NEW YORK, NY – “When EF Hutton talks, everyone listens.” You might, if you are old enough, remember that catchy sentence from a long past ubiquitous television commercial, advertising the services of the then respected financial advising firm. If you are wondering why you haven’t seen that commercial for many years, the answer unfortunately is that EF Hutton declared bankruptcy in 1988.
I thought of that commercial during a recent telephone interview I conducted with the well-known financial expert Stephen Leeb, whose accurate forecasts over the past 40 years on stocks and other financial matters have made him -in all due respect to the more than 30 -year defunct EF Hutton – a person who private investors truly listen to and learn from.
Leeb, who has written eight highly praised books on economics, finance and investment, serves as an advisor to several privately owned companies, appears as a periodic guest on CNN, Fox News, NPR and Bloomberg TV, and has been called “one of the country’s foremost financial experts,” told me that it has been a newsletter, The Complete Investor (TCI), which since he launched it in 2003 has evolved into his main source above all others of providing information to assist private investors compete against major Wall Street financial institutions.
“Through TCI, I have been able to give the little guy a chance to participate in the stock market on at least even terms with large Wall Street firm pros”, stated Leeb. “While these firms have almost immediate access to just released financial data,” he continued, “experts who can quickly and effectively analyze this data, traders who can buy and sell stocks, within minutes after they come to market and close connections with corporate heads, whose decisions greatly influence the price of stocks, TCI has outperformed market averages by approximately 3 percentage points on average over its inception 17 years ago, as can be confirmed by internal documents we make available to our subscribers upon request.’’
Leeb, who received a B.S. in economics from the Wharton School of Business in 1968 and was awarded from the University of Illinois a Masters in Mathematics and a PhD in Psychology, both in 1971, described the strategy he employs to achieve that success.
“Throughout our 17 years, we have followed 3 basic rules when deciding which companies to recommend to our subscribers,” said Leeb, 73, who lives with his wife in NYC. “First, the company must have a solid balance sheet- one without much debt. Second, the company must have a high percentage of sales compared to its competitors in their given market. Finally, the stock must be reasonably priced, which we can determine through a series of metrics we use to access the value of the company.”
Leeb noted that the current severe decline in the value of stocks caused over the past two months by the Coronavirus pandemic has not caused TCI to abandon these financial guidelines, but rather to make them stronger.
“The solid balance sheet we required [from a company] prior to this financial crisis, for us to recommend it now, it must be even more than solid,” explained Leeb. “This means, as one important example, that the company must have net cash at its disposal or simply put, the company must have more cash than debt, meaning no real debt. In short, we now apply more stringent standards.’’
Leeb elaborated that to mitigate the financial harm caused by the Coronavirus, TCI has also developed more rigorous standards both on how to evaluate a company’s share of the market in its given industry, and also how to assess a company’s value.
“As I just mentioned, before the advent of the financial downturn caused by the pandemic, we advised our subscribers to during normal financial times invest in companies that have a dominant share of the market. Currently, however, we only recommend companies which, in addition to having a dominant position in their industrial market, have a proven record of growth during difficult financial times, such as companies that fared well during the fiscal crisis of 2008,” Leeb noted.
“Lastly,” he continued, “while our method of determining the value of a company has remained the same, we now insist that the company, rather than simply being reasonably priced, is sold at a price lower than its assessed market value.”
Leeb elaborated that it is hard, but not impossible, to find stocks which meet those strict standards. “While stocks satisfying these 3 criteria are few and far between, if you look hard enough you can find them,” he contended.
Without offering their specific names, Leeb cited two companies- both in the biopharmaceutical industry- which TCI has recently recommended to its subscribers.
“As a general policy, we provide the names of the companies to subscribers only,” Leeb stated. “However,” he added, “I can give you a description, though not the names, of the 2 most recent ones we have selected. The first is a biopharmaceutical company, which has developed a suite of drugs that have proven to cure in the range of 90% of patients born with cystic fibrosis. The company is currently using most of the profits it generated from its existing set of drugs to finance research to discover a new set of revolutionary drugs to treat other genetic disorders.’’
Still, even with his long record of past success in forecasting the stock market and his confidence that his current prognostications will prove prescient, Leeb remains equally optimistic about his on-going recommendation to his subscribers, of a very well-known generic investment, which, unlike his many others, is not directly linked to Wall Street.
“We have always recommended gold as part of an investor’s portfolio. However, when times get really tough, as is the case today, we recommend a lot more,” said Leeb. “Remember gold has a 500- year history of maintaining its value, during the best of times, and, also when times get really tough, as is the case today.’’
Referring to his 9th book, China and the New Age of Gold, expected to be available in bookstores this coming winter (It can be pre-ordered with Amazon.com now), Leeb predicted that in the next two decades gold will prove to be even a more lucrative investment, in large part due to its projected upgrade in the world’s monetary system.
“Gold over the next generation has the potential to reach many times its current value as a result of the world’s needing it as an essential backup to all of the international currencies,” Leeb conjectured.
If that calculation about the positive future of gold presented in China and the New Age turns out to be on the mark, it will only add to a noteworthy list of prior accurate projections advanced in several of Leeb’s prior books. In his 1986 seminal Getting In On the Ground Floor, Leeb correctly predicted an extended bullish stock market; more than a decade later, in his 1999 award winning book, Defying the Market, Leeb accurately forecasted the collapse of the internet bubble; and in his last book, Red Alert, published in 2012, he ominously warned that China’s dominance of the world’s vital natural resource market could leave America and the West overly dependent upon the Chinese Communist government in the event of a (then) future economic crisis.
Reflecting on the remarkable accuracy of those past prognostications Leeb humbly mused,
“My success in forecasting the market is basically just the result of very hard work, not any type of genius…. I am no Thomas Edison, but throughout my long career, I have always followed Edison’s timeless credo that achievement is a result of 99% perspiration and 1% inspiration.”
Unlike Edison, Leeb did not, of course, discover the light bulb, but he did in fact develop a set of financial principles and rules, which continue to shine a bright light on how private investors can make money in the stock market.
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