NEW YORK COMMON
FINAL EDITION
On 6/12/98 Russell Equity Management ceased publishing NEW YORK COMMON.
NEW YORK COMMON
Volume 4, Issue 24.
06/12/98
Copyright (C) 1998, Russell Equity Management
All Rights Reserved
http://home.att.net/~rthomas9
PHILOSOPHY:
NEW YORK COMMON is a weekly email newsletter that screens the entire NYSE
for common stock investment opportunities and maintains a "model portfolio"
of selected stocks. Our investment philosophy is one of conservative value.
In the words of John Train, "A firms philosophy is just a statement of what
it is trying to focus on. No philosophy no focus, no focus no superiority."
On the long side of the market I prefer to hunt for "LOW RISK" bargains.
Specifically, my objective is to acquire undervalued stocks whose profits
and multiples are increasing. I begin by searching for stocks whose
earnings yield is lower than a "RISK FREE" alternative yield which I
extrapolate from the US Treasuries market. For stocks meeting this criteria
I then scan their current and historical daily ticker tape with a
proprietary system called "Flow of Funds". Analyzing the ticker tape allows
me to categorize these bargain stocks into three groups, (LOW RISK, RISK
NEUTRAL, and HIGH RISK). Focusing on the "LOW RISK" candidates I then dig
into their financial reports checking financial strength, operating results
and competition. If I like what I see at this stage, I write a short
paragraph outlining why this company might be a good investment. This is my
"opinion", and within it I set short term targets for both the operating
results of the company and price action of its stock.
I believe every good investment begins with a good trade. I do not become
emotionally involved after taking an initial position, and during this early
stage I do not see myself as an owner of a company but rather a holder of
paper inventory that is to be turned over as quickly as possible with a
positive return, if the operating results of the company or price action of
its stock do not live up to my "opinion". Only when a trade begins to
outperform my "opinion" will I regard it as an investment. Using this
strategy I have been able to make money on roughly 75% of all long trades
entered and for every 11 to 12 stocks traded on the long side, 1 or 2 have
turned out to be fantastic investments.
Unless confronted with a clearly negative turn of events most value
investors will wait an arbitrary 18 to 24 months for a stock to make its
initial move to a price providing them with a minimally acceptable return.
The ability to sit patiently and wait requires hope. Hope is an emotional
response and has no place in any investors "game". Waiting 18 to 24 months
is proof of having entered a "HIGH RISK" or at best "RISK NEUTRAL"
situation. Being in this position demonstrates that "RISK" has not be
evaluated properly.
"Reading the tape" has become somewhat of a lost art, yet it allows one to
quantify the "RISK" surrounding a potential trade. Whether you are a value
or growth investor you should concentrate only on "LOW RISK" situations. On
the long side "LOW RISK" means a lack of selling power and increasing buying
strength. With "Flow of Funds" I am able to gauge the "RISK" surrounding
stocks that appear on the surface to be good value investments, rejecting
those whose "RISK" levels are unacceptable.
On the short side, I look for IPO, concept, story, bubble, negative net
worth and negative current earnings stocks with PE multiples that are
unreasonable. I especially like these situations when there is a high degree
of institutional ownership. Usually these situations depend too much on
investor enthusiasm which is an emotional response, in the long run emotion
and money do not mix well.
After compiling a list of potential shorts I use the "Flow of Funds" system
to cull "HIGH RISK" situations (i.e those with a lack of buying power and
increasing selling strength). For these candidates I review their financial
reports looking for weak financial strength or anemic operating results. I
then write my "opinion" summarizing why I think the stock is overvalued, and
within it I set targets for the stocks price.
On the short side, I am always late to table and early to leave typically
averaging 17%-20% return on each trade. Using this strategy I've made money
on +80% of all short trades entered.
Russell Thomas
12/29/95
NOTE:
NEW YORK COMMON does not follow dividend payments thus the returns for the
"model portfolio" reflect only capital appreciation/depreciation.
