Fred Astman, chairman of First Wilshire Management Securities Inc., has labored in relative obscurity for decades, domiciled in his Pasadena warrens and looking for small stocks to invest in. As of last week, he has run his money shop for 20 years.
But Astman, if not widely quoted, has been recognized by money manager ratings services.
Thomson Investment Software, a Boston-based ratings service, called him No. 1 in the country over the past 10 years, while Port Chester, N.Y.-based Nelson Publication Inc. rated him No. 1 in 1996. Both ratings are for equity managers.
What’s Astman’s secret? First of all, he has remained small. “We have $50 million under management,” he says. ‘We don’t advertise.”
The relatively small amount under management allows Astman to move into stocks quickly most of the stocks Astman buys are simply too small for a Fidelity Magellan Fund or Capital Research & Management Co. to contemplate buying. The big funds have literally billions to deploy and limited amounts of time to do due diligence and research.
Other Astman rules: Buy companies with low price-earnings ratios, but strong growth histories, and look for little or no debt on the balance sheet.
Astman noted that the market for blue chips is pricey right now: “The Standard & Poor’s 500 (an index of blue chip companies) is trading at a P-E of 20, on the assumption of 15 percent annual growth in earnings.”
But Astman likes to buy stocks with 20 percent annual growth rates, which trade at below 10 times earnings.
Astman’s portfolio of about 30 stocks was up 69 percent last year, earning him the accolades. But he admits that this year, with the fizzle in the small cap sector, he is still down a few percent.
“But the small cap sector has been coming back,” he said. “At one point this year we were down 11 percent, but now we’re almost even,” he said.
Astman does not recommend his game for everybody. “You have to diversify, and that’s why we have 30 stocks in the portfolio. And if something goes wrong, the market in small cap stocks is sometimes not very liquid. It can be hard to get out of your position,” he said.
The stock market remains very receptive of real estate investment trusts, as evidenced by the successful offering of Pasadena-based Alexandria Real Estate Equities Inc.
The REIT on May 29 issued 6.75 million shares at $20, making a $135 million offering. Net proceeds to the company were $121.6 million. PaineWebber Inc. was the lead underwriter.
There have been various rhubarbs of late in the REIT world, from detractors who note that the market capitalizations on REITs sometimes far exceed the underlying value of the assets, to supporters who say REITs are getting stronger everyday.
One point on which all can agree, Wall Street loves REITs.
Angry at the top
Top Great Western execs and the thrift’s spokesman Ian Campbell are “angered” by the May 29 cover story in New Times, the free alternative weekly.
The story focused on Chatsworth-based Great Western Financial Corp.’s mutual fund sales practices to seniors.
“That was not a story, that was a mugging,” said Campbell last week. “It is fair to say we are all I am speaking for management angered by the article.”
The thrift holding company, through its Great Western Financial Securities Corp. subsidiary, sold affiliated mutual funds to elderly investors, who were Great Western depositors.
As at virtually all brokerages, stockbrokers were pushed to make sales that much seems beyond contention.
The New Times article posits that brokers were pushed too hard, and that some investors lost money when a Great Western government bond fund sank in value, following rate actions by the Federal Reserve Board in 1994.
Great Western did, in fact, recently settle a class action suit brought on behalf of 30,000 Great Western customers, for $17.2 million.
The plaintiffs alleged they were misled, and sold improper investments.
Campbell said Great Western clearly explained the risks inherent in mutual funds, but that the company has gone the extra mile to compensate some investors, even if it thought their claims lacked merit.
One bit of curious evidence: A Great Western memo advising employees to not clearly state to customers that the mutual funds are not FDIC insured.
“It’s crucial that the branch employees do not answer the customer’s question with a simple, ‘No, they’re not FDIC insured,'” stated the memo.
Said Campbell last week: “That was a rogue memo. It was not authorized by anyone in management in Great Western; we didn’t know about it until it came to light in this investigation. We are not sure of the source of it.”
Neither is Great Western aware of how many of its brokerage employees received the memo, said Campbell.
Asked if the “rogue” memo could have possibly been faked by plaintiff’s counsel, Campbell said it had indeed been authored “by somebody who worked for Great Western. It is not a fake.”
If you can’t beat ’em, join ’em?
Beverly Hills-based stock brokerage Dabney/Resnick/Imperial LCC has retained as new corporate counsel in something of a stunner the Century City-based Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro.
It was Patricia Glaser, nameplate partner at the firm, who recently brought Dabney/Resnick to its legal knees when she represented investors who claimed they had been defrauded by the brokerage.
She won her case, and the jury was going to ponder punitive damages when Dabney/Resnick decided to settle.
Evidently, the brokerage decided Glaser is the sort of counsel it needs.
Senior Reporter Benjamin Mark Cole covers the investment community for the Los Angeles Business Journal