Wall $treet Week; No. 528; Wall $treet Week Goes West

<v Speaker>From the Maryland Center for Public Broadcasting. <v Speaker>[bell chimes] [instrumentals] <v Speaker>Wall Street Week from the Pacific Stock Exchange. <v Speaker>Los Angeles, California. <v Speaker>Produced Friday, February sixth. <v Speaker>Your host for Wall Street week is Louis Rukeyser. <v Speaker>Our panelists are Frank Cappiello, Robert Nurock and Carter <v Speaker>Randall. Tonight's special guest is Claude Rosenberg,

<v Speaker>senior partner, Rosenberg Capital Management. <v Louis Rukeyser>Good evening. I'm Louis Rukeyser. <v Louis Rukeyser>This is Wall Street Week. Welcome back. <v Louis Rukeyser>Tonight, we have wandered far from our usual habitat as by now should be obvious <v Louis Rukeyser>to all but the most myopic of our viewers. <v Louis Rukeyser>This is not our customary stomping ground. <v Louis Rukeyser>It is the Los Angeles floor of the Pacific Stock Exchange. <v Louis Rukeyser>For one night, only Wall Street week has gone west. <v Louis Rukeyser>Not we trust in the financial slang sense of the phrase, namely going broke. <v Louis Rukeyser>But in the purely geographical sense, first associated with Horace Greeley. <v Louis Rukeyser>We are here to see how the nation's economy looks from the other side. <v Louis Rukeyser>To give you a look on film at the nature of the financial action in both San Francisco <v Louis Rukeyser>and Los Angeles to talk with one of the most most astute investment <v Louis Rukeyser>counselors. And perhaps most of all, we are here as part of our continuing <v Louis Rukeyser>effort to show that Wall Street and our definition involves everything and everywhere

<v Louis Rukeyser>that might affect you and your money and is thus considerably more than just a street <v Louis Rukeyser>address in downtown Manhattan. <v Louis Rukeyser>I wish I could tell you, though, that the financial news of the week was rosier when <v Louis Rukeyser>viewed from the West Coast than from the East. <v Louis Rukeyser>But alas, even the most chauvinistic of Californians could not make that claim. <v Louis Rukeyser>Look at it from either side or even do a backflip and stand on your head. <v Louis Rukeyser>This is still the market's worst week since its historic super rally began <v Louis Rukeyser>two months ago. The same wiseguys who completely missed <v Louis Rukeyser>the upsurge in the first place were still around this week to explain <v Louis Rukeyser>with a confidence undaunted by repeated failure. <v Louis Rukeyser>Precisely why the market was now backing off a bit. <v Louis Rukeyser>The chief villain of the conventional analysis was Arthur Burns, who, upon <v Louis Rukeyser>taking the job of chairman of the Federal Reserve Board, thereby in effect volunteered <v Louis Rukeyser>for the role of every analyst's favorite pincushion to

<v Louis Rukeyser>Burns's unforgivable sin of the week. <v Louis Rukeyser>According to this version was to announce that the Federal Reserve Board had, for <v Louis Rukeyser>technical reasons, slightly lowered one of its money growth targets <v Louis Rukeyser>for 1976. <v Louis Rukeyser>To hear some commentators tell it, Dr. Burns had thus instantly qualified <v Louis Rukeyser>as the Benedict Arnold of the bicentennial. <v Louis Rukeyser>Interest rates would now soar out of sight, but still faltering economy would dove <v Louis Rukeyser>into depression and the stock market would finally prove the pessimists <v Louis Rukeyser>right. It was, as they say, over on the Sunset Strip, <v Louis Rukeyser>heavy man, heavy, especially when you consider that the market, Neal, merely declined <v Louis Rukeyser>20 points after gaining nearly 160 points in the previous eight <v Louis Rukeyser>weeks. Since no market in the course of human history has ever moved <v Louis Rukeyser>straight in either direction, the more practical question was this is <v Louis Rukeyser>this what the technicians call a normal correction, meaning that <v Louis Rukeyser>the market now must take a couple of steps backward before it can resume its sprint

