How business, doctors and journalists prey on your food anxieties I
How business, doctors and journalists prey on your food anxieties I
How business, doctors and journalists prey on your food anxieties I
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1111111A, Ll~ I ;IIl :~`iI AA<br />
THE MONEY MEN<br />
Looking bey<strong>on</strong>d<br />
the valle Y<br />
Bill Ehrman thinks we're at the end<br />
of a market cycle but expects the next<br />
cycle will be a winner, too, <str<strong>on</strong>g>and</str<strong>on</strong>g> so<strong>on</strong> .<br />
By Thomas Jaffe<br />
Wtt[ .tAs[ EHastaN dates his c<strong>on</strong>tempt<br />
for ~VaIJ Street to his first job out ot<br />
colle ge, as a research anah sr at Chernical<br />
Bank . He was told to prcoare a<br />
report <strong>on</strong> the rubber indusuv a[ the<br />
time when l<strong>on</strong>g-lived radial tires \\cre<br />
hitting the market . He c<strong>on</strong>c .'uded<br />
people would need fevver repiacement<br />
tires, Mhich would slow earnings<br />
growth for ilte tire mmpanics . He<br />
recommended selling tire<br />
stocks .<br />
Rentembers the Hewlert,<br />
N .Y .-born Ehrman,<br />
stocky but still cherubiclooking<br />
at 46 : "~Vhen I<br />
presented ithe report],<br />
n<strong>on</strong>e of ahe investmcnt<br />
committee had read it . All<br />
thev did, around the rable,<br />
was open up a chart book ."<br />
Clearl\ the committee<br />
members didn't vvant to<br />
bother their heads about<br />
fundamentals. Rubber<br />
companies looked good ou<br />
the charts <str<strong>on</strong>g>and</str<strong>on</strong>g> that was<br />
enough fbr them .<br />
"To this dav', <str<strong>on</strong>g>and</str<strong>on</strong>g> I've<br />
been in the <str<strong>on</strong>g>business</str<strong>on</strong>g> 25<br />
years," Ehrman says, °I<br />
have never looked at a chart<br />
book. Never go out to<br />
dumb ~Vall Street lunches .<br />
All I uy to do is logically<br />
think through «hat's hnppening<br />
. I'm a fundamentalist,<br />
A to Z,°_<br />
Passing up all those<br />
charts <str<strong>on</strong>g>and</str<strong>on</strong>g> lunche<strong>on</strong>s dear-<br />
Iy hasn't hurt Bill Eltrman .<br />
lM1 th three partners, Frcd-<br />
Ketchc, he runs a 5250 milli<strong>on</strong><br />
hedge fund, rGs Partners, L .P ., in<br />
Manhattan . Over tour eears EUs has<br />
siioun compounded annual recurns<br />
after fees of 18%, h<str<strong>on</strong>g>and</str<strong>on</strong>g>ihv beating the<br />
averages . This is the more impresske<br />
vvhen rou c<strong>on</strong>sider that EGS took a<br />
24% hit last cear, vchich it has just<br />
about made up this year .<br />
`IVh'at Fuatdamental ciem is Bill Eltr-<br />
Nlilliarn Ehrman oi EGS Parfners<br />
eric Greenberg, J<strong>on</strong>as No chart books, no dumb Wall Street lunches .<br />
Gerstl <str<strong>on</strong>g>and</str<strong>on</strong>g> Frederick ~<br />
mar acrng <strong>on</strong> right now? BullishnessThough he expects the ec<strong>on</strong>omv, to<br />
slovvsomc~vitnt, his fund is positi<strong>on</strong>ed<br />
partiallvin cvdical stocks <str<strong>on</strong>g>and</str<strong>on</strong>g> partially<br />
in sncci~al situati<strong>on</strong>s that haze nothing<br />
to do vcith thc ec<strong>on</strong>omv~ .<br />
To underst<str<strong>on</strong>g>and</str<strong>on</strong>g> Eivman's bullishness<br />
you need to know something<br />
.tbout his vrav of thinking . He worked<br />
for master spcculator George Soros in<br />
the 1980s <str<strong>on</strong>g>and</str<strong>on</strong>g> c<strong>on</strong>siders Soros a kind<br />
ot model . Ehrman describes Soros as a<br />
°fbrnard thinker ." Essend'allv, it's an<br />
abilinto look over ralley,s to the hills<br />
bey<strong>on</strong>d . While others fret about the<br />
descent into the v-allev, the Soros-typc<br />
anticipates the nice elimb up . It works<br />
both vrays, of course, since Ehrman's<br />
a hedge fund man : Sometimes you<br />
Look o\ er a hill <str<strong>on</strong>g>and</str<strong>on</strong>g> see a ca\ •ning hole<br />
<strong>on</strong> the other side .<br />
Ehrman cites his 1991 heavy cornmitmentin<br />
ivierck as an example of this<br />
kind of thutking: "Mhen \-lerck<br />
bought Medco C<strong>on</strong>tainmrtt, it took a<br />
vear-<str<strong>on</strong>g>and</str<strong>on</strong>g>-a-Italf's diluti<strong>on</strong> to earnings .<br />
Dming that pcriod earnings plateaued<br />
<str<strong>on</strong>g>and</str<strong>on</strong>g> the stock vrent from the<br />
mid-30s to the 20s . That<br />
vvas the intlecti<strong>on</strong> point ."<br />
.Y1anv traders knew Merck<br />
\4as going to go through a<br />
period of carnings diluti<strong>on</strong><br />
<str<strong>on</strong>g>and</str<strong>on</strong>g> sold the stock, but Ehrman<br />
bou,ht .<br />
He \vas looking bec<strong>on</strong>d<br />
the vallev while others ~~ere<br />
starting dotVn into it . "Atter<br />
Merck ate through the<br />
diluti<strong>on</strong>, earnings growth,<br />
Mtich had g<strong>on</strong>e from 17%<br />
to zero, began to turn back<br />
up <str<strong>on</strong>g>and</str<strong>on</strong>g> so did the stock,<br />
vchich is now 50 .<br />
"what I've ahvavs d<strong>on</strong>e<br />
is look ft>r companies going<br />
through change, positive<br />
<str<strong>on</strong>g>and</str<strong>on</strong>g> ncgative," Ehrman<br />
gocs <strong>on</strong> . "The positive<br />
could be a managerial or a<br />
structural change . Or like<br />
ir;, where cou teel the value<br />
vtill be unlocked by<br />
managcment ."<br />
Right now he <str<strong>on</strong>g>and</str<strong>on</strong>g> his<br />
parrners like warner-Lambert<br />
(84), which he expects<br />
to be restructured or taken<br />
o\er .<br />
"I\vantstocksIcan make<br />
m<strong>on</strong>ea <strong>on</strong> in more than <strong>on</strong>e<br />
~<br />
C<br />
tr7<br />
~<br />
174 ~ Forbcs E August 14, 1995- ~ -_ - .<br />
http://legacy.library.ucsf.edu/tid/agf97d00/pdf<br />
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