From: leona@Happy-Man.com (Leona_Troese)
Subject: Solid Value #801 -- Irving Wolfe's Commentary of Early January
Followup-To: sender
Keywords: solid value commentary wolfe
Reply-To: Leona_Troese@Happy-Man.com
Organization: Happy Man Corp., Vashon Island, WA 98070-7399
Date: Thu, 21 Jan 1993 16:32:56 GMT



Copyright 1993 Happy Man Corp., Vashon, WA 98070-7399, 1 206 463 9399
One hard copy may be made for individual, personal use only.

What follows is Irving Wolfe's column, Commentary, from the most
recent issue of _Solid Value._  

Permission to distribute it via Usenet is hereby granted.

Because Solid Value's heart is its tables of Best Buys and 
former-Buy followups, this free distribution of Irving Wolfe's 
Commentary should be interesting to some Usenet readers without 
making subscriptions less valuable to those who actually invest in 
stocks for profit.  

=====

International Business Machines, a company which had greatly 
distinguished itself through the quality of its research and 
through its domination of the worldwide computer business, has in 
the past few years brought forth primarily bad news.  Some of the 
worst news for investors has come not from the company itself but 
from the stock market.  

Even though our value-orientation protected Solid Value's readers 
from purchasing this stock when it was a favorite, selling at still 
higher prices, it had fallen low enough in price relative to its 
value to become a Best Buy in Volume 3, Issue 5, at the now 
embarrassing price of 116.375.  This makes IBM the seventh 
worst-performing stock ever recommended by Solid Value -- and 
that's out of 258 recommendations!  Poor operating profits and huge 
non-operating writedowns, coming in waves over several years, 
substantially reduced the company's apparent value, while its 
shares fell even more rapidly in price.  According to a good (and 
brilliant) friend who used to trade on the floor of the Chicago 
Board Options Exchange, his fellow traders believe that this stock 
may fall as low as 35 before rising again.  They also expect the 
dividend to be cut in half.  My friend believes the company would 
be smarter to cut the dividend even further, saving its cash, but 
that IBM probably will not do that.  

We have seen the company's financial strength decline from 9 to 6 
-- still better than average.  During the same period that its 
shares were falling about 60%, the Dow Jones average rose some 60%.  
No wonder one subscriber suggested that we remove IBM's "core" 
designation!  I have decided not to do that, since the company 
still has superb research and impressive marketing and service 
prowess, enabling its currently not very profitable dominion over 
the computer industry to continue.  We are, however, making two 
changes.  

First, we are changing our rating of the company's accounting 
quality from "above average" to "average," reflecting its need for 
repeated writedowns in recent years.  The more conservative a 
firm's accounting, the less likely it is to need writedowns; 
conservative accounting means charging expenditures against 
operations as soon as possible, so they do not remain on the books 
to be written off.  This change will produce a realistic decline in 
our calculated value.  

Second, and potentially more important, we are modifying our 
"protective sale" mechanism to no longer exempt "core" companies 
from the process.  This should protect us all against future IBMs 
by selling them as their value and financial strength deteriorate, 
instead of allowing our loss to grow as value and price decline 
together.  Though Solid Value's superior overall investment 
performance (with an average gain of about 30%, versus 22% for the 
Dow and 13% for the Value Line averages in the same periods) shows 
that our methods are good, we always try to learn from our 
experiences and improve upon our techniques. 
-- 
 Leona_Troese@Happy-Man.com      Happy Man Corp. 206/463-9399 x109
 4410 SW Pt. Robinson Rd., Vashon Island, WA  98070-7399  fax x108
 We publish SOLID VALUE for the intelligent investor.  NextMail OK
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