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Managers Offer 'Strong' Returns

Dick Weiss and his team make their mark by investing in underfollowed, 'quiet' stocks

Growth-fund manager Dick Weiss says cable-television companies are seen as laggards in new markets such as the Internet, so their stocks are now "unloved and ignored."

That's just the way he likes them.

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For the past 15 years, Mr. Weiss has made a name for himself by championing underfollowed stocks and "listening for the quiet" in the market - looking for unpopular sectors he can invest in before everyone else does.

"Over the long haul, he's been consistently excellent," says Larry Chin, an associate editor of No-Load Fund Analyst, a San Francisco area newsletter. Weiss was one of six veteran managers the publication named "gurus" last year.

Weiss, along with Marina Carlson, co-manages $4 billion for Strong Capital Management Inc. in Menomonee Falls, Wis. Of that, $3 billion is in two growth funds - the Strong Common Stock Fund and the Strong Opportunity Fund.

The funds have been solid long-term performers. Morningstar, the mutual-fund rating service in Chicago, places the Common Stock fund at No. 8, and the Opportunity fund at No. 43 out of the 320 growth funds that have been around for the five years ending June 1996. Their average annual returns for that period are 21.51 percent and 18.49 percent, respectively.

Central to Weiss's approach is coming up with a "private market value" for small and mid-sized companies. "What we try to do is look at it as if we were buying the company. What would we really pay if we could buy this company?" he explains on a recent stop in Chicago.

Weiss, Ms. Carlson (who is on maternity leave), and their six-member team look for companies that have sustainable earnings growth and good management. They find the private value through extensive research, including visiting the firms to see how they are managed. They will buy the stock when it is "well below" its private value, Weiss says, and generally sell when the stock reaches that value.

Weiss says they hold stocks on average for about two years. In 1995, the annual turnover rate for each of the two funds was a little over 90 percent.

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Although some in the industry might label this approach "value" rather than "growth," Weiss says he thinks of it as "growth at a reasonable price."

Weiss's team has gotten good at thinking the way a private buyer would, analysts say. Within the last 15 months, there have been more than 30 takeovers of companies, and "all but a handful ... were [bought] within a dollar or two of what we thought," Weiss says.

"This is really where it would be very difficult to duplicate what we do," the soft-spoken manager notes, "because it encompasses years of analyzing this way, looking at a company as an owner would look at it, not as a stock-market jockey would."

Using this calculated method, instead of chasing the stocks du jour, has its advantages. "They avoid a lot of price risk that many growth-fund managers take on," says Alice Lowenstein, a Morningstar analyst.

What that means for investors is "minimal downside risk, without paying too high a price in the level of returns," she notes.

In the short term, since Weiss & Co. does not go after the hottest stocks, its portfolios don't provide superstar returns in frothy markets like the current one.

Last year, the Opportunity Fund, which invests in mid-cap, or mid-sized, companies had a return of more than 27 percent for the year. Quite respectable, but a few percentage points shy of Standard & Poor's 400 index of mid-cap stocks, which had returns of 30.94 percent.

This week, the Opportunity Fund caught up to the S&P 400 having often trailed it in the first part of the year. On July 8 the fund had returns of 5.6 percent verses the index's 5.4 percent. The Common Stock Fund, which is closed to new investors, holds mainly small-cap stocks and was trailing the S&P 600 small-cap index by about two percent as of July 8.

Weiss says he is not satisfied with these returns, but points out that they would have to sacrifice their philosophy in order to perform better in the current market.

"We haven't done as well in the second-quarter because by our nature we tend to be out-of-the-limelight investors," he says. But, he notes, "We don't really need to worry about the market, we just need to worry about finding companies that meet our criteria."

That task, he says, has been fairly easy until recently. He says the "quiet" in this market is scattered around in individual stocks. Some are in technology, which he says they are always about 12 to 15 percent invested in. Media and retail are also areas that his funds will buy into. The funds are mainly invested in US equities, but currently have small positions in cash (around 12 to 14 percent) and international stocks (about 5 percent) as well.

Weiss took over the Opportunity and Common Stock funds in 1991 when he left SteinRoe & Farnham in Chicago, where he managed its Special Fund for 10 years. Carlson, who worked as an analyst at SteinRoe and Strong, was named co-manager in 1993 when her predecessor, Carlene Murphy Ziegler, moved on.

Ms. Lowenstein of Morningstar says Weiss's funds are for "fairly conservative" investors.

"We're a pretty good core-type product," Weiss says. He and Carlson aren't going to "blow up" investors. "[They're] not going to pick up the paper one day and see that we're down 5 percent and the market's down 2."

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