THE PICKINGS were good last year in the stock market, which means that most investors who followed the advice of local stock pickers generally had a decent year, too.
But while most of the local stock newsletters or stock-picking services turned in solid gains last year, only half managed to outperform the Dow Jones industrial average.
Basically, in a year that saw the Dow rise 27 percent and the Standard & Poors index of 500 stocks increase 27.3 percent, what would be considered as solid, double-digit gains in other years came up a bit short, by comparison, in 1989.
Of course, each newsletter has a different strategy, which can make comparing them about as simple as calculus. After all, some newsletters take more risks than others, which can lead to spectacular gains one year and losses the next. At the same time, others take a more conservative approach and opt for slow -- and hopefully -- steady appreciation.
So really, it's best to examine each newsletter and its performance on its own merits, which is what we'll try to do here.
Securities Analysis News
The Amherst-based newsletter focused its attention on Europe last year, and turned in the best results in its four-year history, says publisher Dean Barron.
Securities Analysis News, coming off a 16.9 percent gain last year and a 23.7 percent rise in 1987, turned in the best performance of any local newsletter in 1989, with its selections rising 39.3 percent, excluding dividends and commisSee Letters Page C4Letters: European stockspropelled performanceContinued from Page C1sions. "I would say most of the gain was in the European stocks we recommended, although the U.S. stocks didn't do badly either," Barron says.
In fact, the newsletter's European stocks did exceptionally well, rising an average of 61 percent last year.
And while Barron doesn't specifically seek out takeover candidates, they played a major role in his newsletter's success last year. Barron's best pick turned out to be Jaguar, which started the year at $4.72 and was taken over at $13.51 per share.
The newsletter's recommendation of Wellcome also turned out well, with the stock rising from $740 to $1,255, as did his October pick of L'Oreal, which rose from $656 to $858 in a little more than two months.
This computerized stock-picking service based in Grand Island registered a 34 percent gain last year excluding dividends and commissions, after rising 17.5 percent in 1988 and losing 5 percent during the year of The Crash.
Theron E. Bastian, who runs Ival, says his service did well because two of his picks -- Claire's Stores and Shaw Industries -- turned out to be among the 10 best performers on the New York Stock Exchange last year.
"These are stocks that had inherent values that were well above the market rate when we selected them," Bastian says. "And we were betting on their growth rate."
In the case of Claire's and Shaw, that turned out to be a good bet. Despite strong sales growth, Claire's price had been depressed by disappointing earnings and general weakness among retail stocks, but the company brought in new management and profits rose 30 percent in the last two quarters.
Shaw overcame the problems it was having assimilating the carpet division it bought from West Point-Pepperell Inc. in 1987 and then went out and bought Armstrong World Industries Inc.'s carpet division, which should boost sales by another 30 percent, Bastian says.
Bob Black's Taking Stock
Long-Term Value portfolio: This Rochester-based newsletter, which is no relation to this column, took advantage of the strength of blue-chip stocks in posting a 29.6 percent gain last year, after rising 16.3 percent in 1988 and losing 5.6 percent during the year of the crash.
"The secret of success in the Long-Term Value portfolio has been the larger-capitalization stocks and the oil-services stocks," Black says.
The Long-Term Value portfolio consists of supposedly safer secondary stocks with potential for long-term appreciation. And with the growing popularity of the technique known as indexing -- crafting a portfolio that matches one of the major stock indexes -- the larger companies that make up those indexes have seen their stocks rise steadily in price.
In addition, foreign investors tend to prefer to put their money into bigger companies that they know, rather than smaller, less familiar firms. That demand also keeps the pressure on those stocks, Black says.
AIM portfolio: For the first time in three years, Black's riskier "Aggressive Investment Monitor" portfolio did worse than his Long-Term Value portfolio.
