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Smart, sound investment that stresses capital preservation.

Since graduating from Harvard Business School, Gary Wood has spent 34 years in the investment business. His first 17 years were with the major Wall Street firms of Goldman Sachs, Morgan Stanley and Brown Brothers Harriman. In 1985 he founded New York-based Schaenen Wood & Associates, where he was president and chief investment officer and was responsible for growing assets under management to $1.3 billion. Most of these assets were referred by brokerage firms, including Merrill Lynch, Prudential, Dean Witter and Smith Barney.

In 1994 Schaenen Wood was sold, and Wood moved to Sarasota to found Wood Asset Management, Inc. (WAM) with Patricia Woodruff, CFA, and Charlene Wolff. As a successor to Schaenen Wood, WAM has a 1 4-year performance record showing superior risk-adjusted returns. The firm has five senior portfolio managers and a staff of 11.

WAM's investment concept addresses the dilemma investors face today. The stock market has been so strong that valuations and ratios such as price to earnings, book value and divided yield are at levels most forecasters would not have dreamed of a few years ago. But this overvaluation has continued quite a while and yet the market keeps going up. What to do?

WAM believes that the key is a conservative approach, one that stresses capital preservation, risk avoidance and strong buy and sell disciplines. WAM is best described as a relative value manager emphasizing mid-to-large capitalization issues with both value and GARP (Growth At a Reasonable Price) overlays.

So long as the market keeps going up, who doesn't want to participate? When the music stops, who doesn't want to protect their assets? But this desire to protect assets has been pushed too far back by most investors. Approaches that have been successful over the past few years--Internet stocks, index funds, momentum investing, day trading--all address participation in good markets but fail to address capital preservation and risk avoidance.

WAM starts with outlooks for interest rates, inflation, corporate profits and economic growth. This "top down" approach leads to sector and industry weightings and stock selection. Stocks selected must have substantial upside potential based on expected earnings applied to reasonable price earnings ratios. The expected upside determines the "sell target." Another description of value investing is "price-driven," and price discipline applies both to the purchase price and the target sell price. Value investors do not inherently "like" a company--say IBM--but they do not "dislike" IBM either. Ideally, they would like IBM at 50 and not at 130, even though it is the same old IBM at both prices. Falling in love with winning stocks and not selling them when they become fully priced has worked well during the current euphoria--but over time it has been the downfall of many investors. WAM's approach is that owning stocks without strong price disciplines is closer to speculating than to sound investing.
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Publication:Sarasota Magazine
Article Type:Brief Article
Geographic Code:1U5FL
Date:Jan 1, 2000
Next Article:MARKET, to MARKET.

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