No Place For Panic

Kiplinger's Personal Finance Magazine, June, 2000 by Fred W. Frailey

FUNDS | After the plunge, back to work with piles of cash and an army of UNRUFFLED INVESTORS.

MENOMONEE Falls is Wall Street in microcosm. On a rainy Monday morning, in a 9,300-square-foot room overlooking a sylvan glen just outside Milwaukee, are gathered the shock troops of the Strong fund family--fund managers, analysts and traders. They're all on edge.

The previous week was living hell. It ended on Friday, April 14, with a cataclysmic plunge that sent the Nasdaq composite index down nearly 10% and the Dow Jones industrials almost 6%. The technology-heavy Nasdaq is deep into bear-market territory, down 34% in scarcely a month from its all-time high.

Millions of Americans have spent the weekend pondering the damage to their portfolios and deciding what, if anything, to do about it. Will today be more of the same, or maybe the start of the road back?

A waiting game

IN ONE CORNER of the big room, in the back of a row of low-walled cubicles, sits Jim Houlton, who looks 25 years old but is really 40. Just promoted from an analyst position, he runs a newbie fund, Strong Internet. Begun only last December 31, the fund is in tatters this morning--down 31% last week and 22% for the year to date. But lo and behold, investors plunked $505,000 more into the fund over the weekend than they took out. What will Houlton do today? "I'm going to sit back and see how the weekend affected people," he replies. Translation: He'll be an onlooker, not a trader.

No way will Ron Ognar sit out the day. At 57, the curmudgeonly Ognar runs the flagship fund, $4-billion Strong Growth, and its concentrated cousin, Growth 20, with a panache that bespeaks his 30 years in the business. Ognar plops a pile of buy tickets--and half a dozen sell orders--on the desk of the head of trading, Jon Baranko, and retreats to his own cubicle. "The market did in one week what I thought would take months," he says.

But Ognar prepared for just this moment. For six weeks he cleaned the cupboards of Strong Growth, selling weaker stocks and bringing his cash level to 23% of assets (15% for Growth 20). "We're positioned perfectly," says Baranko. Adds Ognar: "Today I've got a lot of orders in at prices below the market. If they want to take the market down, fine, I'll buy. What I don't want to do is chase after a bunch of poorly run companies. I want to own Cisco Systems as my Mercedes and Juniper Networks as my Porsche. These are the kinds of tech stocks I want today. To hell with the other garbage."

As he finishes the thought, across the room trader Dianne Dziengel picks up an ornate bell she brought back from a trip to China. The peals remind everyone that the trading day has begun. It's eight thirty in Menomonee Falls.

The tug of war

DURING THE FINAL half hour of trading the previous ]Friday, Strong shareholders had called in record volume, overwhelming the more than 150 telephone reps one floor below the investment people. A Swiss army of several dozen employees from other departments were called in to help man the phones. But there was no mass exodus from the funds. Redemptions were negligible. "People just wanted information," reports Peter Schwab, head of shareholder communications. No panic was in evidence when the results from the weekend were totaled, either. Telephone volume was light both Saturday and Sunday. Some funds got a pile of new money (Growth took in more than $2 million), and others experienced net redemptions. All told, redemptions exceeded new investment money by $6.5 million--loose change for this $45-billion fund group.

On the trading desk this mucky Monday morning, Baranko goes to work on Ognar's buy-and-sell list. He wants to buy Pharmacia and Pfizer on weakness and closely watches minute-by-minute charts of both stocks on one monitor while studying asking prices of various sellers on another. Pfizer plays easy to get--each time it turns down after a little run-up, Baranko is there to buy. Pharmacia is less cooperative.

At eight fifty, he looks up to scan the major indexes in one corner of a monitor and smiles. "The market is not acting out a doomsday scenario," he says. Both the Dow and the Nasdaq are up nicely.

Ognar's desk is clean and tidy. He knows exactly which growth stocks he likes. Dick Weiss and his crew of analysts, on the other hand, have paper-strewn cubicles. Weiss runs Common Stock and Opportunity funds. These portfolios are populated by growing companies bought at bargain prices. All the paper that litters these offices is expended calculating what a company would be worth if it were bought out. Weiss likes to buy below that number.

"What I do at times like this," Weiss says, "is look for companies with unique qualities that are usually too expensive for me--companies like Masco, for example." Of one thing Weiss feels certain: The era of bidding technology stocks to the skies is over. For many tech stocks, last week's pre-pummeling highs will stand for years to come, he says, and you sense that this pleases him no little bit.

Negative numbers