Streetside Chat

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The TSC Streetside Chat, Part 2: Marc Perkins of Gunther International

Brett Fromson

Brett D. Fromson: How do you see the future of technology stocks?

Marc Perkins: I don't think there's a clear vision of what the next technology is. In 1990, I think we knew what 2010 was going to look like, but we had no idea how we were going to get there. 2010 is really going to be information on demand, instantaneously. Whether that information is a movie, a record, whether it's music or movies or television shows, newspaper, whatever, information on demand. Your bills, everything. Information on demand. Who are the winners and losers? I don't think we have the foggiest idea. I don't think we know yet if it's Microsoft, Sun Microsystems (SUNW Quote - Cramer on SUNW - Stock Picks) or Intel, I don't know.

Brett D. Fromson: But in the meantime there's a lot of money to be made -- and lost -- in the area.

Marc Perkins: Absolutely, because there's a whole new generation of technology staring us in the face. I would make my bets on the companies that are going to be major owners of the common carrier pipe, as opposed to the people that are going to give you the device to communicate through it. There's going to be continual double-digit growth in the amount of information that is going through the pipeline. Let's back up to the last generation of technology. There's a lesson there. What does IBM (IBM Quote - Cramer on IBM - Stock Picks) sell? What does Dell (DELL Quote - Cramer on DELL - Stock Picks) sell?

What's their product? People will say computers. People will say PCs. That's not what they sell. What they sell is MIPS, millions of instructions per second. How many millions of instructions per second do they sell? The cost of a MIPS, during the decade of the '90s, went down 99.5%. The same type of thing is going to happen to the use of the bandwidth pipe. The amount of information that goes through it is going to go up exponentially, and the price of driving a single piece of information through it, a single bit, is going to go down exponentially. There's going to be a tremendous boom, and we're going to get to this instant entertainment.

Brett D. Fromson: Who do you think will be the likely winners?

Marc Perkins: I think the cable companies who own the pipeline to the house will be big winners. I think that the original phone companies, the regional Bells, AT&T(T Quote - Cramer on T - Stock Picks), are winners too. I'd much rather own those than try to own a company that has a new, whiz-bang technology for getting the information off the Internet, a new desktop appliance. That may go up a lot more if they're right, but I think betting on that is a real speculation. I think you could have the Baby Bells all the way, because they own the pipe.

Brett D. Fromson: Not wireless?

Marc Perkins: No.

Brett D. Fromson: Not enough bandwidth?

Marc Perkins: Does your cell phone work?

Brett D. Fromson: Generally.

Marc Perkins: Well, when somebody's sending information down, "generally" isn't good enough. When you're trying to get information, a stream of zeroes and ones that have to be totally correct generally isn't good enough. I think cell phones and wireless is still an infant technology. I drive from here to New York a lot. And I use the phone on the way. And I'll bet you I get disconnected from 60% of my phone calls at least once. So, it's going to be a pipe. Wireless is still not two-way communication in the data world. You can receive at high speeds, but the way the wireless Internet services work is you receive over a satellite, you send over the telephone line. And that works because, generally, when you send, you're only sending a response or a few letters or a small file or whatever. "In 1990, I think we knew what 2010 was going to look like, but we had no idea how we were going to get there."

Brett D. Fromson: What's the biggest mistake you ever made as an investor?

Marc Perkins: Oh, as an investor? The biggest mistake I ever made was marrying my second wife. That was an easy one. The biggest mistake I ever made as an investor was generally missing the bull market of the '90s. Missing the really wild stuff, just not being there.

Brett D. Fromson: How did you miss that?

Marc Perkins: Because I grew up in the business in a bear market. I'm a prisoner of my history. The first recommendation I ever made was a sale. My first 15 years in the investment business were watching people get even from being down. That was from 1968 to 1983. The market was lower 15 years later than the day I walked in the door. And you get it drilled into your mind that that can happen. Not that it's necessarily going to happen, but you understand that it can happen, and you always want to be protected against it. That mindset didn't allow me to see the extent to which the greater fool theory would take over in the '90s. That everything that happened in 1967 would happen all over again.