<v Louis Rukeyser>forward? Or has the market once again been stopped by an invisible <v Louis Rukeyser>barrier around 980 on the Dow Jones Industrial Average, a <v Louis Rukeyser>level where it has banged its head several times, most recently in the fall of 1973. <v Louis Rukeyser>Fortunately, we have brought with us three of our wisest panelists who among them <v Louis Rukeyser>have all the answers, especially when they disagree. <v Louis Rukeyser>We had hoped to have, as our special guest tonight, the father of modern securities <v Louis Rukeyser>analysis, Benjamin Graham. <v Louis Rukeyser>But we regret to have to tell you that Mr. Graham was hospitalized this week for <v Louis Rukeyser>influenza and unfortunately cannot be with us while wishing Mr. Graham <v Louis Rukeyser>a recovery as rapid as the market staged last month. <v Louis Rukeyser>We are happy to have available in his stead. <v Louis Rukeyser>Claude Rosenberg, who was originally scheduled as a West Coast guest panelist <v Louis Rukeyser>tonight and has now been promoted to guest guest. <v Louis Rukeyser>Mr. Rosenberg is always worth hearing. <v Louis Rukeyser>But first, let's examine the running of the bulls and the bears from one end of the

<v Louis Rukeyser>country to the other. In the week just past, the Dow Jones Industrial Average <v Louis Rukeyser>managed to head a new recovery high on Wednesday at just under nine hundred seventy seven <v Louis Rukeyser>before giving it all back and more on Thursday and Friday. <v Louis Rukeyser>The week's net loss of just over 20 points left the Dow at nine hundred fifty <v Louis Rukeyser>four point nine zero. <v Louis Rukeyser>The loss was relatively smaller for all stocks on the New York Stock Exchange, while the <v Louis Rukeyser>American Exchange and over-the-counter composite index is actually gained. <v Louis Rukeyser>There is joy of assort in L. FIL, where the compilers of our technical <v Louis Rukeyser>market index gave a cell signal last week just before the market broke <v Louis Rukeyser>and are now confirming it. <v Louis Rukeyser>On February 2nd, I understand the chief elf saw his shadow. <v Louis Rukeyser>One piece of good news today was the government's announcement that unemployment fell <v Louis Rukeyser>half a percentage point to seven point eight percent, its biggest monthly <v Louis Rukeyser>drop in 15 years and the lowest it has been since 1974. <v Louis Rukeyser>Unlike those indicators, such as the stock market, the tend to lead general economic

<v Louis Rukeyser>events. The unemployment rate tends to follow while it's still far too <v Louis Rukeyser>high for comfort. More than seven million Americans are listed as jobless. <v Louis Rukeyser>Still, the decline should confirm for all but the most skeptical <v Louis Rukeyser>that recession at least, is behind us. <v Louis Rukeyser>Carter Randall, can the same be said for the stock market rally? <v Carter Randall>No, I think we're still in a bull market phase. <v Carter Randall>I think it does depend on a lot of things and the level of interest rates. <v Carter Randall>Well, markets that compete for investors money, the bond market this <v Carter Randall>week we had a very interesting happening and that was an issue of <v Carter Randall>U.S. Treasury obligations which were way oversubscribed. <v Carter Randall>It shows there is a lot of money available at a good rate. <v Louis Rukeyser>Well, many people, including yourself, forecast originally <v Louis Rukeyser>that short term interest rates wouldn't get much lower than they've already got. <v Louis Rukeyser>Do you think we're at bottom in that the trend should be up? <v Carter Randall>Well, I think on short term interest rates, we're pretty close to the bottom.