Black's AIM portfolio, which includes smaller, riskier stocks with the potential for unusual gains, rose 26.6 percent last year, not including commissions or dividends. That compares with a 40.2 percent gain in 1988 and a 1.9 percent increase in the year of the crash.
"It's really been opportunistic investing," Black says. "And we set close stop-loss orders so, if we're wrong, we'll only lose about 10 percent."
The portfolio's gold stocks gained about 30 percent in the final quarter of 1989, thanks to the rise in gold prices, Black says. The portfolio's investment in Texas Air also did well, rising from 12 1/2 to 20 7/8 , and it bought Emerson Radio at 2 7/8 and sold at 5.
This newsletter, published by Howard Ewert of Colden, consistently has been one of the area's most solid performers over the years -- and 1989 was no different.
Sixth Sense, following Ewert's philosophy of buying safe, but undervalued stocks and holding them for a long time, gained 21.2 percent last year, excluding dividends and commissions, and 24.7 percent including dividends.
The newsletter also shows why it's difficult to compare one publication with another. The 21.2 percent gain is based on a method that compares the changes in the closing prices of the stocks held in the Sixth Sense portfolio at the end of 1988 and 1989. Ewert says that's the better way to compare how a portfolio changed during a one-year period.
But if you use the original purchase price as a starting point, which Ewert says gives a more accurate view of the portfolio's return on investment, then Sixth Sense had a gain of 29 percent, excluding dividends and commissions.
As in the past, Ewert again showed a knack for picking companies that were headed for takeovers. Last year, his picks included Combustion Engineering, Burndy and Great Northern Nekoosa. Other Ewert picks, such as Campbell Soup, moved higher because of restructuring.
"The type of companies I buy, and the capital structures I buy, lend themselves to this," Ewert says.
This was Sixth Sense's fifth year, and the fifth year that the newsletter has posted solid gains. The newsletter's average annual return is about 28 percent, including dividends. "It's no good making money and losing it the next year," Ewert says.
Special Situation Report
This Rochester-based newsletter is one of the toughest to compare with its local competitors, mainly because it spent most of the year with 60 percent of its portfolio in cash.
Because of that cautious approach, the newsletter had gained 18.7 percent through the end of November, including dividends, which is another reason why it's difficult to compare with the others.
The newsletter -- one of the few local newsletters large enough to be followed by the Hulbert Financial Digest, which tracks the performance of investment newsletters -- gained 32.2 percent in 1988.
"We underperformed the market last year, but my contention all along has been that there has been the potential for a real debacle in the market," says Charles M. LaLoggia, the newsletter's publisher.
"My main focus for the year was to maintain what we had made in 1988," when the newsletter placed seventh nationwide in Hulbert's rankings. "In retrospect, I'd say I was a bit too cautious on the market."
And despite keeping the bulk of his portfolio out of a rising market, LaLoggia, who specializes in picking takeover candidates that are being overlooked by Wall Street, still managed to pick a few takeover targets or restructuring candidates, including MCA and Ramada Inns.
Subscription data on newsletters
Here is subscription information for the major area stock market newsletters:
Sixth Sense is published 50 times a year by Sixth Sense Publishing Co., Box 5, East Aurora, 14052. Subscriptions cost $295 per year for individuals; $395 for investment clubs with 20 members or less; and $495 for investment advisers.
Securities Analysis News is published monthly by DSB Computer Applications, 4C The Tradewinds, Buffalo, 14221; $240 per year.
LaLoggia's Special Situation Report is published every three weeks by The CML Market Letter Inc., P.O. Box 167, Rochester, 14601. Subscriptions cost $125 for six months; $230 for one year; or $400 for two years. A three-month trial for new subscribers is $50.
Bob Black's Taking Stock is published twice a month by Bob Black's Taking Stock, 1400 Temple Building, Rochester, 14604; $95 per year.
Ival Inc., 5217 E. River Road, Grand Island, 14072, offers a consulting service for individual investors that identifies one stock each month as undervalued with good growth potential. It costs $195.