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With rising interest rates and inflation fears, it’s not easy to make the right investment decisions these days. Should you bulk up your assets with pricey growth stocks or keep your portfolio in fighting trim with cheap value equities that may not pay off for months-or years? Whether you’re prepared to climb in the investment ring and fight for the best returns depends, of course, on your pocketbook, tolerance level and stamina. To help you make it through the next rounds, we have assembled a group of experts-some in the growth camp and others in value-to stand in your corner.
Members of our semiannual roundtable included Bill Thomason, formerly of Parnassus Investments in San Francisco, who now has his own firm Thomason Capital Management, and currently manages the SRI Equity Trust Fund for Retirement Plans (one-year performance to July 31: 57.54%); Kim Lew, a technology-focused portfolio strategist for the Ford Foundation (fund performance, September 1998 to July 1999: 76.4%); Walt Pearson, an institutional money manager for New York-based Alliance Capital (one-year performance to July 31: 22.03%); Craig Simmons, chief investment strategist and head of fixed income for Ashland Global Securities L.L.C., an African American-owned broker-dealer; and Dawn Alston Paige, manager of the Loomis Sayles Midcap Value Fund, which invests in companies with a market cap of between $1 billion and $5 billion. (Due to the overall poor performance of value stocks, the one-year fund performance to July 31 was only 5.82%.)
The following are the session’s highlights, which we hope will help you make the best offensive and defensive moves in the market. Ding!
BLACK ENTERPRISE: There has been a great deal of volatility in stocks, with growth and value shares essentially switching market leadership. Will we continue to see this trend of seesawing over the next six months to a year and why?
Dawn Alston Paige: I don’t think, going forward, that people are going to buy growth stocks with the same amount of enthusiasm as they have in the past. April and May marked the biggest value months, back-to-back. I think you are going to see values start to resume leadership once the inflation scare is pretty much behind us.
walt Pearson: Well, the top 20 stocks, in the Standard & Poor’s 500, are selling at 47 times 1999 earnings. The 20th stock is actually AOL, which has obviously got a very high multiple [at] 40 times ’99 earnings. So, obviously, valuation is at the very high end. It has been there for quite some time, so that is something we’re a little nervous about. As large-cap growth managers, we look for companies with explosive earnings growth, good franchises, earnings numbers going up, which is extremely important, and, hopefully, margins going up. But we’re going to watch the price. The small- to mid-cap companies are where you see all the insider buying now. So even though we’re a large-cap growth manager, we’re trying to grab some of these mid-cap names and catch them early and ride the cycle as they explode.