<v Carter Randall>But as the long term interest rates that compete for the investor's money, particularly <v Carter Randall>the big investor, the pension fund, the insurance company and so on. <v Louis Rukeyser>And what do you think's happening to them? <v Carter Randall>I think they still have money to invest, and I think they invested in whatever they think <v Carter Randall>will give them a good return. And both the stock and the bond market right now look very <v Carter Randall>attractive. Longer term than just a week or two. <v Louis Rukeyser>Frank Cappiello, you agree with that? You look longer term and just a week or two? <v Frank Cappiello>Oh, I hope so. <v Louis Rukeyser>Yeah, tell us if you like to. What's going to happen Monday morning? <v Frank Cappiello>Right well, who knows? <v Frank Cappiello>I think the course of the market is up. <v Frank Cappiello>I don't think we've ended this bull market. <v Frank Cappiello>We're going through a corrective phase, as everyone has indicated. <v Frank Cappiello>And a little surprised to see people selling stocks this week on a basis that Arthur <v Frank Cappiello>Burns is going to tighten up a small amount of money supply because frankly, <v Frank Cappiello>as Carter mentioned, short term rates have really gone down a lot further than we <v Frank Cappiello>thought. <v Louis Rukeyser>Well, Frank, how about the possibility this was just an excuse. <v Frank Cappiello>Oh sure.

<v Louis Rukeyser>That a market was going up 160 points is an excuse to sell a little bit. <v Frank Cappiello>Yeah, you need a rest. And now the technicians are telling us we'll ledge in, as they <v Frank Cappiello>say, at the nine one eight, nine, 10, nine. <v Louis Rukeyser>I don't know what that means is that like jumping out of the 18th floor window? <v Frank Cappiello>I hope not. No. <v Louis Rukeyser>What's ledging in? <v Frank Cappiello>Ledging in means your base down to nine-ten nine-twenty and then from there mount <v Frank Cappiello>the assault if we can use the terminology through the thousand area. <v Louis Rukeyser>Frank, let's assume for the moment that this is right. <v Louis Rukeyser>People are hearing two things now. They're hearing either: this is the end or else what <v Louis Rukeyser>you've just said. We're going to back off of that. <v Frank Cappiello>Right. <v Louis Rukeyser>Under those circumstances, why should anyone buy? <v Frank Cappiello>Well, you should buy simply because of the dynamics that are facing the economy. <v Frank Cappiello>One, the Dow Jones Composite Index, the 30 industrial stocks <v Frank Cappiello>will probably earn one hundred two dollars a share. <v Frank Cappiello>Nineteen seventy six. <v Frank Cappiello>Put the multiple on that you wish. Ten to twelve times earnings that get you through <v Frank Cappiello>the old high, probably into the eleven hundred Ariela Dow. <v Frank Cappiello>That's plenty of room for someone buying a Dow, Monsanto and Eastman Kodak, <v Frank Cappiello>a utility. You've got another 20 or 30 percent right now and 77

<v Frank Cappiello>might well be a good year. <v Frank Cappiello>Right now, the first quarter, 77 looks like a good economy. <v Frank Cappiello>So. <v Louis Rukeyser>Bob Nurock, you're in your element. <v Louis Rukeyser>Your elves gave their buy signal in December of 74 within a week <v Louis Rukeyser>of the low. They gave a cell signal last week at what may have been <v Louis Rukeyser>the high. We went to point higher this week, but we won't quibble. <v Louis Rukeyser>This week, they're saying sell more mildly than last week. <v Louis Rukeyser>Do you back up the elves this week? <v Robert Nurock>Yes, I do. I think the market ultimately will go lower, but I am very bullish long term. <v Robert Nurock>I still think there was a little bit too premature to judge exactly how far we'll go down <v Robert Nurock>first before we resume the uptrend. <v Louis Rukeyser>But if anyone were a devout follower of the elves and possibly such lunatics exist <v Louis Rukeyser>in our country, why should they not instantly respond to a signal as clear <v Louis Rukeyser>as this one? <v Robert Nurock>I think that they should and I think they should create liquidity as suggested. <v Robert Nurock>I would generate 50 percent cash reserves. <v Louis Rukeyser>You did that last week. <v Robert Nurock>I know. That's exactly right.