NEW YORK COMMON is posted to our web page for on weekends no later than
Sunday 12 midnight EST.
============================================================================
MODEL PORTFOLIO RECORD
----------------------
09/22/95 - 06/12/98
Return excluding commissions: 196.99%
SP500 (581.73 - 1098.84) : 88.89%
Total Trades 23
Winners 20
Losers 3
SUCCESS RATE: 86.9%
============================================================================
PERFORMANCE STATISTICS (12/29/95 - 06/05/98)
P. SHARPE RATIO AVG.of WEEKLY YTD RETURNS as % STANDARD DEVIATION
-- ------------ ------------------------------ ------------------
A 1.767955303192139 72.77174377441406 37.31235122680664
B 1.243149399757385 33.64590835571289 21.59092330932617
A = The NEW YORK COMMON Model Portfolio
B = SP500 Index
*note see appendix below for discussion of Sharpe Ratio.
============================================================================
PORTFOLIO REPORTS
Transactions
-------------
Date TAC Symbol Description Quantity $/U Com/Fees $ Amount
-------- --- --------- --------------- ---------- -------- -------- -----------
09/22/95 BUY PX Praxair 36.6972 27.25 -1000.00
09/22/95 DPF Cash 1000.00
09/29/95 BUY I FIRST INTERSTAT 9.9256 100.75 -1000.00
09/29/95 BUY KEY KeyCorp 29.1971 34.25 -1000.00
09/29/95 DPF Cash 2000.00
10/06/95 BUY ISP INTL. SPECIALIT 121.2121 8.25 -1000.00
10/06/95 BUY MGA MAGNA INTL 22.7273 44.00 -1000.00
10/06/95 DPF Cash 2000.00
10/20/95 BUY UK UNION CARBIDE 25.4777 39.25 -1000.00
10/20/95 DPF Cash 1000.00
11/03/95 BUY CNR CONNER PERIPHER 50 20.00 -1000.00
11/03/95 DPF Cash 1000.00
11/24/95 BUY CNC CONSECO 17.3536 57.62 -1000.00
11/24/95 DPF Cash 1000.00
12/01/95 SLL MGA MAGNA INTL -22.7273 44.75 1017.05
12/01/95 WDF Cash -1017.05
12/22/95 SLL UK UNION CARBIDE -25.4777 37.87 964.97
12/22/95 WDF Cash -964.97
02/02/96 SLL CNR CONNER PERIPHER -50 25.75 1287.50
02/02/96 WDF Cash -1287.50
02/09/96 BUY CE CALENERGY 47.9042 20.88 -1000.00
02/09/96 DPF Cash 1000.00
03/15/96 BUY COA COACHMEM INDUST 38.6473 25.88 -1000.00
03/15/96 DPF Cash 1000.00
03/22/96 BUY WBN WABAN 37.3832 26.75 -1000.00
03/22/96 DPF Cash 1000.00
03/29/96 BUY SKY SKYLINE CORP. 40.6091 24.63 -1000.00
03/29/96 SLL I FIRST INTERSTAT -9.9256 173.50 1722.09
03/29/96 WDF Cash -722.09
04/02/96 SP+ CNC CONSECO 17.3536 0.00
05/03/96 BUY BBC BERGEN BRUNSWIG 37.3832 26.75 -1000.00
05/03/96 DPF Cash 1000.00
05/24/96 SLL WBN WABAN -37.3832 27.25 1018.69
05/24/96 WDF Cash -1018.69
06/28/96 SLL ISP INTL. SPECIALIT -121.2121 11.00 1333.33
06/28/96 WDF Cash -1333.33
07/05/96 SLL BBC BERGEN BRUNSWIG -37.3832 26.75 1000.00
07/05/96 WDF Cash -1000.00
08/23/96 BUY ORX Oryx Energy 58.8235 17.00 -1000.00
08/23/96 DPF Cash 1000.00
08/29/96 SP+ COA COACHMEM INDUST 38.6473 0.00
09/06/96 BUY SB Salomon 22.0994 45.25 -1000.00
09/06/96 DPF Cash 1000.00