Brett D. Fromson: Wouldn't you also say that there were some real, fundamental drivers powering this bull run? A declining Federal budget deficit? Disinflation? New technology?

Marc Perkins: But valuations are far above any other time in the past.

Brett D. Fromson: Can you tell me why it is that hedge fund managers and investment managers in general seem to get paid so much money, despite the fact that most don't outperform over any long period of time?

Marc Perkins: Let me say first of all, that I object to the term hedge fund. They're not hedge funds.

Brett D. Fromson: Because they're not hedged?

Marc Perkins: Right. They're investment partnerships. They do things in partnership format as opposed to individual account format. Investment partnerships get a hot track record in a bull market. They go out and sell themselves as guys that can outperform, and most of them do outperform for a period of time in a bull market. Mostly because they get a lot of new issues. If you really look at the performance of some of the mutual funds that have gotten rather gargantuan, when they were really putting the drop-dead performance numbers out was when they were little funds. And one of the things I think a lot of investors don't realize is that in these big mutual fund groups, they always overload the small funds with the hot IPOs. They seed them.

Brett D. Fromson: OK, but why do customers pay so much for often mediocre performance?

Marc Perkins: I think most investors really don't understand they could do just as well themselves.

Brett D. Fromson: And could they?

Marc Perkins: Sure. Absolutely. I mean, if you read Peter Lynch's books, he'll tell you that over and over and over again. You don't need a broker. If you go into a store, and you really enjoy shopping there, go read their annual report. Because these guys running around in these brokerage firms, they don't know anything.

Brett D. Fromson: Which guys? The analysts?

Marc Perkins: It doesn't matter. The analysts and the brokers. They don't know anything. Why do they always downgrade stocks after the bad earnings come out? Where's the guy that downgrades them before the bad earnings come out? That's the smart guy. But I don't know any of them. They're rare, they're very rare. They're rarer than Jesse Jackson at a Klan meeting.

Brett D. Fromson: What's the truth about top pros getting advance information from companies or analysts?

Marc Perkins: I think that making announcements to anything other than the universe on a significant piece of information should be flat-out illegal. I think that you get in on an analyst conference call, and you get a company who "announces" that they're not going to make next quarter's numbers, and they're making an announcement to eight or 10 analysts; before the call is over, the stock's down 10% and everybody's sitting around saying, "What's going on? What's going on? That, obviously, does not pass the smell test.

Brett D. Fromson: The Securities & Exchange Commission recently passed a Fair Disclosure rule intended to prevent such things. Do you think the SEC can enforce this new rule?

Marc Perkins: I doubt it can.

Brett D. Fromson: Because?

Marc Perkins: What are they going to do? Put somebody from the SEC on every conference call? Tape every one of them? What are they going to do?

Brett D. Fromson: But nonetheless, you support the rule.

Marc Perkins: Yeah. I think that anytime you see significant activity in a stock and then a significant price movement ... Let's look at this thing with Rick Lazio. The guy has never bought an option in his life. Very close friends with the management at Quick & Reilly. All of a sudden, out of the blue, he buys some options on Quick & Reilly, and the company gets taken over. Hello? What's wrong with this picture? And the SEC says no problem. He didn't do anything wrong because there's no actual evidence. All he's got to do is say, "I never talked to 'em." The other guy says, "I never told him anything." You expect me to believe that?

Brett D. Fromson: It reminds you a lot, doesn't it, of Hillary Clinton's commodities trading controversy?

Marc Perkins: Well, actually, not really. And the reason why? I think that's the most overblown story of the decade, because that was a little partnership, and she pulled her money out, and in the few weeks after she pulled her money out, all the money was lost. She was just smart enough to get out of it. It's a lot harder to trade commodities with inside information. She gave somebody money who had a lucky streak, a small amount of money and then she took it out. And she took it out but everybody else continued the trade and lost everything. Actually, the thing she should probably be accused of is cowardice for not wanting to push her bet. But I don't think there was anything even marginally smelly there.