<v Louis Rukeyser>Create liquidity brings all kinds of images to mind. <v Louis Rukeyser>You're talking about selling stocks, aren't you? <v Robert Nurock>That's exactly right. <v Louis Rukeyser>And you said you would sell half your stocks. That was your advice so a week ago. <v Robert Nurock>Right. <v Louis Rukeyser>And you're saying now. <v Robert Nurock>Right. And when the market moved up to a nominal new high on Wednesday, there were more <v Robert Nurock>new highs than there were last week. There is still momentum to the market. <v Robert Nurock>But I think that at this point, I would be a seller of securities and set objective <v Robert Nurock>slightly higher than the trading now. <v Louis Rukeyser>The problem is knowing we'd have to sell, I suppose. <v Robert Nurock>Well, you sell losers or winners, whichever closest to objectives. <v Louis Rukeyser>Well, this is the point in the program and we normally answer questions from our viewers. <v Louis Rukeyser>But we're going to omit that segment tonight in order to bring you a special film report <v Louis Rukeyser>on the Pacific Stock Exchange. <v Louis Rukeyser>Next week, though, we'll be back at our usual stand to see whether these fellows knew <v Louis Rukeyser>what they were talking about. So if there's something you'd like to know about the world <v Louis Rukeyser>of stocks and bonds, just send your questions along to us at Wall Street week. <v Louis Rukeyser>Windmill's, Maryland, two one one one seven. <v Louis Rukeyser>That was Fleet Week, Owings Mills, Maryland, two one one one seven. <v Louis Rukeyser>And now please fasten your seatbelts.

<v Louis Rukeyser>Ladies and gentlemen, for a trip to the twin locations of the Pacific Stock Exchange, <v Louis Rukeyser>the western most financial capitals of the Western world. <v Speaker>It was gold that first riveted the nation's attention on San Francisco and the Golden <v Speaker>Gate Bridge is still an apt symbol for a city that has grown to become an authentic <v Speaker>financial center. The Bank of America based here, is the world's largest. <v Speaker>It's lofty facade, so imposing. <v Speaker>It was used as the model for the towering inferno dominates a business <v Speaker>district that, like New York's Wall Street, is known by the name of one of its <v Speaker>arteries. Montgomery Street. <v Speaker>San Franciscans started trading gold stocks in this area in 1882, <v Speaker>and the present exchange has been opened since 1929. <v Speaker>Since 1957, when the San Francisco Exchange merged with the old <v Speaker>Los Angeles Exchange, the Pacific Stock Exchange has truly been a tale <v Speaker>of two cities and two trading floors.

<v Speaker>Though stocks are traded in both cities, which means the specialist here in San <v Speaker>Francisco, the man charged with overseeing the trading in a particular stock <v Speaker>and when necessary, buying and selling for his own account has no monopoly <v Speaker>as he would on the New York Stock Exchange. <v Speaker>He has a competing specialist in Los Angeles, and loudspeakers constantly advise <v Speaker>brokers where the better deal exists. <v Speaker>San Francisco traders also keep close watch on the action at the American Stock Exchange. <v Speaker>At the top of this display and in all transactions, including their own <v Speaker>in New York Stock Exchange shares. <v Speaker>Tradition has a different feel in Los Angeles. <v Speaker>And it may be that the chief thing the two cities have in common is their stock exchange. <v Speaker>But that is no small link in the state that has more stockholders than any other. <v Speaker>Like many American cities, Los Angeles is rebuilding its heart, determined perhaps <v Speaker>to end the myth that there is no downtown in L.A.. <v Speaker>It is out in the glossier suburbs, though, that most of the customers are found.

<v Speaker>And brokers who used to be in the center city now have their most imposing offices far <v Speaker>away. There's many a Hollywood heartbreak between Beverly Hills and <v Speaker>the shabby downtown. But it was in the city's core that Los Angeles first <v Speaker>got into the stock exchange game in 1889. <v Speaker>It wasn't movies in those days, and unlike San Francisco, it wasn't gold. <v Speaker>Local oil stocks got the Los Angeles Exchange started, and it, too, moved into its <v Speaker>present building in the fateful year of 1929. <v Speaker>Appearances to the contrary. It was not designed by Cecil B. <v Speaker>DeMille, as in San Francisco. <v Speaker>Traders here in Los Angeles thought their activity early at 7:00 a.m. <v Speaker>local time. That matches the 10 a.m. <v Speaker>Eastern Time kickoff up in New York. <v Speaker>But the Pacific Stock Exchange stays open until an hour and a half after the New York <v Speaker>exchanges closed. <v Speaker>Those extra hours are an important advantage for the Pacific Exchange, which normally <v Speaker>operates on both its floors at a much lazier pace than New York.

