The new breed of money manager views the grizzled veteran Ross Healy with raised eyebrows.
The young whippersnappers think Healy is the dinosaur of money managers.
Healy, the snowy-haired CEO of Strategic Analysis Corp., is no dinosaur. Nope, his skin is thicker than that. Which is to say he doesn’t give a damn if the young whippersnappers think he’s square because the No. 1 holding in the Accumulus Talisman Fund managed by Healy is cash.
The youngsters in the fund game can’t get their heads around this one. They’ve got some Las Vegas in them. They crave action. No doubt, they draw on 17 at the blackjack tables at Caesar’s Palace.
The new breed of money manager likes his food fast and his money faster.
Ross Healy?
Well, he’s a throwback. He couldn’t locate Vegas on a map. For 38 of his 61 years, he’s been investing the old- fashioned way – and don’t think he’s going to change now.
Bay Street’s kids are full of clichés. One of their favourite clichés is that “cash is king,” which has a nice ring to it. Only the odds are they are fully invested in their own funds, even if stocks are selling at a premium.
While many of Healy’s young peers in the fund business are gung-ho on a market that seems to be riding on more hope than reality, Healy’s fund is sending a red flag to investors. Reading between the lines, it’s screaming a message: You may put one toe in the water in this market but watch out, the tide could be a killer.
Since the Talisman fund was launched seven months ago, it has been carrying a big wad of cash. Now it’s about 65-per- cent cash and the skipper makes no apologies for his defensive stance.
Healy believes that a good defence is a good offence in the investing game. Which is to say his cash-rich fund is poised to pounce on a selloff in the market.
Capital preservation has always been one of the pillars of Healy’s investing style.
The no-nonsense Healy doesn’t subscribe to the herd mentality of Bay Street.
His most famous call, going against the herd, was in July 2000, when he stated that Nortel Networks (NT-TSX) was grossly overpriced at $119. People scoffed when he said the stock was worth no more than $25. Few listened.
Within two years, Nortel was a penny stock and Healy recommended it as a buy in the $1 range before it charged to $10.
During the great Nortel selloff, Healy had this writer literally eating his words after this column challenged his prediction that the stock would drift well below $18 (we’re still picking the newsprint from our teeth).
Now, the one-time director of research at Merrill Lynch Canada hoards cash and sticks to his investing principles in an era when many investors, retail and institutional, can’t spell discipline.
“There are days when I wake up and ask myself if I should be going after instant results and never mind investing,” Healy told the Edge recently on the phone from his Toronto office.
“But then I think, ‘Well, most people who have bought the fund have done so assuming I’m going to keep on doing what I’ve been doing so successfully for so many years.’ I have to go with what works. It isn’t that I wouldn’t love to throw it into the market if I could find a bunch of stuff I liked. But I’m nervous about this market.”
Next to its weighting in cash, the Talisman fund has been heavily weighted in oil and gas stocks but, even as the price of oil has skyrocketed, the stocks have been laggards, a source of great frustration to Healy.
“I figure oil stocks will reflect their underlying value at some point, so there’s no point in getting all sweaty about it,” says Healy, whose top pick is Canadian Natural Resources (CNQ-TSX). (See Pro’s 3 Stars, Page 22). “One thing I’ve learned about this business is that sometimes you sit with cheap positions for longer than you thought you would. I remember four years ago sitting with Reitman’s (RET-TSX) for two years when the stock did nothing. That stock had tremendous upside potential and just sat there for two years. But then it abruptly tripled.”
Healy believes there are stocks that appear to have good upside potential, but many of those are consumer stocks and he is worried that the consumer may be close to getting tapped out.
“What makes me nervous is looking into 2005 and trying to ascertain if there’s anything there with which to propel the markets upward.
“Obviously, lower U.S. interest rates isn’t going to be one of them (the U.S. Federal Reserve is in a tightening mode). Analysts are quite bullish and they’re forecasting a strong year for earnings, but when you look at the U.S. consumer, you see a very extended balance sheet.
“There are assertions being made (about the economy), but we don’t know about that because we don’t know what U.S. monetary and fiscal policy is going to be like in 2005.
“We don’t know if (U.S. President) Bush, having spent his all to make sure that he is re-elected, will say, ‘Now we have to rein in some of these excesses (of liquidation into the system) so we don’t have an exploding deficit that causes a major crash in the U.S. dollar.’ Or maybe the guy’s too stupid to admit that he could be wrong (on fiscal policy). And that, by the way, is a perfectly valid assumption, I think.
“He could just decide that his policies are right (assuming he is re-elected) and decide to make his tax cuts permanent and get a few more (tax cuts) through. The truth of the matter is that nobody knows (about fiscal policy) and we won’t know until after the election (in November).”
If you think you’ve got U.S. monetary policy pegged, you could make some dough by playing a wild hunch. Or you could pay heed to the cautionary words of a snowy-haired sage who doesn’t look at the market as one would a casino.
When Ross Healy says cash is king, the words don’t ring hollow.
* SAGE WORDS: “John Roth (ex-Nortel CEO) is walking away with $133 million (from salary and stock options), but investors are walking away with holes in their shoes . . . A lot of kids (young analysts and fund managers) grew up. They forgot everything they’d learned. They started inventing new measuring sticks for tech stocks and that’s when it becomes a fool’s game.”
– Ross Healy, Business Edge, June 21, 2001.
Hot Stock*
Fronteer Development Group
FRG-TSX $1.05 Up 33 cents (+45.8%) on 2.38 million shares (for week ending Sept. 17) This uranium story refuses to go away.
With the uranium price rocketing, any decent news is lighting fires under obscure miners such as Fronteer. The Vancouver company’s stock spiked when the company reported it had encountered high-grade uranium mineralization at its Northwest Territories joint venture mine.
Cold Stock*
Specialty Foods Group Income Fund
HAM.UN-TSX $3.37 Down $1.93 (-36.4%) on 434,600 shares (for week ending Sept. 17) Another week, another income trust disaster. Hey, is this a trend or what? On the heels of the Hot House Growers Income Fund (HOT.UN-TSX) selloff, Toronto-based Specialty Foods took the cleaver to its monthly distribution to unitholders and announced a $1.8-million restructuring charge. After the news in which the producer of processed meats cited BSE as a factor contributing to a difficult raw materials market, the angry investor herd bawled like mad cows in branding season.
*Canadian stocks over $1.
–Financial data supplied by The Canadian Press Stockgroup
(Gyle Konotopetz can be reached at gyle@businessedge.ca)
