Skousen's Scrooge Investing

08/29/2002 12:00 am EST

Focus:

Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

Mark Skousen has been among the most popular Money Show presenters ever since the first show 22 years ago.  In addition to publishing Forecasts & Strategies, he is president of the Foundation for Economic Education, which teaches sound economics to students, teachers, and executives. Here are some highlights from his “Scrooge Investing” workshop.

“Scrooge investing has three basic elements. One is to be extremely cost conscious;  always look for the lowest price for the product you want. Two is to be a bargain hunter; be willing to step up to the plate and buy stocks and other investments when everyone else is afraid. Three is to be your own money manager; do your homework.”

"The concept of the scrooge investor is very simple, but it’s difficult to put in practice because it goes against human nature. People would rather pay $100 a share for Intel instead of $20. As an example, more money left mutual funds in July than in any previous month in 20 years. And so far, that has proven to be the bottom of this bear market.  My advice is that if you didn’t get out at the top, don’t compound the error by getting out at the bottom. The contrary investor must go against the popularity of the crowd.”

“The majority of my money is now in high-dividend-paying investments. That should be your strategy. For patient investors, the best bargains exist after a crisis. I look for a crisis for a stock to drop sharply, particularly stocks that pay good dividends. That’s where you want to go now. You want to seek high-income, high dividends, and you want to buy these types of investments after a crisis.”

"No matter how good the economy is now, it will not duplicate the 1980s or the 1990s.  This suggests that we need to bring down our expectations and reach for investments that are more secure. And that’s high-dividend-paying, high-income investments. I think General Electric (GE NYSE) is a great company.  Investors should start nibbling in the 30s. It is yielding a considerable 4%. There’s a lot to be said for that kind of investment.”

"I am also looking at closed-end funds. The biotech area has been decimated and the H&Q Life Sciences Fund (HQL NYSE) is selling for $16 a share, far below its net asset value. It’s trading at a 15% to 20% discount from its net assets, and it pays out an 8% stock dividend every year. Another closed-end fund that does this is the Zweig Fund (ZF NYSE) run by Marty Zweig. The fund is selling at a discount to net assets, and it pays a 12% stock dividend each year.”

“Another bargain is prime-rate funds. In the last month or so, the prime-rate funds have sold off as a number of major investors got out. Why? Because interest rates were still coming down. The prime-rate funds are linked to the prime rate and many investors dumped these funds  based on the assumption that dividends would decline. So now the Van Kampen Fund (VVR NYSE) is selling for $6.50 and it yields about 6%. It’s selling at an 18% discount from its net-asset value. Any time you see an 18% discount in an income fund, that’s a tremendous opportunity - particularly given that I don’t think interest rates are going to decline much more.” 

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