|
Are you as sick and tired as I am of opening the newspaper to read about yet another investment scandal?
If it’s not cozy board relationships rewarding CEOs with out of this world pay packages, it’s accounting firms cooking the books, or analysts shilling for companies they’re supposed to be covering. It’s some specialists on the New York Stock Exchange trading floor improperly trading their own account at your expense. And speaking of expenses, have we talked about the high and sometimes hidden fees that the mutual fund industry (who has your best interests at heart, right?) is charging you while conducting improper business transactions at your expense?
So where can you turn for honest, untainted research, especially if you don’t have the time and inclination to do your own homework? Maybe its time to go back to school -- The Freeman School of Business at Tulane University in Louisiana, to be more specific.
In 1993 Professor Peter Ricchiuti -- a former assistant state treasurer and chief investment officer for Louisiana -- founded an investment research program with 20 MBA students following six Louisiana-based businesses. With the generous contribution of an alumnae named Burkenroad, the Burkenroad Reports was born. Now with 160 MBA students, Burkenroad Reports cover 40 companies in Texas, Louisiana, Mississippi, Georgia, Florida and Alabama.
Prof. Ricchiuti and a staff of three choose what companies get coverage. They look at companies that are small -- less than $1 billion in capital -- with businesses they can understand. Sound familiar? It should, as it’s the Peter Lynch school of investing. They even use Lynch’s One Up on Wall Street as one of their textbooks.
And when they say “understand,” they mean it. Burkenroad has made money on companies whose product are as common as ice. The fund’s largest holding earlier this year, Dallas Based Packaged Ice, was purchased in August by Cube Acquisition Corp., now called Reddy Ice Group Inc. The next time you’re at a convenience store or a large retailer like Sam’s Club, look at the bags of ice for sale. I did that yesterday, and it was none other than Reddy. It probably cost 9 cents to make, plus another 25 cents for labor and administrative services. Suppose they sell bags of ice to the store for 50 cents each; that’s a nice 16 cent profit per bag. And the store makes out like a bandit, selling them at $1.25 each to consumers like us.
This type of profit from the lowly ice cube.
Hancock Bank uses those Burkenroad reports to pick holdings for the Burkenroad Fund, a regional stock fund. The fund is up 30 percent year to date, but keep in mind that its performance is closely tied to the economic conditions of the region. And always remember regional fund investing has a checkered record: For instance, Burkenroad’s investors should be glad it’s not based in California.
So why should you spend you time and maybe even money following the advice of green students?
First, they have no hidden agenda. They’re in it for the course credit and the invaluable experience gained when visiting a company and actually talking with the owners, not some public relations flack whose job is to spin events in the company’s favor.
Second, the students develop financial models and publish extensive research reports using publicly available sources of information. Burkenroad describes itself as “Wall Street’s Farm Team” -- an excellent springboard for those that may be considering a career in finance or investing.
Finally, there’s an advantage to covering companies that Wall Street ignores. The appeal of so-called “stocks under rocks” is that you can discover a rare find every now and then that turns into a pot of gold. Since 1993, 18 Burkenroad companies – including the aforementioned ice company -- have been bought out.
Another key to the fund’s success seems to go against the current thinking on Wall Street. Since the WorldCom debacle, we’ve become suspicious of any company where management owns a high percentage of company stock, but Ricchiuti thinks that negative can be a positive. In his view, if 90 percent of a CEO’s wealth is tied to the price of his stock, his mind is on his company and not his golf game.
Want to know what stocks Burkenroad is looking at now? Tune in this Friday to hear from Professor Ricchiuti and two of his students, and maybe, just maybe have your faith restored in stock research.
|
