How the pros invest their money

Black Enterprise, April, 1995 by Rhonda Reynolds

B.E.'s Wall Street sages offer stock and mutual fund tips, hints and picks year-round. Now let's peek into their private portfolios.

WHENEVER A FINANCIAL PUNDIT dispenses stock tips or holds forth on mutual funds and bonds, some investors sprint for their checkbooks as if they were suddenly blessed with divine inspiration. Others curse, cringe and contemplate revenge by calling the SEC or FBI to report the pesky brokers for harassment.

Sage or swami, oracle or opportunist, you certainly must wonder what's in their own investment portfolios as you wade through the pages of personal finance magazines, separating the hucksters from the true seers.

Rest assured, there are some experts who put their money where their recommendations are. We are fortunate enough to feature five of them from interviews conducted in late January. But before peering into their secret caches, let's define the market our experts play in.

1994 was such a horrible year that investors almost resorted to aiming slingshots at their brokers. Why? The New York Stock Exchange slumped 3.14%, NASDAQ dropped 3.20% and AMEX fell 9.1%. Experts say it was the worst bond market in 60 years, the U.S. dollar was battered and the Federal Reserve raised interest rates a record seven times last year.

Portfolio diversification did little to ward off mutual fund losses. Domestic stock funds lost 1.67%, taxable bond funds fell 3.28% and global bond funds slumped 6.45%, according to Lipper Analytical Services.

Fortunately, the outlook for 1995 has some bright spots. Wall Street is charting the trend of investors moving from the individual stock market toward bonds, equity mutual funds and conservative fixed-income instruments. Predictions about this year's thriving industries include chemicals, computers, semiconductors and steel. The losers may be banking, defense, pharmaceuticals, utilities and, of course, the securities industry will once again suffer. Even though investment specialists may be facing leaner paychecks, let's see how they cushion their own portfolios in this daunting bear market.

NEW MANAGER ON THE BLOCK

Ron Scott Nubian Asset Management Inc.

"What's going to be my problem today?" muses Ron Scott, early each morning as he steps onto his 33rd-floor midtown Manhattan apartment balcony.

Building his one-and-a-half-year-old firm has been an uphill battle. Dubbed Nubian Asset Management, the firm is vying to mimic the commercial success of its namesake, that ancient nation in northeast Africa.

Avoiding the safe harbors, Scott's personal portfolio does not contain any mutual funds or bonds. He also manages his own account. "I pick stocks for my clients. Why would I need a portfolio manager who I don't know choosing stocks for me?" Scott asks.

His client list comprises 48 investors, with under $50 million in managed assets. The 1 1 -year investment veteran says he personally buys every stock that he recommends to his clients.

Scott, 30, was formerly a managing director at Ladenburg, Thalmann & Co., an 118-year-old New York investment bank icon. In 1992, Ladenburg anted up seed money to become a partner in Nubian. This arrangement allowed Scott to share Ladenburg's offices and research facilities in New York. After a little more than a year, however, policy differences between the young and aggressive broker and the old-line Ladenburg led Scott to remove his 25 core clients to his own downtown Manhattan hub. Now Scott's firm focuses upon creating an asset management practice that caters to high net worth African-Americans.

Scott concentrates on securities that are undervalued and are bought and sold at a discount relative to their growth rate. Candidates for his portfolio include stocks that Scott expects will have a total return above 40% over a two-year period.

According to Scott, his portfolio of bare-bones stocks brought in a 14.3% return last year. Times were tough but here are some of his better performing picks: Zenith Electric (NYSE symbol: ZE) leapt 66.1%; Union Carbide (NYSE symbol: UK) jumped 31.3%; and International Business Machines (NYSE symbol: IBM) went up 30.1%

Due to the severity of last year's market correction, Scott's profits were somewhat deflated. Among the losers: such major stocks as LDDS Communications (NASDAQ symbol: LDDS) down 19.4%; Grand Casinos (NYSE symbol: GND) down 41.3%; CCP Insurance (NYSE symbol: CCP) slumped 26.9%; and Bankers Life (NYSE symbol: BLH) slid 11.6%.

Future stock choices may include some aggressive growth selections like America West Airlines (AMEX symbol: AMW), Teva Pharmaceutical Industries (NASDAQ symbol: TEVIY), CellStar (NASDAQ symbol: CLST) and Conseco (NYSE symbol: CNC). Clearly a man on a mission, Scott is adamant about his basic investing rule: Never purchase stock in any company that has been discriminatory in its hiring practices or its policies toward female or minority employees, contractors or vendors.

SQUEEZING THE MOST OUT OF WALL STREET

Ann Lemon PaineWebber

Last spring, Kidder, Peabody & Co., the mortgage-backed securities giant, was reeling from scandal and millions of dollars in losses. By autumn, the firm had been taken over by PaineWebber Inc. During the corporate shakeup, an unflinching Ann Lemon just kept on picking investments that gave stable payouts for her clients. As testimony to her professionalism and prowess, she was asked to stay on and is now a vice president at PaineWebber.