Subject: IC940724: Great Divide, Comments on Price/Book Ratio ...

From: "Gray Zhu, 800-289-2498, 212-279-6700" <[email-masked]>
Date: Sun, 24 Jul 94 10:02:52 CDT

==================    IC940724: Investment Club  ======================

1. Phone numbers for Compuserve, America Online, Prodigy ... Gray Zhu
2. Price/Book Ratio - *** Some THOUGHTS and COMMENTS *** ... Gray Zhu
3. The Great Divide - difference of losers and winners ..... Barron's
4. Regional Banks and Transportation: 
   - Two industies with superior potential ......... S&P Market Month
_______________________________________________________________________
   (be sure to read the Disclaimer in the end if you have not read)

======================================================
1. Phone numbers for Compuserve, America Online, Prodigy.

>From: Yingfang Xu <[email-masked]>
>Subject: help

>If somebody know about "COMPUTE SERVE", Can you let me know?  I want to
>take part in "compute serve". I am intersting in stock market.
>Thank you!

Compuserve 800-848-8990
America Online 800-827-6384
Prodigy 800-prodigy

they all offer one month free trial. Call and get a free software. 
I like Prodigy. -Gray

====================================================== 
2. Price/Book Ratio - Some Thoughts ........................ Gray Zhu

Price/Book ratio is an important fundamental quantity. Price is the
price of the stock, and book value is the value (in $) of the company
divided by the number of shares outstanding. This ratio varies from
industry to industry and from company to company. It could be less than
1 (e.g. some banks), and could be 10 (e.g. some software).

The point I'd like to make is: YOU KNOW A COMPANY WELL AND IT IS DOING
WELL, IT DOESN'T MEAN THE STOCK IS GOING TO DO WELL. The market is a
supply and demand market, the general market condition could make a
company's price/book ratio from 4 to 2 regardless of the company's
business condition. The demand or supply is a reflection of investors
psychological expectation, which could be affected by not only the
company, but the industry, the market, the economy, the upgrade or
downgrade of a brokerage firm, or even a analyst's comments. For stock
with price/book ratio is 4, three quarters of the price is supported by
psychological factor (demand).

When talking to potential clients, I found many insist on "I don't
consider a stock which I don't understand". O.K., I agree you should
consider something you have some general idea about the company's
business, but DO YOU REALLY UNDERSTAND THE STOCK? (I do not mean I do,
but I work full time watching stocks and market)

I have spoken to a guy who works for a semiconductor company. He is the
kind "I don't consider a stock which I don't understand". Here is the
conversation:

"I have friends work for CISCO, National Semiconductor, Intel, I know
their companies are doing well, huge backlog, etc., I have those
stocks".
"So, your stocks must be all up?"
"No, all down" 
"Do you know why?"
"Ah...unlucky..."
"Although you are not putting eggs in one basket, but you are carrying
all the baskets by one or two fingers. You know this market is not a
hi-tech-only market, if Wall Street doesn't like the two fingers, you
could feel much heavier. As a matter of fact, there is signs of computer
slow down, even though the industry is doing well, but people are used
to expecting growth's growth's growth, do you expect this year after
year?"
"Uh? ..."
"What about some Bank Fund? ;-)"
..

Here is another story: Two weeks ago, one of my clients call me at 8:00am,
"Enter the buy order 200 shares Crysler for me! I've just seen its earnings
up 40% from the previous quarter!". I told him wait and see what happens
when the market opens (9:30am). As it turned out, Crysler was down about $1
the same day (he didn't buy), and hasn't been up from that point. Crysler
might (or might not) be a good investment, but the earnings news didn't
help much.

I (myself) bought some SGI at $22 on the news of SGI and Nippon alliance,
it was down the same day (I sold at $22 7/8 later).

The market is a total chaos. It is supported by demand, and it is resisted
by supply, and supply and demand are all psychological. Overall evaluation
is as important as the evaluation of the company and industry.
Diversification can make your sleep a lot easier.

====================================================== 
3. The Great Divide - There's a difference in the mind-sets of winning - 
   and losing - investors.

(A great story on Barron's July 18, 1994. This is my short rewrite of the
story using "MyEnglish", not the original - go read it. -Gray)

A broker sold two clients each with 1000 share of Scitex at $7/share March 
1987 (Scitex was lossing money at that time). In Nov that year, the market
"crashed", the price dropped to $2, Customer A sold for the $5000 loss;
customer B bought a few thousands more shares (dollar-cost averaging), and
each time when the stock hit new high, he buy some more shares. In Nov.
1992, the stock was selling at $39, B sold his stocks and made $500000,
with about $20,000 (?) total investments.

==============================================================
4. Regional Banks and Transportation: Two industies with superior potential

  - Market Month, July 1994, Standard & Poor's (S&P) investment review 
                  and forecast

Regional banks' fundamentals bright. Conventional wisdom holds that bank
stocks are hurt by rising interest rates. Not so this time around. Despite
the Fed four short-term interest-rate hikes so far in 1994, the S&P major
regional banks index is up 8% through early June vs a decline of 1% for the
S&P 500. The group should contine to do well in view of good earnings
prospects. A pick-up in loan demand, especially in the Midwest and
Southeast, should more than offset thinning net interest margins (the
spread between cost of funds and the rate of loans). In addition, improving
asset quality and the industry's very conservative reserving practices of
recently years will lead to lower loan loss provisions through the reminder
of the year. Earnings, moreover, will benefit from increased efficiency as
a result of industry consolidation and cost reduction programs. Possible
enactment of interstate banking legislation by late summer that would lead
to further consolidation of the industry has heightened investor interest
in the stocks. With excess capital to put to work, dividend boosts and
stock-repurchase programs should continue to spread. Our favorite regional
banks issues are: ... (ommited).

Transportation stocks offer good value. With the S&P transportation index
down more the 7% since the start of the year, we believe selected stocks in
the group offer outstanding value. The best situated are in the rail and
shipping sectors. The rail industry is benefiting from good economic growth
and heavier demand for coal. After years of downsizing, the industry has
started to encounter bottlenecks and capacity constraints. While increased
capital investment and improved operating strategies should alleviate the
industry's capacity problems, we think the rails will also use higher
freight rates to ration their service. Most freight moves under long term
contracts, but higher rates on renewals should contribute to a 1% rate
boost vs. a 0.7% increase in 1993, and we look for record profits this
year. Our top picks are: ... (ommited).

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