Fund Manager Bob Olstein Ditches the Day-Trippers

"Amateurs!

"The market has become inundated with amateur investors," says Bob Olstein, manager of the (OFALX)Olstein Financial Alert fund. "They're like 5-year-olds left alone in a candy shop -- free to eat everything in sight without regard to future consequences."

The bull market has attracted hoards of day-tripping daytraders who couldn't care less about a company's financial health, Olstein says, and part of his investment strategy is to bank on their naivete.

"We buy good companies that are being abandoned by investors fighting to get into the candy store," he says.

And when he buys, he holds -- often for many years. It's a strategy that's helped make Olstein's fund a market-beater.

Rollicking Returns Olstein Financial Alert vs. S&P 500
Fund	Year-to-Date	1-Year	3-Year
Olstein Financial Alert	29.8%	36.3%	104.5%
S&P 500	15.6%	19.8%	96.5%
Source: Lipper; *Cumulative returns through 11/23/99

Forget red-hot chart-burners with no earnings history like Red Hat (RHAT) and JDS Uniphase (JDSU). Olstein prefers profit-makers that sell at a discount to their market value. He ignores the daily recommendations of Wall Street analysts. And he refuses to meet or speak with a company's management, focusing instead solely on financials. "We do our own numbers crunching," he says. "And we only buy companies that generate excess cash flow."

Risk is a primary factor for Olstein when buying stocks. To evaluate a potential purchase, he splits a company's risk into two types. The first is financial risk. "We won't buy a company that would take more than eight years to pay off debt based on excess cash flow."

As an example he cites Pillowtex (PTX). Olstein says the bedsheet and bath towel manufacturer caught his eye earlier in the year when it was trading at about 19. "We thought it was cheap and a possible turnaround play," says Olstein. "But the debt load was so heavy we couldn't risk being wrong about it."

Pillowtex closed Wednesday at 4 1/8.

The other type of risk Olstein evaluates is operating risk. "Every company has its own business operating risk," says Olstein. "If you were considering a newspaper stock, you'd have to determine whether you think newspapers could lose business to the Internet."

Olstein likes companies with what he calls reasonable operating risk that have no debt and are producing excess cash flow, and he buys only when the rest of the market isn't looking. Oil-service company Tidewater (TDW), which showed a steady decline in stock price in 1998, is one example. "It had all cash and no debt even at the bottom of the cycle," says Olstein. "When companies like this go out of favor and start selling at a discount to private market value, I know that even if they don't turn around quickly, they have the wherewithal to ride out the storm."

It's a strategy fit only for the very patient investor, because it may take time for a reversal, says Olstein. And it may never come. That's why he doesn't make big bets on any one stock, but instead opts for a portfolio of many smaller positions.

To find out which stocks Olstein is buying now, check out "TheStreet.com" on Fox News Channel this weekend at 10 a.m. and 6 p.m. EST Saturday and again at 10 a.m. EST Sunday where he'll be doing the "Stock Drill" along with TheStreet.com's Herb Greenberg and Dan Colarusso.

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