A Top Money Manager’s Simple Strategy : Investment: Michael Goldston’s careful research and prudent timing has brought his clients an average return of 20.5% over the last five years.
NASHVILLE, Tenn. — Sometimes investing other people’s money--$280 million of it--requires looking at things differently.
It happened to Michael Goldston while standing in line for two hours at Outback Steakhouse.
“I didn’t see people waiting in line. I saw dollar signs,†said Goldston, founder and president of the money management firm Cambridge Equity Advisers.
Cambridge invested in Outback Steakhouse with a rather straightforward strategy, Goldston recalled: “I said, ‘Call me when we have a 30-minute wait. That’s when we’ll sell.’ â€
Goldston bought Outback stock at $18.62 1/2 in August, 1992, and sold it 10 months later at $30, a 62% return for his clients.
Simple approaches to sometimes complicated investment choices helped Goldston’s company top Nelson Publications’ list of America’s Best Money Managers for mid-cap equity companies--those with market capitalization ranging of $500 million to $2 billion--the last two years. Nelson is a financial research firm in Port Chester, N.Y.
Working in a corner office in suburban Brentwood, Tenn., 800 miles from Wall Street, Goldston, 40, has averaged a 20.5% rate of return over the past five years.
Finance is a way of life around the Goldston household. His wife, Charlotte Coles Goldston, is a partner in J.C. Bradford & Co. securities firm.
“The first thing we talk about over dinner is what the market did that day,†Goldston said.
His clients must start with a minimum $250,000 investment. Two-thirds of his clientele are physicians. Others are professional athletes, business professionals and an occasional performer.
“I have a gold record on the wall in there from Randy Travis. He doesn’t know who I am, but he knows I made him a lot of money,†Goldston said.
Goldston says living and working far from Wall Street helps him avoid the herd mentality. But he doesn’t reject the financial district altogether.
“The old Wall Street veterans say, ‘Leave something on the table for the next guy.’ I try to sell on the uptick,†he said.
That way there’s still profit to be made by the next buyer, and Goldston avoids getting trampled by sellers. “You don’t want to be the last one out of the pool,†he said.
Like much of Wall Street, Goldston began buying heavily in health care stocks in 1989. “In 1990-91, you could close your eyes and throw a dart at any health care stock and do well,†he said.
But he recalls clearly the day he decided to dump his health care portfolio. “Jan. 16, 1992. I woke up that morning in a cold sweat. And I sold all our health care stocks. I was 35% into it. The problem is, everything ends,†he said.
For example, Goldston bought US Surgical at $40 a share and was holding it at $100 a share when he began thinking it was time to sell. The stock hit $134, then dropped to $120 the next day and 11 insiders sold their stakes.
“I sold at $120. Today it’s a $20 stock,†Goldston said.
Which leads to Goldston’s three warning signs that it’s time to sell:
* If insiders are selling.
* If the volume picks up.
* If the stock price drops 10%.
But, he adds, “I don’t have any hard and fast rules.â€
Still, like most other investors, he doesn’t always have the Midas touch.
In October, he saw great promise in Marvel Entertainment Group, the nation’s largest comic book publisher, which was trading in the $17 range. But the stock is now below that level, trading at about $16 a share.
Typically, five of his 25 top stocks will lose money, he said.
Cambridge has invested heavily in America Online. Goldston started buying the stock, which has since split 2-for-1, at $14 a share. The stock is now trading at $85 a share.
“There’s a big battle over how the information is going to be delivered. Will it be computers, cable or whatever,†Goldston noted.
Goldston became intrigued with the computer touch screens used at automated bank teller machines and in restaurants.
That led him to invest in Microtouch Systems stock in the $9-$10 range.
The stock split in late November and hit a high of $47 a share, giving some clients a 447% increase in their investment.
“That makes up for Marvel,†he said.
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