<v Speaker>For the great majority of the stock's traded on the California exchange. <v Speaker>Seven hundred ninety five out of 132 are also traded on the New <v Speaker>York Stock Exchange. In addition, 230 stocks are duly listed <v Speaker>here. And on the American exchange, only 107 stocks, fewer <v Speaker>than one in 10 are found only on the Pacific Stock Exchange. <v Speaker>But the PSC is convinced that it has found a role. <v Speaker>And last year, it did more business than any other U.S. <v Speaker>regional exchange except the Midwest exchange in Chicago. <v Speaker>The Pacific's gold is now measured in green. <v Louis Rukeyser>And to help you get some insight into the kind of thinking that made the West both gold <v Louis Rukeyser>and green, we're going to be talking now with Claude Rosenberg. <v Louis Rukeyser>Mr. Rosenberg is a pioneer of another kind. <v Louis Rukeyser>Having built while at San Francisco's Jay Barth and Company, the largest research <v Louis Rukeyser>organization in the West and having headed his own firm since 1970.

<v Louis Rukeyser>He's also a prolific writer on investment subjects. <v Louis Rukeyser>Claude, what are the pros and cons of doing your investment thinking 3000 miles <v Louis Rukeyser>from Wall Street? <v Claude Rosenberg>As you know, Lou, the center, the investment center, the United States is definitely New <v Claude Rosenberg>York City. There are more financial analysts, more experts working in New York <v Claude Rosenberg>than anywhere else. But communications being what they are, we still have the advantage <v Claude Rosenberg>of that expertize. <v Claude Rosenberg>I think the advantage of being away from New York and it's whether you're in San <v Claude Rosenberg>Francisco or Connecticut, it makes no difference, is the possible emotional <v Claude Rosenberg>objectivity that you can have being away from it is, you know, New York is subject <v Claude Rosenberg>and time to time to frenzies and to succeed in our business, we have <v Claude Rosenberg>to be contrary. We have to be objective. <v Claude Rosenberg>And sometimes it's simply easier to to have that when you are geographically detached. <v Louis Rukeyser>Well, you were quoted by Barron's last year as saying we don't get involved in the sort <v Louis Rukeyser>of group think that goes on in Wall Street. <v Louis Rukeyser>We're more detached, which makes it easier to be objective.

<v Louis Rukeyser>Could you translate that into specific terms? <v Louis Rukeyser>What are you doing today that they're not doing on Wall Street? <v Claude Rosenberg>Well, specifically, we attempt in our firm to <v Claude Rosenberg>to gauge unanimity of opinion and the type of coverage that goes on <v Claude Rosenberg>industry by industry, company by company. <v Claude Rosenberg>We're not such contrarians that we do everything opposite from anyone else, because some <v Claude Rosenberg>of the things that are going on in Wall Street are very most of them are very well <v Claude Rosenberg>thought out. But we do feel that there is an <v Claude Rosenberg>opportunity, for example, where we see the large institutions, some of the large banks, <v Claude Rosenberg>for example, liquidating some of your fine companies in the consumer areas <v Claude Rosenberg>to take some contrary thoughts and do opposite to what they are doing. <v Louis Rukeyser>In regional terms are there any Western based industries or companies <v Louis Rukeyser>that you follow particularly closely or that have any special advantages and <v Louis Rukeyser>disadvantages? <v Claude Rosenberg>Right now, California particularly <v Claude Rosenberg>is closer to aerospace and electronics technologies.