09/13/96 BUY BT Bankers Trust N 12.1396 82.38 -1000.00
09/13/96 DPF Cash 1000.00
10/04/96 BUY NX Quanex Corp. 37.5587 26.63 -1000.00
10/04/96 DPF Cash 1000.00
10/11/96 SLL COA COACHMEM INDUST -38.6473 28.00 1082.12
10/11/96 WDF Cash -1082.12
11/08/96 SLL SB Salomon -22.0994 46.00 1016.57
11/08/96 WDF Cash -1016.57
11/15/96 SLL BT Bankers Trust N -12.1396 84.13 1021.24
11/15/96 WDF Cash -1021.24
11/29/96 SLL SKY SKYLINE CORP. -40.6091 25.88 1050.76
11/29/96 WDF Cash -1050.76
12/06/96 SLL NX Quanex Corp. -37.5587 27.75 1042.25
12/06/96 SLL CNC CONSECO -17.3536 61.37 1065.08
12/06/96 WDF Cash -2107.33
02/12/97 SP+ CNC CONSECO 17.3536 0.00
02/21/97 SLL COA COACHMEM INDUST -38.6473 19.50 753.62
02/21/97 WDF Cash -753.62
02/28/97 SLL ORX Oryx Energy -58.8235 20.00 1176.47
02/28/97 WDF Cash -1176.47
03/27/97 SLL CNC CONSECO -34.7072 36.25 1258.14
03/27/97 WDF Cash -1258.14
06/13/97 SLL PX Praxair -18 57.13 1028.25
06/13/97 WDF Cash -1028.25
08/15/97 DPF Cash 1000.00
08/15/97 BUY NRC NAC Re Corp. 20.7792 48.13 -1000.00
09/19/97 SLL PX Praxair -18.6972 54.56 1020.17
09/19/97 WDF Cash -1020.17
12/19/97 DPF Cash 1000.00
12/19/97 BUY HLR Hollinger Intl. 71.4286 14.00 -1000.00
01/16/98 SLL CE CALENERGY -47.9042 27.31 1308.38
01/16/98 WDF Cash -1308.38
02/20/98 SLL KEY KeyCorp -14.5985 68.81 1004.56
02/20/98 WDF Cash -1004.56
03/09/98 SP+ KEY KeyCorp 14.5986 0.00
Portfolio Positions - 06/12/98
-------------------------------
T Symbol Description Quantity $ Cost Mkt Price $ Value Val %
- --------- --------------- ---------- ----------- --------- ----------- -----
S KEY KeyCorp 29.1972 500.00 36.8750 1076.65 34%
S HLR Hollinger Int 71.4286 1000.00 15.5000 1107.14 35%
S NRC NAC Re Corp. 20.7792 1000.00 48.1250 1000.00 31%
----------- ----------- -----
Common Stocks 2500.00 3183.79 100%
----------- ----------- -----
Portfolio Total 2500.01 3183.80 100%
Capital Gains 09/22/95-06/12/98
--------------------------------
Symbol Descrip Quantity Buy Date SellDate $ Sales Cost Basis Gain/-Loss
--------- --------- --------- -------- -------- ---------- ---------- ----------
MGA MAGNA INT 22.7273 10/06/95 12/01/95 1017.05 1000.00 17.05
UK UNION CAR 25.4777 10/20/95 12/22/95 964.97 1000.00 -35.03
CNR CONNER PE 50 11/03/95 02/02/96 1287.50 1000.00 287.50
I FIRST INT 9.9256 09/29/95 03/29/96 1722.08 1000.00 722.08
WBN WABAN 37.3832 03/22/96 05/24/96 1018.69 1000.00 18.69
ISP INTL. SPE 121.2121 10/06/95 06/28/96 1333.33 1000.00 333.33
BBC BERGEN BR 37.3832 05/03/96 07/05/96 1000.00 1000.00 0.00
COA COACHMEM 38.6473 03/15/96 10/11/96 1082.12 500.00 582.12
COA COACHMEM 38.6473 03/15/96 02/21/97 753.62 500.00 253.62
SB Salomon 22.0994 09/06/96 11/08/96 1016.57 1000.00 16.57
BT Bankers T 12.1396 09/13/96 11/15/96 1021.24 1000.00 21.24
SKY SKYLINE C 40.6091 03/29/96 11/29/96 1050.76 1000.00 50.76
