Which way is up? Our experts discuss strategies to thrive no matter what the market brings - five Black investment advisers: Frankie Hughes, Robert Lamb, Dawna Edwards, Nathaniel Carter, and Barbara Bowles - Investment Roundtable - Panel Discussion

Black Enterprise, Oct, 1997 by James Anderson

Our experts discuss strategies to thrive no matter what the market brings

SOMETIMES IT SEEMS AS IF GOOD NEWS FOR investors brings up more questions than answers. Midway through 1997, for example, with the market fresh from an unstoppable 20% tear in the first half of the year, there were riddles aplenty to figure out. On one side, pundits had warned even before January 1 that stocks were overvalued and that a correction--an overall drop in the level of the market--was long overdue. And true enough, the market slid almost 10% in February, rebounded shortly thereafter and proceeded on to a record 8,000 mark for the Dow Industrial Average. Could so many great financial minds be so wrong? Not necessarily, many experts said, repeating the same gloomy forecast.

Much to our relief, no sooner had we begun to puzzle over what had happened, than it was time for the biannual BLACK ENTERPRISE Investment Roundtable, an opportunity to gather some of the best professionals around to ponder tough questions we all need answered to best structure our portfolios. On July 10, we brought together a noteworthy group at our Manhattan headquarters. There was Barbara Bowles, CEO and founder of the Kenwood Group Inc., a Chicago institutional investment firm managing $300 million in assets and running a mutual fund that specializes in mid-cap value stocks. Another value stock expert in attendance was Nathaniel Carter, president and chief investment officer of Lakefront Capital Investors, a Cleveland money management firm running $20 million in institutional assets and the newly minted Key Victory Lakefront Fund to boot.

We didn't want to neglect growth stock managers, so we invited two. We had Dawna J. Edwards, director of equity investments and principal of Alpha Capital Management Inc., a 100% African American-owned money management firm headquartered in Detroit that manages $120 million in assets. Teaming with her was Robert Lamb, president and co-founder of Highland Investment Group, a Fairfield, Connecticut, firm that recently launched the Highland Growth mutual fund. Finally, to help with guidance on the fixed income and bond front, we added Frankie Hughes, founder and president of Hughes Capital Management, a Washington, D.C., firm with $225 million under management.

Our panel covered the gamut of investing what had happened and was going to happen to the market; what are some of the best long-term investments to be found; and whether another drop in the stock market is in the offing. And to best help you comb through some of their invaluable advice, we've divided the proceeding up to address specific questions you, the investor, would most likely ask.

Is the market too high? Are stocks overvalued?

BE: At our roundtable six months ago, the consensus was that stocks were very expensive. Since then, the market has run up about 20%. What's up?

BARBARA BOWLES: The market is selectively overvalued. Large-cap, blue-chip companies have made the most gains so far with the top 50 companies up 40% year to date, while the rest of the market is up only three to 10 percentage points. If there's value to be found, it's in smaller companies under $10 billion in market cap.

BE: The S&P 500's P/E ratio has historically fallen in the range of nine to 20 times earnings. Where is it now?

BOWLES: It's at 22 times earnings.

Is it time for a correction, or drop in stock prices?

BOWLES: At those levels, I think we really need a correction. Earnings growth rates are beginning to slow, and the market continues to rise. The stock market can't continue to rise based on anything other than fundamentals, like earnings or profits. Right now bulls are looking for reasons for the rise to continue, and those reasons are disappearing. I would suggest that individual investors who are moving into the market do so cautiously. Don't pay very high multiples for the stocks, even though they are high quality companies.

DAWNA EDWARDS: No one seemed surprised by a Dow of 8,000. Well, despite that; I believe that we might see a correction, and estimates I've seen say the market could come down 10%. The belief, though, is that once that occurs, the market will have cleansed itself and would then resume the upward trend.

BE: Is it time for the market to drop, or are those parameters ancient history?

NATHANIEL CARTER: We've already had almost 10% correction in February, and the market bounced back. Another correction would be short term because money keeps flowing into 401(k) plans, and when investors look and see the bond market up only 3.5% year to date, they naturally turn to stocks. For the rest of the year, we're likely to see the market upend at anywhere from 20%-28% higher than last year; we're already 23% higher now. There might not be much growth at all in the stock market in 1998. I don't think we're going to see a correction of the magnitude of anything near 1987; we're more likely to see a period of plus or minus 5% from here to the end of the year.

With the overall market uncertain, does it still make sense to invest in index funds?