<v Claude Rosenberg>But I can't say that we specialize in that. <v Claude Rosenberg>We really don't have any one industry that we feel we can do better in than anyone else <v Claude Rosenberg>as as an economic region. <v Louis Rukeyser>Do you think the West will be better or worse than the rest of the country in the next <v Louis Rukeyser>year or two? <v Claude Rosenberg>It should be better. We we don't suffer some of the industrial problems that are suffered <v Claude Rosenberg>in cities such as Detroit, Pittsburgh and the like. <v Claude Rosenberg>And the standard of living, the personal income per capita, et cetera, is <v Claude Rosenberg>very high in San Francisco and California. <v Louis Rukeyser>Looking at the whole national scene, then, what would you tell an investor or a potential <v Louis Rukeyser>investor who is wondering now whether it was too late to start buying stocks? <v Claude Rosenberg>I don't think it's too late to start buying stocks. <v Claude Rosenberg>I think that people lose sight of what they are doing when they buy stocks. <v Claude Rosenberg>Basically, you're buying businesses and you are buying businesses in this country. <v Claude Rosenberg>And if you believe in the viability of this country and the growth of this country, which <v Claude Rosenberg>I do, at least short term, I don't know what's going to happen very long term. <v Claude Rosenberg>Used to be in our business. We were very concerned about the long term and not so <v Claude Rosenberg>sanguine about the short term. It seems to be the opposite now, but there are plenty of

<v Claude Rosenberg>opportunities. After all, most stocks are selling below where they sold in <v Claude Rosenberg>1965, and yet the earnings of most of those companies are considerably above <v Claude Rosenberg>what they were at that time. <v Louis Rukeyser>Well, you handle money for pension profit sharing plans. <v Louis Rukeyser>You have. Last time I saw it counted publicly, 40 clients with something in excess <v Louis Rukeyser>of a third of a billion dollars. You've got a lot of expertize for these people what <v Louis Rukeyser>chance as an individual investor habitats to value. <v Claude Rosenberg>I think he has an excellent chance against any institutional investor. <v Claude Rosenberg>He has one advantage in that he has no size restriction whatsoever. <v Claude Rosenberg>All of us in our business of managing pension and profit sharing monies. <v Claude Rosenberg>Anyone who manages over 10 or 20 million dollars really has some size <v Claude Rosenberg>restrictions and the individual does not have that. <v Claude Rosenberg>And I think that's that's an advantage which he has. <v Louis Rukeyser>I'm confused by one thing in your writings, and that's that's a very good record for you. <v Louis Rukeyser>I'm usually more confused than that. <v Louis Rukeyser>You have suggested, as you just told us, that people should think of themselves

<v Louis Rukeyser>as buying a part of a company, being a part owner, and that suggests a certain amount of <v Louis Rukeyser>patience and fortitude. On the other hand, you've said that people have to be more mobile <v Louis Rukeyser>when they used to be. How do you mesh those two ideas? <v Claude Rosenberg>Well, it is hard to find a happy medium, I suppose. <v Claude Rosenberg>The best advice I could give would be to more or less differentiate <v Claude Rosenberg>the type of stock that you are buying. <v Claude Rosenberg>There are certain types of securities which are not sensitive <v Claude Rosenberg>to business cycles and I think which therefore might be held for longer periods of time <v Claude Rosenberg>as opposed to those which you have to label as cyclical, which in. <v Claude Rosenberg>This is a way of saying to yourself, I must sell that security at sometime in the fairly <v Claude Rosenberg>near future. So I suppose it's a separation element as much as anything else. <v Louis Rukeyser>Suppose somebody out there has a few thousand dollars wonders whether to put it in the <v Louis Rukeyser>stock market. Where would you tell me to put it? <v Claude Rosenberg>I think on the cyclical side of the paper, stocks look as well <v Claude Rosenberg>positioned as any. They've come through the recession very well. <v Claude Rosenberg>Extremely. Much better disciplined than they were before your <v Claude Rosenberg>major companies in that industry or international and union camp or a

