Marketocracy: Who Wants to Be a Fund Manager?

09/05/2002 12:00 am EST

Focus:

Ken Kam

CEO, Marketocracy, Inc.

Marketocracy is a fascinating concept that provides any investor with the chance of being a real mutual fund portfolio manager. Through an online site, individuals create their own hypothetical $1 million portfolios. The 100 best performing – known as the m100 - become part of a group of actual mutual funds. Three top performers among the current m100 conducted an investment panel at the recent San Francisco Money Show, hosted by Marketocracy founder and CEO, Ken Kam. Here are their comments and top stock picks.

“It looks like we could have a rally for a few weeks or even a couple of months, but I believe that we are still in a bear market,” says Gabe Harris. “This means that we will again make new lows on the major indices before the end of the year. Saul Realties (BFS NYSE) is a simple REIT; they don't deal with tons of mortgage-backed securities and spreads on short-term vs. long-term financing, etc. All they do is own commercial real estate (80% of it in the DC area). They pay a 6.5% dividend, and they have increased dividends consistently since they became a REIT. Kinross Gold (KGC NYSE) is a mining company that produces gold at a cost of around $310 an ounce. That means that if gold goes from $311 an ounce to $320 an ounce the profits are ten times greater. In other words, it is highly leveraged to the price of gold. Since I have been bullish on gold for about two years this is a natural play for me."

“Gone are the days that just about all stocks and indexes do well,” says Faisal Chaudhry.  Now the investor has to scrutinize both the quality and accuracy of earnings reports and future estimates as well as what the company is doing with its earnings. Pharmaceutical Product Development (PPDI OTC) is a service company to the big drug companies. It was hurt by the announcement of a merger between Pfizer and Pharmacia because of the decrease of potential client companies, but it has since recovered. I bought it based on an analysis of the company's balance sheet, earnings reports, and recent strong insider buying. United Capital Corp. (AFP NYSE) is involved in selling antenna systems and engineered products as well as renting real estate. It has a p/e ratio of 6.5. It has minimal debt and close to $22 of cash per share. With a share price near that level, I see very limited downside risk. In the past it has been steady, even during major market downturns. I plan to hold this stock for three to five years."

“Uncertainty rules!,” says Richard Hawkins.  Gloom and doom time means that, more than ever, it is necessary to examine why one is investing and to understand that stocks represent actual businesses with real underlying economic fundamentals and are not just pieces of paper to be traded. The near-term outlook is cloudy with the chance of severe thunderstorms. Later in the year I see some earnings pick-up, which given the current carnage, should lead to some fine bargain-hunting weather. Currently, the homebuilders have been of great interest to me with MDC (MDC NYSE) being a top holding. Revenues and income have been growing steadily for the past five years. With a p/e of seven and a price to sales ratio of 0.5, it seems very fairly priced relative to both its industry peers and the broader market. IntegraMed America (INMD OTC) runs 13 fertility centers specializing in women's reproductive healthcare. It has been growing sales at greater than 23% a year, has little debt, great price/valuation ratios, and good return on equity. One negative is that insiders are selling, and the earnings numbers may be obscured by some one-time effects. That said, there is still a comfortable margin of safety on this stock. I place a fair value on it of about $10.50. Infertility is a problem that is not going to go away, and many couples are willing to go to great lengths to overcome this problem, so future sales should continue to be strong. I see this as a long-term holding.”

 

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