Brett D. Fromson: Let me ask you about the Barron's Roundtable, what did it mean for you?

Marc Perkins: It made my phone ring a lot. And the sessions were great for those who participated.

Brett D. Fromson: How much utility is there in it for investors?

Marc Perkins: I just look at the names.

Brett D. Fromson: Stock names?

Marc Perkins: Yeah.

Brett D. Fromson: How did you get chosen?

Marc Perkins: That's a great story. I used to send out a newsletter, which won extraordinary critical acclaim but was a financial failure. It was called "What We Think" and was a tongue-in-cheek investment manual. And we used to give out an award every month called the KSOTO Award, which stood for Keen Sense of the Obvious. We once gave it to Time Magazine for running a cover story entitled "Greed on Wall Street," which we labeled a redundancy. We said that if the existence of greed on Wall Street was a story of sufficient import to warrant a cover on Time Magazine, we suggest other titles like "Sand in the Sahara Desert" or "Catholicism in the Vatican."

So, 1989, there was a real frenzy in cell-phones stocks, and there was this thing, "dollars per pop." And it didn't matter whether your pops were little kids or old people or businessmen or however many people were in your market, you multiplied it by some number.

Brett D. Fromson: Pop stood for population?

Marc Perkins: Population, unit of population -- $50 per pop, $100 per pop, it got up to $260 a pop toward the valuation standard.

Brett D. Fromson: For a local cell area?

Marc Perkins: So, I said look, first of all, there's two franchises in every market so it's really $520 a pop, and then you take that and say OK, if your penetration is only going to be 10%, that's $5200. This whole method of calculation was crazy. So I went to the National Lampoon and I cut out the five scruffiest looking people I could find in there and wrote an article entitled, "Would You Pay $260 Apiece for These Pops?" I sent a copy to Alan Abelson at Barrons. About two weeks after I published it, I was sitting in my house, and my phone rings. It's a good friend of mine. He says, "Congratulations. You're the feature in Abelsons' column this week."

So I waited a couple days and on Wednesday I call Abelson. I said, "I was really surprised that you would print that without calling me and knowing who the hell I am. I might have been an Arab terrorist." And he said, "You mean you're not? I thought you were." I said, "No, I used to be an Arab terrorist, but then my rabbi found out and made me stop." And we talked for a little bit and he said, "You know, you're fun to talk to, how'd you like to do an interview?" So I said fine and he said we'll send a guy to take your picture, and I'll call you up and we'll do an interview. So they did an interview and it was a lot of fun.

Then, about mid-November, 1989, Alan needed a replacement for Jim Rogers, who was going around the world on a motorcycle with a good-looking blonde. In 1989 we had a bit of a meltdown. The fall of '89, that was ... the United Airlines deal blew up.

Brett D. Fromson: How driven do you have to be to be a successful money manager?

Marc Perkins: You have to be passionate."We said that if the existence of greed on Wall Street was a story of sufficient import to warrant a cover on Time Magazine, we suggest other titles like 'Sand in the Sahara Desert' or 'Catholicism in the Vatican.' "

Brett D. Fromson: Explain. What does passionate mean?

Marc Perkins: Passionate means that it permeates your life. It means that if you're driving down the street, you look at everything, and you look at a billboard, and you say, "Gee, I never saw that product before and that looks interesting." And you make a mental note to find out what the product is, who makes it, because maybe it's a story. "Driven" is a guy who has a bed in his office.

Brett D. Fromson: What is you greatest regret?

Marc Perkins: That I answered a question untruthfully in Federal court. I was a witness in the Princeton-Newport case.

Brett D. Fromson: Remind our readers what that was.