<v Claude Rosenberg>Georgia-Pacific consumer companies which are now, as I mentioned before, under some <v Claude Rosenberg>institutional selling will probably will be for the rest of the year. <v Claude Rosenberg>The Procter & Gamble Standard Brands, Coronation seven up, that type of thing. <v Claude Rosenberg>I think those iron ore through Cleveland Cliffs and others would make a good start <v Claude Rosenberg>for someone, I think. <v Louis Rukeyser>Now, you've mentioned a lot of cyclical stocks, the kind you said you have to be pretty <v Louis Rukeyser>nimble with. How does that investor know when to sell those stocks? <v Claude Rosenberg>Well, no one rings the bell, as you know, to to announce that that particular <v Claude Rosenberg>cycle is over. And suppo I suppose the best advice is for someone, <v Claude Rosenberg>number one, to keep track of the fundamentals and at least make some attempt to determine <v Claude Rosenberg>how cheap that security is. Is it 10 times earnings? <v Claude Rosenberg>Is it 15 times earnings? <v Claude Rosenberg>And on a cyclical security, I think he would be best off to perhaps <v Claude Rosenberg>sell half of his holding it when he's made 50 or a hundred percent on his money and <v Claude Rosenberg>then try to let the less the rest go for some period of time. <v Louis Rukeyser>A lot of people are yearning for that experience, but a lot of times they had it clawed.

<v Louis Rukeyser>East is east and west is west. But I'm going to be cleft in twain if I don't let our <v Louis Rukeyser>panelists have a go at you. <v Claude Rosenberg>Right. <v Louis Rukeyser>We're going to start with the repository of the wisdom of the East, Mr. Carter Randall. <v Carter Randall>Repository, I hope. Claude, we're <v Carter Randall>in a market place physically and we've been talking about whether to buy <v Carter Randall>or sell stocks. But I know you're a great exponent, that people should <v Carter Randall>take some look at what they're trying to accomplish with their investments. <v Carter Randall>And I wonder if you would expand on that just a little bit. <v Claude Rosenberg>Right. I think one of the problems of investors generally <v Claude Rosenberg>is that they don't set objectives and that they don't understand their own personalities. <v Claude Rosenberg>They don't understand perhaps their own. <v Claude Rosenberg>You might call it tolerance of pain for them. <v Claude Rosenberg>But for the most part and for most people, I would say that whether they like <v Claude Rosenberg>it or not, they they should be attempting to achieve. <v Claude Rosenberg>I would call peace of mind more than anything else, because money can do a lot of things. <v Claude Rosenberg>But I think perhaps the best thing that it can do other than charitable means, etc.,

<v Claude Rosenberg>would be to give a person peace of mind. <v Claude Rosenberg>Most people start off with a hope of getting peace of mind, but then some where along <v Claude Rosenberg>the line they get involved in the other elements of investing, which are greed and fear. <v Claude Rosenberg>And there should be a happy medium there. <v Claude Rosenberg>And they should keep coming back to reality and understanding that they are not they <v Claude Rosenberg>shouldn't attempt to achieve too much too fast, and that if they start early enough, <v Claude Rosenberg>they can achieve an awful lot without being too heroic. <v Frank Cappiello>Well, you came up as a research director and you were also known <v Frank Cappiello>as I used to know you was a great stock picker. <v Frank Cappiello>Can you give our listeners and viewers some insight as to how <v Frank Cappiello>you develop a rationale for owning a stock? <v Frank Cappiello>What characteristics do you look for in a stock? <v Claude Rosenberg>Frank, I'm I would start with an industry position of some sort. <v Claude Rosenberg>I feel that the industry is more or less the equivalent of the foundation <v Claude Rosenberg>to the homebuilder. <v Claude Rosenberg>And if you're not in a good industry where chances are your investment isn't going.

<v Claude Rosenberg>Going to be very successful. So I tried to analyze an industry <v Claude Rosenberg>and ask a few fairly simple questions, many more after that. <v Claude Rosenberg>But really simple, like, is it mature or is it growing? <v Claude Rosenberg>Obviously, we all want to invest in industries which are growing, which have a demand <v Claude Rosenberg>pattern, which is expanding rather than contracting. <v Claude Rosenberg>I want industries that are not easy to enter by others. <v Claude Rosenberg>I also want industries where there is some control <v Claude Rosenberg>over the price of their product in some way. In other words, where the history of the <v Claude Rosenberg>industry has not been one of constantly cutting price cutting price and thinking <v Claude Rosenberg>of volume rather than profit. <v Claude Rosenberg>And then once you've established that position and also I want industries where <v Claude Rosenberg>were the participants can have something proprietary, something which is <v Claude Rosenberg>not generic, but proprietary. <v Claude Rosenberg>And then once you have that covered you, you have one base covered and then you can go <v Claude Rosenberg>and determine, well, as the company within an industry, the right one. <v Claude Rosenberg>That's at least the starting point as far as I'm concerned. <v Robert Nurock>Claude, I know from your writings you suggested investors use timing for both purchase

