Growing Rich - Arabictrader.com

GROWING RICH WITH GROWTH STOCKS
driven on the portfolio management side. We were encouraged to sell
the Stein Roe approach and bring in new accounts. I was hired to be
on the portfolio management side. Unfortunately, I felt like a fish out
of water. Their investment style was very momentum-driven. In addition,
we were expected to focus solely on portfolio management, and
I was very research oriented. It was tough because I enjoyed the research,
yet I didn’t want to be an analyst all my life, which is how I
thought it would be if I joined the research department.”
Yacktman immediately began managing money for some private
accounts under the direction of one of the firm’s partners. “We would
work with a senior partner at first, and they would gradually transfer
new accounts over to us,” he explains. “Initially, we would put together
a recommended portfolio based on the stock-rating committee’s
approved buy list.” Eventually, Yacktman became a partner at the
firm and was named a member of that committee. “The analysts would
come in and present their recommendations to us,” he shares. “We
would then make a decision one way or another as to whether the
stock would be approved as a buy, hold, or sale on our recommended
list. Everything at Stein Roe was done by committee. I think this was
the firm’s way of protecting people. It was a very political organization.”
In Stein Roe’s early days, managers used research-based techniques
for picking growth stocks. Unfortunately, by the time Yacktman got
there, the top people making these investment decisions were moving
on. “For a long time, Stein Roe was a very stable partnership,” he
notes. “About the time I came aboard, it became a revolving door.
People were leaving left and right during the 14 years I was there.
The partner who ran the firm in the 1970s was very momentum-oriented.
I was more analytical. By 1980, the firm began picking stocks
using computer-based models. I referred to it as ‘the Bonsai Pipeline.’
It was very similar to the system used by William O’Neil (founder of
Investor’s Business Daily), Value Line, and what was then known as
Twentieth Century mutual funds (now American Century). It was a
system that focused strictly on changes in earnings and price changes.
It looks good on paper, but I always found myself saying, ‘Here’s a
great company that’s been beaten down in price.’ Of course, it
wouldn’t show up on the momentum screens. It was on the opposite
end of the spectrum. But that’s what attracted me to it. I remember
buying Bandag stock for some clients because it was a good company
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