Wall St. Recap
Money Monarchs Reign In Seattle Broker's Book
"That is a good book which is opened with expectation and closed with profit." - Amos Bennett Alcott ---------------------------
Any author who commences each chapter of his book with a famous quotation is OK in this precinct.
Meet Douglas Donnelly, 38, a stock broker with Prudential Securities in Seattle. Stock brokers frequently rate in popularity down there with lawyers and journalists. Make that journalists and lawyers.
If you met Donnelly, you might change your mind.
Few seem as energetic, or as knowledgable about their profession. Donnelly is a student of the history of the markets. In a trivia contest, Donnelly would carry short odds when it comes to defining the myriad of market strategies now in play.
As a broker, Donnelly makes bond-coupon clippers look like Russian roulette artists. His clients hear a lot about covered call options, convertible bonds and preferred stocks - all far less volatile than 100 shares of any common stock you can name.
Donnelly has his own opinion on market direction, too. Where many tread lightly at this point - the Dow Jones industrial average has retreated four straight weeks - Donnelly is not bearish.
Because so many groups - airlines, computers, retailers, drugs, to name a few - already have been hit, the market has been correcting internally. The danger, he said, would be for the market to streak to new highs without that correcting process.
But what about the book? Donnelly has written "The Money Monarchs: The Secrets of 10 of America's Best Investment Managers" (Business One Irwin, 222 pages, $30).
Money managers rapidly are gaining control over more and more of the nation's assets. Virtually every pension fund hires outside money managers so they can spread the risk. Mutual funds will consult money managers to help hone strategic direction.
At one time, money managers with millions of dollars to invest would not consider an account as small as $100,000. But today, many managers will take those accounts, as long as they are pooled through the brokerage-house system. That way, the so-called little guy gains access to some of Wall Street's most successful investors.
To many, $100,000 may seem an impossible sum. But add together Individual Retirement Accounts, 401ks, maybe an early retirement and savings, and you'd be surprised how many qualify.
More than 20,000 registered investment advisers occupy this nation. Chilling thought, eh? Donnelly culled through records of those in business at least 10 years, and willing to take on $100,000 clients. He measured their performance by the amount of return per unit of risk.
Instead of selecting strictly the 10 best, Donnelly selected most of the best representing different strategies: growth, value, asset allocation, global, etc.
"It's fun to read about the different styles," Donnelly said, "but the point of the book is we all have different risk-reward personalities. It's critical we match up our personality with the appropriate style."
The book bulges with tips on how to pick the right manager. But 10 of the 13 chapters are devoted to the managers. They include some well-known individuals, such as Marty Zweig and Ken Fisher, and some lesser-knowns.
Each chapter talks about background, performance, style and selling discipline.
Donnelly proposed that when interviewing prospective managers, individuals ask these questions:
-- Does his philosophy make sense to me?
-- How was the philosophy developed?
-- Does the philosophy represent the way I view the world or the way the manager wants it to be?
-- Does it seem to be aggressive, conservative or middle-of-the-road in terms of risk?
-- Do the risk, volatility and return data meet my objectives?
-- Do I feel comfortable with the type of companies and debt instruments in the portfolio?
-- If I had the opportunity to meet the manager or his staff, was I comfortable with them?
-- Can I live with this investment style over a full business cycle (three to five years minimum)?
-- Would I prefer to use multiple managers/styles that complement each other (value and growth, small and large companies)?
Among the book's many pluses is the writing. It doesn't get too technical, at the same time observing the rules and conventions of good English and grammar. Donnelly shared credit with Kathy Keller of Tacoma Community College, who previously worked for Tacoma's George Russell Co., which carved out a worldwide niche in evaluating investment managers.
Donnelly had been collecting market data for years. Initially, he wanted to write a market history. But before long he had so much data on money managers, he turned in that direction.
After winnowing out the data, he contacted Marty Zweig, a well-known money manager in New York, about developing a chapter. Zweig agreed. Donnelly wrote a chapter and an outline.
At that point, he inquired of 29 publishers simultaneously. The first 27 returns responded heartily, with rejections. The 28th was Business One Irwin, one of the most influential publishers of business books. Business One agreed to publish the book. (The 29th also was a rejection.)
Once Zweig was done, other top managers quickly assented. (Only one declined - a Seattle money manager who was worried about hordes of $100,000 investors at his doorstep. When he saw the finished work, he realized the book would have been a good thing, Donnelly said.)
The first printing, out about a month ago, was 3,000. To break even, sales of 5,000 are necessary. Donnelly said that not only have they already broken even, but booksellers have been getting only half the books they ordered. Business One has had to trim allocations to assure some supply to all booksellers.
Donnelly gets $1.25 of each $30. It will take some time, maybe never, to get back the $10,000 he spent visiting money managers in the research phase.
But he doesn't care. Getting the information out was more important a new cash cow.
Copies of "The Money Monarchs" have been spotted locally at Tower, University Book Store, B.Dalton and Elliott Bay.
With an emerging success, the publisher encouraged Donnelly to consider visiting the eastern seaboard for some network interviews.
But Donnelly has a wife and three small children and a life outside securities, too. For the time being, tasks such as fathering and coaching kids' soccer carry more weight.
In all things, priorities reign. Another lesson from Doug Donnelly.
STOCKS AND BONDS
The Dow Jones industrial average of 30 blue-chip stocks
The Murphey Favre Northwest 50, 50 stocks weighted by their regional economic impact,
----------------- READERS PORTFOLIO ----------------- 10 NW stocks preferred by readers
Egghead -30.4. Boeing - 3.1. Costco -27.0. Immunex -40.5. McCaw Cellular +60.4. Microsoft - 6.3. Nike -43.8. Nordstrom -21.3. QFC -31.3. Icos -26.2.
Average: -17.0% What $1,000 invested in those stocks would be today: $830.
---------------------- READERS' NON-PORTFOLIO ---------------------- 10 NWstocks picked randomly, excluding readers' top 10.
Eldec +30.0. Fluke -17.6. Hillhaven -21.9. Idaho Power +16.4. Imre -14.6. Sequent Computer -28.1. Timberline Software -15.2. TJ International +122.0. Wash. Mutual S.B. +20.4. Wash. Water Power +14.2.
Average: +10.6% What $1,000 invested in those stocks would be today: $1,106.
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