<v Robert Nurock>and sale. How do you factor technical analysis into your use of timing? <v Robert Nurock>Are you using it and how does it help you? <v Claude Rosenberg>Well, timing. [laughter] Yes. <v Claude Rosenberg>Equal time for equal time. Right. <v Claude Rosenberg>The technicians and the fundamentalists have both had their day and there is room for <v Claude Rosenberg>both of us. I think I'm a fundamentalist by nature, but I do not lose sight <v Claude Rosenberg>of the fact that the technical side can tell me something. <v Claude Rosenberg>The problem with the technical side, as far as I'm concerned, is that as a great <v Claude Rosenberg>number of people commence using it, then it is distorted. <v Claude Rosenberg>And instead of the technical analysis showing what it is supposed <v Claude Rosenberg>to show, and that is what the people who really know the fundamentals of that company or <v Claude Rosenberg>industry are doing. It only begins to show you what other technicians are doing. <v Claude Rosenberg>In other words, everyone begins to follow the same chart and it becomes self <v Claude Rosenberg>perpetuating. But it is self-defeating, ultimately. <v Claude Rosenberg>But I do feel that it is important. <v Claude Rosenberg>You must invest with the idea that you will never be the first to know when things go

<v Claude Rosenberg>wrong. It's not as if people are hiding anything from you, but it's simply that you <v Claude Rosenberg>can't cover all the bases. There are so many things to know about a given industry or a <v Claude Rosenberg>given company. You simply can't be first. <v Claude Rosenberg>And sometimes the technical science will give you an indication that something very good <v Claude Rosenberg>or very bad is going on. And then you have to go from there and make sure that the <v Claude Rosenberg>fundamentals either support or refute that technical thought. <v Louis Rukeyser>We only have about half a minute left. <v Louis Rukeyser>You've described yourself as a fundamentalist. <v Louis Rukeyser>Why don't you tell us some of the fundamentals you see in the economic picture of the <v Louis Rukeyser>next year or two? <v Claude Rosenberg>Lower inflation. <v Claude Rosenberg>Very good business. Earning power, as Frank mentioned before, <v Claude Rosenberg>quite a billion, I think, next year and 77. <v Claude Rosenberg>It's very possible we could see earnings in a 100 to 120 dollar area for the Dow. <v Claude Rosenberg>And if inflation behaves itself, lower interest rates, which will give us higher among <v Claude Rosenberg>us. <v Louis Rukeyser>If you'd been a panelist tonight, as you were originally supposed to be, I would have <v Louis Rukeyser>forced you to make the predictions. These fellows make what your Dow forecast for this <v Louis Rukeyser>year, whereas the high and the low on the Dow Jones Industrial Average.

<v Claude Rosenberg>This year I think the low is more like eight <v Claude Rosenberg>fifty and the high is probably ten seventy five. <v Louis Rukeyser>Thanks very much, Glenn Rosenberg, for being with us and for being such an excellent. <v Louis Rukeyser>Yes. Thanks to our panelists. <v Louis Rukeyser>And I hope you'll be back with us next week when we'll be back at home base for a look at <v Louis Rukeyser>how the federal government's activities this year may affect the economy and the stock <v Louis Rukeyser>market. My guest will be Charles Schulz, who was budget director under Lyndon <v Louis Rukeyser>Johnson and has some sharp thoughts on how Johnson's successors have done. <v Louis Rukeyser>We've tried to have some sharp questions for him. <v Louis Rukeyser>Meanwhile, this has been Wall Street week. <v Louis Rukeyser>I'm Louis Rukeyser. Good night from the Golden West. <v Speaker>If you would like to obtain a written transcript of tonight's program, send one dollar

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