Marc Perkins: That was part of the Milken case. That was when a company called Princeton-Newport Partners that did business with Drexel got into trouble with the Feds, who were after them because they wanted to put the squeeze on Milken. I was called in as an expert witness for the defense. I couldn't find anything that had happened that was materially out of line in Princeton-Newport Partners. But what had happened was there had been a phone conversation where a Newport Princeton trader was kibitzing with some Drexel broker.

They had taped all their phone conversations and he was kibitzing with the broker, and he instructed the broker not to tell the truth. He didn't tell him to do a bold-faced lie, but he said, "If anybody asks you who the buyer is, you tell them you don't know. It's somebody else's customer." This happens a million times a day on Wall Street. And so they read me that transcript in court. The prosecutor asked if the Newport-Princeton trader had instructed the Drexel broker to lie. And I said, "It sounds that way." Then they asked me, "Is lying a routine part of the business in the securities industry?" And I thought long and hard about it and said, "No." And my response was not true. Because it is.

Traders don't ever tell the truth. They just don't. Brokers ... I mean, for God's sake. They call you up -- and if you think that the major brokerage firms are trying to get you to do something because they really believe it's the best investment, well -- ho-ho-ho, I got a bridge and a tower I'd like you to buy. They sell what they're told to sell. I know a lady who was a broker for a while at Cleveland, and she worked at several of the major firms, and I can tell you she's very bright, a good salesperson, knows nothing about investments. Absolutely and totally nothing. She sold what they told her to sell. They called her up and told her, "We got a bunch of this to sell today. Go sell it. Here's a script."

I remember in the 1980s, I was with a regional brokerage firm. I hesitate to tell the story because I'm very fond of the people there. But the principal business was financial products, partnerships.

Brett D. Fromson: What kind of partnerships?

Marc Perkins: Real estate partnerships, oil partnerships, mutual funds, what they called financial products, as opposed to stocks and bonds. Now, in real estate investment partnerships that were being sold to the public, the typical load -- and load meaning commissions, expenses, brokerage commissions on real estate, the difference between what the investor put up and what was actually invested -- was generally 23%.

Brett D. Fromson: So for every buck you put in ...

Marc Perkins: You can get 78 cents worth of stock. Which meant that it had to go up 27%, 28% to get even. And I always sat back and thought, "If there were any investment that was so good that you could take 23% off the top and still have a decent investment, you wouldn't need to sell it to the public. Some smart guy from Fort Lauderdale would buy it."

Brett D. Fromson: How did you use Wall Street sell-side analysts?

Marc Perkins: Not at all. I shouldn't say, not at all. There were some guys who did some good fundamental work, who knew stuff pretty well. But in the main, I mean, their work is useless. Most good investors wouldn't take an idea from a brokerage firm if somebody held a gun to their head. I certainly wouldn't.

Brett D. Fromson: What about strategists like Morgan Stanley's Barton Biggs and Byron Wien?

Marc Perkins: I actually like to read them. I think from them you can get some very good macro ideas. I don't mean something that will cause you to sell the yen or buy the dollar, but a significant movement in the price of a commodity, for example, that could impact lots of stuff. You night get an idea that might make you think that the price of aluminum was going to go way up, to buy Alcoa(AA Quote - Cramer on AA - Stock Picks).

Brett D. Fromson: So they give you the mood music?

Marc Perkins: Yeah, that's exactly right. And I think that's very important.

Brett D. Fromson: Did you ever use any technical analysis?

Marc Perkins: Absolutely, absolutely. When I was growing up in this business, technical analysis was done in the brain. And it was called "reading the tape." Guys would sit in their chairs and they would watch the tape go across the ticker and they would follow one or two stocks, and they were creating a mental chart and they would see, here comes 5000 1/8th, here comes 5000 at 3/8ths, here comes 5000 1/4, here's 20,000 up another 16th. Right away, they're in there and ready to buy 10,000 shares.

