how to make money in stocks and how to get rich_145

Size is a realistic problem. It's easier to manage $10 million than $100

million and simpler to manage $100 million than $1 billion, and $1 billion

is a piece of cake compared to runing $10 bilion, 20 or

$30 billion. The size handicap simply means it is hard to buy or get rid

of a huge stock holding in a small- or medium-sized company.

I believe it is a mistake for institutions to

restrict investmentsolely large capitalization companies. There aren't enough outstanding large

capitalization companies in the first place. Why buy a slow-performing

stock just because you can easily acquire a lot of it?

From 1981 through 1987, during the Reagan administration, for the

firstime in history 30 dynamic, up-and-coming companies had initial

public offerings of stock. Many of these small- to medium-sized entrepreneurial

concerns wil become future market leaders.

Today's markets are more liquid, with the daily volume of many medium-

sized stocks averaging 10,0 to 50,0 shares a day. In adition,

significant crossing of blocks occurs between institutions.

Individual corporationseking partly to relieve size problems can

divide their money among a number of diferent managers.

The institutional asset manager who professionally manages billions

of

dolars would best be advised to substantialy broaden the universe stocks considered for potential investmento the 40 or so available.

This is preferable to restricting activities to the same limited, approved

list of only a few hundred large, well-known or legal list-type companies.

The research department of one of the largest banks in the United

States only folows 60 companies.

A sizable institution would likely be better off owning 500 companies

of all sizes than 100 large, mature, slow-moving companies.

Size is nothe number

one problem of institutions. By far the one trouble is the investment philosophy and particular investment

methods utilized by some money management operations.

Many institutions buy stocks based on someone's opinion abouthe

suposed value of a company. Others buy stories. Stil others folow

economists' top-down predictions of the broad sectors that ought to do

well. We believe working from the bottom up produces better results.

For manyears institutions used the same standard names and rarely

changed their stodgy aproved lists. If an institution had 10 widely

acepted names on its list, it might ad four or five a year and no more.

Many decisions had to be approved by investment committees.

Committees make pitifully poor decisions in the stock market!