Beating the Bear

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It will have some exposure from being a multinational company, but they have performed so well this year. I think that it will allow them to break out into a new class of companies, where people look at them and put a premium on them that they did not enjoy before.

LATEEF: Tagging onto his demographic spiel, for lack of a word, on the baby boomers, we like Barnes & Noble (NYSE: BKS), a holding that has done quite well for us. We like Venator (NYSE: Z), which operates Foot Locker. And a new issue that we just participated in is a small company called School Specialty (Nasdaq: SCHS), which provides textbooks and school supplies for school districts. Those are names that we currently hold.

B.E.: Mark, what opportunities are you looking at in the fixed-income area?

LAY: From our perspective, equities [should] pay you a risk premium of roughly 4% over bonds or any fixed-rate type of investment. That currently is around 1% to 2% by most estimates. So, because of that, we still think bonds are very attractive to individuals, as well as institutions, because I don’t think they’re being compensated for the risk. Also, based on our assessment of the economy, our preference is still to hold U.S. Treasuries right now. We have roughly 60% of our portfolio in Treasuries. We have roughly 35% of our portfolio in mortgage-backed securities [such as] Ginnie Maes and Fannie Maes. So our emphasis right now is on high-quality securities and low-coupon mortgage-backed securities that we think will be able to benefit from a lower interest rate environment and, if we are wrong, then the mortgage-backed will give us a little cushion if economic growth picks up more than we anticipate or inflation becomes stronger than we anticipate. Right now, we are staying away from corporates.

B.E.: Since we started the Black Wealth Initiative in 2000, we have seen thousands of new investors. Over the past year, many have seen losses in their portfolios and 401(k) accounts. What do you tell them?

RAY: I think the most important question in investing is what is the market discounting. One hundred percent of what we know about an investment is in the past [and] 100% of what will determine a successful investment is in the future. So, if you say the market right now is quite aware that we have a crummy economy and companies have crummy earnings, the question that you want to ask yourself is “When is the recovery?” or “When is the market going to discount [or ] factor in that recovery?”

LATEEF: Or buy a convert [convertible bond] that is yielding 6% so you get paid while you wait. You pay a little bit more than the value of the stock and, at the end of that seven years, you’ll get your principal back but you will have been paid and, if the stock happens to go up, you’ll participate, to some extent. I think [BE’s] other mission is to let people know not just

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