Page 543 - How to Make Money in Stocks Trilogy

Institutional Portfolio Ideas 411

financial statements, and highly detailed daily computer reports on sales of
every item in every store by merchandise type, price, and category. His
automated inventory and financial controls were almost unbelievable for
that time.
After the stock tripled, Wall Street analysts started to acknowledge its
existence. There were even a few research reports noting Tandy as an
undervalued situation. Isn’t it strange how far some stocks have to go up
before they begin to look cheap to everyone?

The Size Problem in Portfolio Management
Many institutions think size is a problem. Because they manage billions of
dollars, there never seem to be enough big-capitalization stocks they can buy.
Let’s face it: size is definitely an obstacle. It’s easier to manage $10 million
than $100 million; it’s easier to manage $100 million than $1 billion; and $1
billion is a piece of cake compared to running $20 billion or $30 billion. The
size handicap simply means it’s harder to buy or get rid of a huge stock hold-
ing in a small- or medium-sized company.
However, I believe it’s a mistake for institutions to restrict their invest-
ments solely to large-cap companies. In the first place, there definitely
aren’t enough outstanding ones to invest in at any given time. Why buy a
slow-performing stock just because you can easily acquire a lot of it? Why
buy big-caps with earnings growing only 10% to 12% a year?
From 1981 to 1987, in the Reagan years, more than 3,000 dynamic, up-
and-coming companies incorporated or had initial public offerings. This
was a first, and was due mainly to several cuts in the capital gains tax dur-
ing the early 1980s. Many small- to mid-sized entrepreneurial concerns
became enormous market leaders that drove the unprecedented technol-
ogy boom and expansion of new jobs in the 1980s and 1990s. Most were
small, unknown companies, but you’ll recognize them now as some of the
greatest winning companies of that period. Here is a partial list of the thou-
sands of ingenious innovators that reignited growth in America until the
March 2000 market top.
Adobe Systems, Altera, America Online, American Power Conversion,
Amgen, Charles Schwab, Cisco Systems, Clear Channel Communications,
Compaq Computer, Comverse Technology, Costco, Dell Computer, Digital
Switch, EMC, Emulex, Franklin Resources, Home Depot, International
Game Technology, Linear Technology, Maxim Integrated Products, Micron
Technology, Microsoft, Novell, Novellus Systems, Oracle, PeopleSoft,
PMC-Sierra, Qualcomm, Sun Microsystems, UnitedHealth Group, US
Healthcare, Veritas Computer, Vitesse Semiconductor, Xilinx.