May 16, 2003: Chris Lahiji Interview
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Wall $treet Week with FORTUNE's Geoff Colvin recently talked to 19-year-old investing wunderkind Chris Lahiji about the secret of his success. Portions of the interview aired on the May 16, 2003 broadcast. Here is the complete interview:
GEOFF COLVIN: Well, fund managers make a lot of money, still a lot of money being paid by big fund companies, often with large staffs reporting to them.
Now meet someone who has taken a decidedly different approach. Chris Lahiji, age 19, says he has read the annual reports of every publicly traded company in America, more than 12,000 of them, and has put together some stock picks from that which have beaten the market handily since he chose them in November. He joins us from Los Angeles. Chris, welcome.
CHRIS LAHIJI: Hello. How are you?
COLVIN: You know, reading one annual report is painful for most people. You looked at over 12,000 of them. What were you looking for?
 LAHIJI: Well, I just basically wanted to show -- I mean, I think the overall project was symbolic for how many companies lie out there that people can actually invest their money in. And more importantly, it’s on the basis of the media itself and how they promulgate the same 30 companies. I mean I don’t blame them, because they’re well established, like Dow, I mean Dow Chemical, Microsoft, Oracle, it really doesn’t matter.
Personally, I wanted to show investors that there were more than a hundred
companies out there that you can invest in, and that’s exactly where my
research lies.
COLVIN: I gather one thing that happens when you check in with 12,000 companies is they send you a lot of stuff.
LAHIJI: Oh, yes.
COLVIN: What did you get from these places?
LAHIJI: Oh, we got over 4,000 pens, 800 shirts, 700
hats, 600 mouse pads. I got some hot sauce from a regional bank. Someone
actually sent me money. From Royal Pennsylvania they said, who says banks
don’t give out free samples? And they sent me a dollar.
COLVIN: And you made a home movie of some kind about
this?
LAHIJI: Yeah. We actually have a documentary on my web
site, Lahiji.com, and we showed people exactly what we received firsthand.
COLVIN: And also some products that the companies actually make, not just the goodies, yes?
LAHIJI: Absolutely not. Like Transmeta was kind enough to send us their chip. Female Health Corporation was kind enough to send us their pharmaceutical products. So firsthand I got to see what exactly the corporations did, and it gave them a big advantage.
COLVIN: Okay. Who do you like?
LAHIJI: Who do I like?
COLVIN: Yeah.
LAHIJI: Who do I like in what sense?
COLVIN: What stocks are your favorites? After you look at 12,000 stocks, what are your favorites?
LAHIJI: Oh. Well, you know, I picked 150, and since November 1st they’re up 81 percent year to date, so I’ve done quite well. But my favorite companies as of right now continue to be Arotech Corporation and Identix.
Arotech is a hybridized homeland security bill company that has locations both in Israel and America. And I think because of the war in Iraq and the protraction, it’s going to get a lot more business going forward.
And also Identix is also another security, indirect way of playing security, and that basically is the Microsoft of biometrics. They control about 86 percent of the biometric industry, which is the ability to access information using one of your body parts, like your thumb print, your hands, your eyes. I think that’s going to be a very big segment moving forward.
COLVIN: Those are both very small companies right now, and I gather virtually all the companies you’ve picked are very small, micro-caps, as they’re called.
LAHIJI: Correct, correct. 95 percent of them are worth less than $50 million market cap at the time I recommended them.
COLVIN: Now, is it true that a lot of the reason your fund is up so much – and we should point out it’s an imaginary fund. These are stock picks you have put on your web site, but you haven’t bought the stocks.
LAHIJI: Correct. I currently own positions in several of the companies, and this is copyrighted work, so it’s not apocryphal. But, you know, a lot of people still do not want to give me the credibility I deserve because they say, hey, you’re not putting your money where your mouth is. And quite frankly I do own shares in a lot of the corporations that I preach to investors.
COLVIN: A lot of the gain seems to have come in the past few weeks. You’ve had a lot of publicity. And part of it may come from people going to the web site, seeing the stocks that are there, buying them. They’re very thinly traded. The price goes up.
LAHIJI: Correct. And that’s what I’m trying to control right now. Nowadays I have to be very careful with the credibility I’ve created for myself, so I really don’t recommend individual companies anymore. And, you know, that’s always been a problem of mine. And I tell people regardless of what I say, I still want them to go out and do their research.
COLVIN: Now, these micro-cap stocks have a lot of attraction because, as you say, they’re not followed. You can find bargains there. The downside is that they are prone to manipulation. Isn’t that a big danger?
LAHIJI: Yes, it is. And, quite frankly, I research my companies thoroughly before I invest in them. For every thousand that I analyze, I only recommend one or two, and I invest in those one or two companies. So, quite frankly, I do love small corporations, but I don’t select everything.
COLVIN: Now you talk about the research you do. What do you look for in a company? What makes you choose one?
LAHIJI: Oh, well, obviously market capitalization is the first thing I look at. I will not buy a company if it’s worth more than $100 million.
The second thing I look at is how much, what’s the debt-to-equity ratio. Because a lot of people, they have a big problem with micro-caps because of the money and the fear that they might not be generating enough financing to actually survive. So the corporation actually has to have enough cash to last throughout at least two years, okay? Not a lot of debt, and a well-established insider base.
COLVIN: You’re a finance major in school. Does a normal investor need financial training of any kind to do what you do?
LAHIJI: Absolutely not. I mean I was self-taught myself. I went to the library every single day when I was younger. I read every single book in the entire aisle. It’s something that’s very autonomic.
Basically my advice is to go on the Internet. There’s plenty of information for everything that I do. And, quite frankly, it’s just a lot of hard work. There’s nothing mysterious about selecting good companies to invest in. It just takes 12 to 14 hours of research every day.
COLVIN: Which is what you’ve been doing for how many months?
LAHIJI: About a year now.
COLVIN: It’s amazing. Now one thing I have to ask you, especially in this environment, what’s in this for you?
 LAHIJI:
You know, ideally I want to become the next big name in Wall Street. And,
you know, that might sound a little bit clicheish, but quite frankly I
think I’m ready for it. Some gentlemen was kind enough to offer me my
own mutual fund, and I think that’s going to be the next step. I really
want to prove to investors, not just investors, but individuals out there,
that there can be someone that is this young that can pick companies as
well as I do.
And quite frankly, I want to indirectly help the economy become prosperous once again, because growth happens from the bottom up. If we don’t help these small corporations, no one will. And I want this to permeate to every single corporation going forward.
COLVIN: Are you in the position of a good basketball player who has to decide whether he’s going to finish school or go pro?
LAHIJI: Exactly. That’s why people are quoting me. A lot of people now call me the L.J. of the stock market.
COLVIN: Well, what are you going to do?
LAHIJI: Which is the LeBron James.
COLVIN: Yes.
LAHIJI: And that’s to skip college and go professional. And quite frankly ,I have not made my decision yet. I don’t know, but my heart says yes, but my parents say no.
COLVIN: Well, good luck on making your decision.
LAHIJI: Thank you, sir.
COLVIN: Good luck in everything else you do. Thanks for being with us.
LAHIJI: Thank you.
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