Robert Drach of "Drach Weekly Research Report" -- NBR Interview

nbr.com ^ | 1/11/03 | Interview Transcript

[arete]

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PAUL KANGAS: My guest market monitor this week is Robert Drach, Editor and Publisher of the "Drach Weekly Research Report." Welcome back to NIGHTLY BUSINESS REPORT, Bob.

ROBERT DRACH, EDITOR, "DRACH WEEKLY RESEARCH REPORT": Thank you, Paul. It's good to speak with you again.

KANGAS: Well, the stock market began the new year with one of its strongest rallies ever, which, according to the early January indicator theory, means the pattern has been set for year 2003 and it's going to be an up year for stocks. Do you put any credence in that?

DRACH: Well, I think that might be wishful thinking for a lot of people. But the most important thing to keep in mind is in context of where it's coming from. You have three consecutive years of decline.

KANGAS: So we came into the new year over sold? Is that what you're saying?

DRACH: Oh, yes. The market's been trashed for three years, a rare event. So it had some bounce coming. I don't think you can get a sustained rally from this kind of condition.

KANGAS: Especially with the news background the way it is, I guess?

DRACH: Well, with geopolitical events aside, you have a problem with interest rates, for example. All their bull markets of recent history have been spiked by lower rates. But that doesn't mean the last three years have had to be losing years. On the site, we demonstrated that. Just somewhat difficult.

KANGAS: Well, as we know, the last three years have been bad ones for stock investors. But you've done very well in managing NIGHTLY BUSINESS REPORT'S model stock portfolio, which is part of our Web site. Let's compare your results with those of the major averages. And I mean there's just no contest here. You are head and shoulders above, and I congratulate you on some great management techniques there.

DRACH: Well, the basis was simply to stay with high quality stocks that have already been beat up, or at least appear to be beat up, because we've had to shift positions a lot just walking through the minefield, so to say.

KANGAS: Well, you're up for three years. But last year was not a good one. Even you were down about 11 percent, correct?

DRACH: Oh, yes. It's been very difficult in this environment if you're heavily invested, and the site's always fully invested by design.

KANGAS: Well, the stocks you recommended to our viewers last June 14th when you were with us last, Schering-Plough (SGP), Home Depot (HD), State Street (STT), Synovus Financial (SNV), Dollar General (DG), G.E. (GE), McDonald's (MCD), all losers. Every one of them was below that. However, there are three that are still above where they were then, Merck (MRK), AFLAC (AFL) and Casey's General Stores (CASY). So three of those stocks are still higher.

DRACH: Well, we've had to shift a lot of positions since we spoke last. But getting back to this year, I don't think you can presume it's going to be anything other than choppy at this juncture. I don't see the public enthusiastic to come back in after the market cap loss from the highs of 2,000 to last year and the Wilshire 500 was $7.2 trillion. That's 90 percent of the gross domestic product. At a growth rate of nine percent a year, it'll be the end of this decade before the stock market gets back to those peaks. That's just the dramatic data.

KANGAS: In the meantime, you're basically, you know, a traitor. You get stocks when they get into deep discount territory and then sell them when they're up, what, 10, 15 percent?

DRACH: Usually.

KANGAS: Yes.

DRACH: Usually. And then switch over to whatever else is most discounted.

KANGAS: Well, do you still like those stocks that you recommended last time?

DRACH: The ones that are still discounted, the Home Depot types, General Electric.

KANGAS: How about McDonald's?

DRACH: Yes, McDonald's. Yes. Everybody hates that, so it's just fine. If you want to become, get more, a little more volatility, you might try Automatic Data Processing (ADP) or Total Service Systems (TSS).

KANGAS: OK. All right.

DRACH: And then if they give the market the benefit of the dividend tax relief, you might benefit by the higher quality stocks with high yields, UST Inc. (UST) would be number one in my view.

KANGAS: How about Philip Morris (MO), the biggest dividend payer in the Dow?

DRACH: That's got more litigation problems than UST so why bother with it? The yields are pretty close.

KANGAS: But they're both in the tobacco business, right?

DRACH: Yes, but the smokeless people don't have the problems that the others do.

KANGAS: All right, so you're not looking forward to a great bullish year, but just buy the beaten down high quality stocks when they get to deep discounts?

DRACH: Oh, I think it'll be an easily profitable year if you maintain that course, sure.

KANGAS: Well, that's been working for you. It certainly did over the last three year period. Bob, thanks very much for being with us.

DRACH: Thanks for having me, Paul.

KANGAS: My guest market monitor Robert Drach, Editor and Publisher of "Drach Weekly Research Report."

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[arete]

Looks like Robert has gained some weight. Maybe he ought to stick with buying McDonald's stock and leave the fries alone.

Richard W.

[arete]

FYI

Comments and opinions welcome.

Richard W.

[ghostrider]

I have been catching grief for 4 or 5 years, because I was ducking while everyone else was making a "killing" in stocks. Yesterday, a fellow slumped into my office with that hang dog look of one that had his butt kicked - real good. He was trying to figure out how much Social Security would supplement his retirement. I asked him why he was worried about that. It seems as if his retirement funds had taken a big hit, and were down 80 percent, and he had lost a half million bucks. I tried to console by reminding him that it was only inflated paper that he lost, and he could not really lose anything that he never actually had in his pocket.

However, things turned to crap when I mentioned that gold fund of mine, which once had fallen by 50 percent was now up 40 percent over the original investment. So, I shifted the conversation to my money market funds which were yielding almost nothing. The guy really got disgusted with me for "gripping about a measly 2 percent gain," while he had lost his ass. I admit to baiting him a bit (Hehe), because he was one of those who had so gleefully counted his bubble profits while my gold and money market funds were taking it in the shorts. A few years ago, I cautioned him to diversify to include money market and gold. And later, I advised him to cut and run from stocks. He advised me to put my money where my mouth was. I did, and now he apparently begrudges me for that. (Hehe)