How To Beat Fund Pack? Think With Your Feet Up
WORKING out of Reno, Nev., might not seem a high recommendation for a mutual fund manager who needs to gauge the daily pulse of the New York Stock Exchange. For Arthur Bonnel, however, the arrangement works.
Away from the vagaries of the Wall Street rumor mill, the endless meetings, the Quotron machine pumping out minute-by-minute trades and dividends, Mr. Bonnel says he has time to think. "On Wall Street you don't find a lot of managers sitting and thinking."
And sitting and thinking with his feet on a credenza as he looks at the trees in his yard has helped make Bonnel's MIM Stock Appreciation Fund the No. 1 growth fund in the country for three years. Set up in 1987, the fund is one of a family of MIM mutual funds based in Cleveland, Ohio. With assets of $40 million and an average return of 25 percent annually since 1989, the fund has won a five-star rating from Morningstar, a mutual fund rating service.
Low-key and relaxed, Bonnel downplays the frenzy often associated with trading and brokers. "It's not real exciting," he says. You tell your broker to buy 10,000 or 20,000 shares of a stock, then you wait for him to fill the order and call you back. "As I tell some people, it's kind of like watching paint dry."
Despite managing a high-risk growth fund with a fast turnover in stocks, Bonnel is a conservative when it comes to investment. Looking to the long term, he buys stock according to the fundamentals - the basic financial position of a company. Buying a stock today to make a quick trade tomorrow will lose you money, he says, and recommends keeping a stock at least three months.
In the same vein, he avoids chasing market trends. In 1991, he kept away from the top-earning biotech companies, and last year opted not to include choice bank stocks in his portfolio. The reason: Complex bank balance sheets can often mask problems, he says.
Bonnel's instincts have also led him to buy when others were selling. On the eve of the Gulf war when everyone said don't put money in the market, "I was 100 percent invested," he says, and gained 5 to 6 percent the next day alone.
Unlike Peter Lynch, a much admired colleague, Bonnel does not believe in the "kicking tires" method of assessing a company. Talking to managers rarely yields useful information because they are so scared of lawsuits, he says. Instead, he relies on "solid numbers" - the quarterly statements - and four stock-picking guidelines:
* Companies should be earning more each quarter.
* Management should have an equity ownership in the company, but preferably not more than 20 percent. This motivates executives to make the company profitable, he says.
* Debt should be low, or being reduced.
* And the balance sheet should have a current assets to current liabilities ratio of 1 to 1 or better.
When any of these four break down he sells. The fund's turnover is high, standing at 240 percent in 1991, with stocks held an average of six months.
"I'm right around 60 percent of the time," he says.
Two companies that have caught his attention of late are California Energy, a geothermal energy utility, and Albertson's, a 655-store grocery chain.
The appeal of California Energy lies in its ability to sell electricity to power companies without the regulatory restrictions public utilities run up against, Bonnel says.
Albertson's, a recent acquisition, he describes as "a quality company with a devoted, driven management." Inside ownership is 19 percent and dividends have increased every year since 1977. "It's one of the premier long-term holdings," he beams.
Bonnel demonstrates his commitment to the fund by investing his whole pension in it. But he doesn't view the job as work. "It's a game, a hobby," he says. "At the end of this decade I want to have the best track record of any fund manager in the nation. And I'm willing to get up at 5 in the morning and work 'til 10 at night to do it."