From: leona@Happy-Man.com (Leona_Troese)
Newsgroups: misc.invest
Subject: Solid Value #705 - Irving Wolfe's Commentary of early March
Keywords: solid value commentary wolfe
Date: 15 Apr 92 18:46:16 GMT
Reply-To: Leona_Troese@Happy-Man.com
Followup-To: sender
Organization: Happy Man Corp., Vashon Island, WA 98070-7399


Solid Value 705 -- Irving Wolfe's Commentary

What follows is Irving Wolfe's column, Commentary, from the issue 
of _Solid Value/tm/_ published in early March.  

It is Copyright 1992 Happy Man Corp., Vashon Island, WA 98070-7399. 
Permission to distribute via Usenet is hereby granted.  "Hard" 
copies may be made for personal use but may not be re-distributed. 

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.  

=====

Community Psychiatric 

Never has a recommendation of ours caused such interest among 
readers as the sale of Community Psychiatric Centers' shares in our 
last issue.  I apologize for failing to include the explanation in 
that issue and will surely do so next time we sell a stock far 
below its "sell-at"price.  This sale was one of those "protective" 
sales that we sometimes make when a company's value or financial 
strength has fallen sharply.  We did not sell because of any new 
information about the company's business, and of course did not 
realize that its shares would fall earlier this week when a 
competitor disclosed that it is losing money.  Because I believe 
Community Psychiatric may be the best run company in its business 
and because the shares had already been depressed to bargain levels 
by the bad news, I had real misgivings about allowing the sale when 
our computer programs suggested it.  At the last minute, I decided 
not to suppress it, letting the sale take place.  We had a small 
profit, in line with the market's gain, since recommending the 
shares last October. The theory behind these sales is that business 
troubles tend to last for a while, and that situations bad enough 
to cause sharp declines in value or financial strength could, if 
they persisted, be dangerous to the company itself and to its 
shareholders.  Once the business problems seem to have stabilized, 
we are often willing to buy the shares again if they are still 
bargain-priced.  Sometimes, we miss attractive gains this way.  But 
other times, we avoid major losses.  In the case at hand, I thought 
about the trend, noted in our major story on this company late last 
year, toward replacing high-margin business with lower-margin, 
contractual-reimbursement plans, and conjectured that the company's 
earnings would be unlikely to show large gains in such a climate.  
Although Community Psychiatric still expects a favorable resolution 
of its dispute with the Province of Ontario's Health Board, that, 
too, should not affect the stock, near term, since any settlement 
may take a couple of years.  Thus, we hope to get a chance to buy 
the shares back after its business situation clears.  On balance, I 
remembered closing a recent Commentary with words like, "When will 
I learn to trust the good tools we have built?"  With misgivings, I 
allowed the sale to take place.  If you have a strong conviction 
the other way, trust it.  

Market Valuation 

The average stock in our database is now selling some 36% above the 
fair value we calculate for it; only a fall of more than 25% from 
Monday's price level could normalize this excess.  If the market's 
decline continued to a similar percentage _below_ fair value from 
that level -- something that has not happened since the market's 
mid- 1982 decline -- we would be talking about a loss of some 44% 
from current levels.  Is that a prediction?  Certainly not!  It's a 
speculation, an open-minded attempt to explore the possibilities.  
But it looks like there will be no Best Buys in this issue.  The 
last and only other time there were none was in our October 1, 
1987, issue, 18 days before the biggest crash in decades.  A friend 
who owns some private companies is getting ready to sell shares in 
one of them to the public.  Good for him, especially if risk-capital 
becomes scarcer in the next few years.  But not so good for the 
investors buying new issues at today's prices.  My friend is a good, 
solid man, who will continue to run the company he built, and 
maybe, over the long term, the investors who buy his shares will do 
quite well.  But in the short run, I'm sure my friend is doing the 
right thing for himself and for his children by sharing his company 
with the public in return for cash the company doesn't even need.  
When speculators are eager to pay today's prices for stocks, 
everyone who _can_ sell, _ought_ to sell.  The investment bankers 
see this, and are encouraging private companies to sell shares to 
the public.  They are also glad to have the opportunity to let the 
formerly public companies they "took private" through leveraged 
buyouts in the 1980s get cheap capital to pay down their 
indebtedness.  This strength in the "new issues" market 
independently corroborates Solid Value's thesis that stocks are 
much too high.  
-- 
 Leona_Troese@Happy-Man.com      Happy Man Corp. 206/463-9399 x109
 4410 SW Pt. Robinson Rd., Vashon Island, WA  98070-7399  fax x108
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