bottom is
very difficult. That's why we are going to stay fully invested and if you invest
with us you will know that you will be in a fund that is invested in the stock
market. I don't have 30% in government bonds. We're not going to do that to you.
We will be invested in the market. And like I said, if you want to know what our
top ten holdings are, again I want to repeat that number, that's 800/873-3639.
So, Jill is there anything else? If there is anything I'd like to answer the
question.
WE DO HAVE AN ADDITIONAL QUESTION FROM MR. CALICHECK.
I HAD MY FINAL QUESTION THAT, WHEN YOU GOT TO THE CLICHE I HAD TO ASK, IF YOU'RE
GOING TO MAKE A FORTUNE IN THE BEAR MARKET AND YOU'RE 100% INVESTED, WHAT
CRITERIA ARE YOU GOING TO USE TO RAISE CASH TO CAPITALIZE ON THE BEAR MARKET TO
MAKE GREAT MONEY WITH?
That's a good question. And in, I was running another fund in 1990 and we had a
bear market in 1990 and I think the Dow was down slightly over 20% that year. In
91 my fund was up 77%. Last year, actually 2 years ago, 1994, we had a bear
market last year my fund was up 45%. So, you know, people who were willing to
take advantage of the bear market, we will reposition the Fund, buy stocks that
are selling at low p/e's, high earnings growth rates, and reposition it and
hopefully take advantage of it again. Like I said, I'm real excited about this
correction and we've done summary positioning. The ones that we like we held on
to. I'm not going to sell them. And when this market does turn, these should do
well. Again, no guarantees. I think the SEC wants us to say "Past results are
not indicative of future returns" or something like that...
THAT'S FOR SURE.
but I really believe that this is where you pick up the bargains and we will
reposition the Fund, get out of the weak holdings, weak sisters and buy the
strong ones. And then when the bull market starts roaring again, we'll be doing
fine. Also, another thing, I want to call this a bear market. The NASDAQ fell
19.7% or something. Bear markets don't last as long as they used to and I think
that if this was a bear market, we're probably now set for a 2 year, at least a
2 year bull market and people are going to be scratching their head and there's
still going to be the doubters out there, but if this was a bear market, we're
looking at at least 2 years. That's why I'm even more optimistic today than I
was 2 months ago. I did think the market was a little overvalued a couple of
months ago and now I'm real excited about the market and some of the price
levels. So, like I said, I repositioned the Fund a little bit, and hopefully
we'll be able to participate in it.
THANK YOU.
Thank you.
IF THERE ARE ANY FURTHER QUESTIONS PLEASE PRESS 14 ON YOUR TOUCH TONE PHONE AT
THIS TIME. THERE ARE NO OTHER QUESTIONS.
Okay. Well, it's been about an hour I do believe. I'm willing to say thank you
to everyone and it's been a real pleasure. And I hope that you found it
interesting and give our institutional 800 number a call and get on our mailing
list.
Again, thank you very much for your interest in my Fund and U.S. Global
Investors and the United Services Family of Funds. We do appreciate your
continued interest and looking forward to hearing from you in the future. Thank
you and have a good day.
Good-bye.
- ----------
For a free prospectus containing more complete information, including charges
and expenses, call 1-800-873-3639. Please read the prospectus carefully before
investing. Investment return and principal value will fluctuate. You may have a
gain or a loss when you sell shares. U.S. stands for United Services. United
Services' and Art Bonnel's opinions mentioned in these messages are subject to
change and there is no guarantee that the funds will continue to hold any
securities discussed. Average annual total rate of return for 1 year period
ended 7/31/96, 11.42%. Average annual total rate of return for life of the Fund
(10/17/94 through 7/31/96), 28.95%.