The thing about charts, however, is that the vast majority of the time, they're meaningless, it's just a bunch of numbers. But there is, about 10% or 20% of the time, some number in that range that can tell you quite a story. It can show you accumulation. It can show you a very large buyer or a very large seller in a stock. There are lots of things it can show you and I'll give you an example.

When I worked at Salomon Brothers, I was trading bank stocks. And Wellington Fund gave us an order to sell some stock in Chemical Bank. And they had about 700,000 shares of stock, and they just kept selling it and selling it and selling it. Jim French was the trader at Wellington. He calls up and says, "Hey fellas, we're down to the last 70,000 shares of Chemical Bank. You can have 'em in the last sale if you want 'em." Now the stock had gone from $57, to $56, all the way down to $52, while they were selling all this stock. It was a no-brainer. You buy the last 70,000. So, we buy the stock. Fifteen minutes later, somebody called up and said, "I got a bid for 20,000 Chemical Bank." Boom, the stock turned right around. Now, you would have seen that on the chart of Chemical stock if you'd been following it carefully. Diminishing volume as it got lower. Then, all a sudden, you see a print, a large block of stock. You know the stock is going to turn around.

On individual stocks you can see distribution patterns. If you just look at a chart of volume and price movement, once in a while -- works every five to 10 times -- you look at one, it'll tell you a story. Now, I wouldn't act just on that, but if you're looking at a stock, and you like the fundamentals, and you want to buy it, I would always look at the chart.

Brett D. Fromson: What, psychologically, was the hardest thing about investing professionally?

Marc Perkins: For me, it was taking it personally, that it was other people's money. I don't think I was dispassionate enough. I wasn't able to ignore the fact that it was other people's money. I just couldn't ignore that, I was always thinking of it as money. Bobby Spiegel, who was my boss at Salomon back in the early '70s, one day when I was 25 said to me after I'd lost a bunch of Salomon's money, "What'd you go do a dumb thing like that for?" And I turned around to him and said, "What do I care? It's not my money."' And he says, "Come on, let's go to the back room, I want to talk to you." The back room, by the way, was the windowsill.

So we go over and sit on the windowsill, and he says, "I want to tell you something. If you really meant what you said, you were absolutely right. Not only is it not your money, it isn't money. It's all confetti. Because unless you can get it into your head that it's all confetti, and stop looking at it as money, you can't trade." And I never could really, totally get that into my head. I could never be totally dispassionate about it being money.

Brett D. Fromson: How then, did that become problematic when you actually became a broker and a money manager?

Marc Perkins: I like to play blackjack, which is dangerous with a casino right here. But I find that I win -- not a lot, but I win. You sit down at a blackjack table, first rule is never bet anything you can't lose. Never put yourself in a situation where the money matters. It's just play the straight odds, all the time, and winning, losing, doesn't matter. Don't lose three hands in a row, you start getting nervous, and then betting differently ... just don't ever think of it as money.

Brett D. Fromson: Do you still love investing?

Marc Perkins: I still love it and I'm still passionate about investments. It's one of the great intellectual exercises anywhere.

Brett D. Fromson: Because?

Marc Perkins: You have to know everything.

Brett D. Fromson: You can't ever know everything.

Marc Perkins: Right, but that your goal has got to be to know everything.

Brett D. Fromson: But didn't you also find that sometimes the success was just knowing a few key things, because you can't know everything?

Marc Perkins: You ever heard of Jim Walter Corporation? It was the largest building materials company in the world that ended up being converted into a leveraged buyout. Jim Walter was my first big client. He was actually a client of my partner's. He became a client of mine in the corporate finance side. Anyway, Jim Walter once told me what I think was one of the wisest pieces of advice anybody ever gave me. He said, "The secret to success is knowing when you have enough information to make a decision." Not so much that it paralyzes you, and not too little that you don't understand it, but just the right amount.

Brett D. Fromson: The trick is knowing which are the right facts.

Marc Perkins: Absolutely right.

Click here for Part 1.