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The Lessons from Thirty Years
Bonnel Growth Fund
Interview with: Arthur J. Bonnel

Author: Dave Jennings
Last Update: , :
From floor trader to portfolio manager, Art Bonnel is a 30-year veteran in the money management field. Aside from sharing his views on his investment strategy, Bonnel provided some interesting insights into the current market scandals that have shaken investor confidence.

Bonnel Growth Fund

A: I think it is very important. You don't want a company to get into a real bind. When they get in a bind they use creative measures to make themselves look good. I think cash flow is important. Also, the current ratio, which is reflective of cash flow.

Q: One thing I don't see in the holdings is Internet stocks. What is your view of them now?

A: Most of them are not making any money so we're not in them. If we see some good earnings growth we'll look at them. Right now, we don't see the earnings. So we just avoid them. But anything is fair game if it's earning money.

Q: One thing about your fund is the concentration is mid-cap stocks, it does diverge into all equity capitalization, from mega cap to micro cap companies. You're a bit different from the traditional fund. Is it fair for the rating agencies to box you this way?

A: Oh, I guess so. We tend to have more in the mid cap range. Usually I would say 60 to 70%, sometimes up to 80%. Like I said, anything is fair game. But what we tend to focus on is mid cap because they offer better growth prospects by my definition. I look at a company, look at its past history and read a little bit about it. That's part of the science besides just picking a stock just because the computer spits it out. It's subjective, too. Based on the experience I've had in the market, I just like the mid-cap area. They have more flexibility. I've also made some good money in some of the big cap stocks. If you catch Microsoft or Intel at the right time you can make a lot of money. I'm not stubborn that way.

Q: Returning to your research methodology, after the initial computer screening, what comes next?

A: Like I said, a lot of experience. I'll look at how we've done in the past buying this stock or industry group. Some industry groups we do very well in. We've done very well in the semiconductors. If they start to show some light we go into them. Like I said, it's experience and also technical, the chart pattern, the basic trend it's in, the volume and all that - just a lot of experience of being in the market and realizing how long it takes earnings to turn.

Q: What have you learned about companies and their investment potential?

A: You learn that the market is a wonderful place to be invested in but you still have to do your homework. You also realize that you can't make money all the time. Every investment is not going to be profitable. Also, you learn that diversification is extremely important. We talked earlier about the medical area. Just because I like the medical area, I'm not going to focus on one certain area. Diversification even in medical is extraordinarily important. Having good data is also important.

Q: So having good data is important to you?

A: We like companies that give good, clean numbers. It does make us wonder when talking about the good old nineties, when you look at all the companies that say we have to adjust our numbers for both the top line and the bottom line for the past five years, you just wonder how good the nineties really were. I'm glad to say we were never in Enron, which was at one time the seventh largest U.S. company. And MCIWorldCom was the third largest company. Their numbers went into GDP and they were false.

Q: You bring up an interesting point because WorldCom employed so many people. It did make up a large portion of the telecom and computer networking industry. That means the Federal Reserve, which tracks GDP, didn't question the data.

A: The Fed was looking at those numbers. What really were the numbers? To the best of my knowledge, the federal government has not gone back to readjust the inflation and economic numbers. It's not the total point of my conservation, but it is an interesting point.

Q: How important is corporate integrity to you in evaluating investment potential?

A: I think it is extraordinarily important. It always has been. I think the new laws that have come out are foolish. I mean that in all sincerity. If they had just enforced the laws they had in effect. It has always been illegal to falsify the books and records. Now they've put on more laws. We don't need the laws. I would say 95 to 98% of all the people operate on a very high ethical sense. But it's a very few that ruin it for the majority.

Q: Do you rely upon any Wall Street research?

A: No. I've always known they've been biased.

Q: I see you worked as a floor trader in commodities futures for five years. How did you transition yourself from a trader to a stock portfolio manager?

A: While I was doing that, I was also managing some individual accounts. I was doing well enough where a lot of people wanted to get involved in what I was doing. I thought the best way to open it up to them was to get involved in managing a mutual fund.

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