NX Quanex Co 37.5587 10/04/96 12/06/96 1042.25 1000.00 42.25
ORX Oryx Ener 58.8235 08/23/96 02/28/97 1176.47 1000.00 176.47
---------- ---------- ----------
Capital Gains (Short Term) 15486.65 13000.00 2486.65
CNC CONSECO 17.3536 11/24/95 12/06/96 1065.08 500.00 565.08
CNC CONSECO 34.7072 11/24/95 03/27/97 1258.14 500.00 758.14
PX Praxair 18.0000 09/22/95 06/13/97 1028.25 490.50 537.75
PX Praxair 18.6972 09/22/95 09/19/97 1020.17 509.50 510.67
CE CALENERGY 47.9042 02/09/96 01/16/98 1308.38 1000.00 308.38
KEY KeyCorp 14.5985 09/29/95 02/20/98 1004.56 500.00 504.56
---------- ---------- ----------
Capital Gains (Long Term) 6684.58 3500.00 3184.58
===========================================================================
===========================================================================
===========================================================================
NEW YORK COMMON MODEL PORTFOLIO
TRADE RECOMMENDATIONS
NO RECOMMENDATIONS FOR WEEK ENDING 06/12/98.
============================================================================
SYMBOL KEY
DPF = CASH DEPOSIT OF FUNDS WDF = CASH WITHDRAWAL OF FUNDS
BUY = BUY SECURITY SLL = SELL SECURITY
SLS = SELL SECURITY SHORT BYC = BUY TO COVER SHORT POSITION
SP+ = SPLIT LONG SP- = SPLIT SHORT
T = TYPE OF INVESTMENT S = STOCK
$/U = PRICE PER SHARE M = MUTUAL FUND
TAC = TRANSACTION CODE $/COST = TOTAL INVESTMENT
DV+ = CASH DIVIDENDS PAID QUANTITY = # OF SHARES HELD
ss = SHORT SALE
============================================================================
NOTES ON PORTFOLIO RETURN COMPUTATION
The Return on Investment for the "Model Portfolio" and the SP500 is computed
by determining the Internal Rate of Return (IRR). All transactions are
converted to a series of cash flows (positive, negative, or null) and the
following equation is solved.
NPV = 0 = Sum((CF(i) / ((1+Rate)^(Date(i)-Date(0))))) - Internal Valuation
where:
NPV = Net Present Value
CF(i) = Cash Flow for transaction (i)
Rate = (Return on Investment)/100
Date(i) = Date of the (ith) transaction (years & fractions of years, 365.25
days per year assumed
Date(0) = Starting date of the portfolio valuation
^ = exponential notation (e.g. 3^2 = 9)
Sum = Signifies to sum for all transactions starting with the first
transaction following the start date specified, up to and
including all transactions on the close date.
**Note: In calculating the cost basis of the portfolio we assume 100% margin
requirements for each stock. If a portfolio consisted of 7 stocks
(six long, one short) the cost basis would be $7,000.
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NEW YORK COMMON is published weekly by RUSSELL EQUITY MANAGEMENT.
Periodically RUSSELL EQUITY MANAGEMENT may have positions in stocks
profiled by NEW YORK COMMON.
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