A Man for All Markets
Magnet Investment Group
Jordan L. Kimmel
Author: Dave Jennings
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|Jordan Kimmel has spent over 20 years honing his craft as an investor. The result is not only the founding of a firm, Magnet Investment Group in Randolph, NJ, but also a book, Magnet Investing. In this interview, Ticker learned that Kimmel's computer-driven stock selection system that combines value, growth and momentum works in all kinds of market conditions.
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It's not a matter of better or worse. They are conscientiously weeding out deteriorating companies and industries and replacing them with new companies dominant in new industries. The problem is individuals have a hard time doing it themselves. They wait for these companies to come back. Often, as you realize, they don't come back. The essence of Magnet is we are willing to pay taxes so that we are always investing in those companies, regardless of market condition, that are running their businesses so that their revenues and margins continue to grow. A great example we talked about earlier is how these oil and gas companies have been rotated into Magnet's stock selections. Go back a year when technology was considered to be dead. Our list showed several technology companies that had returned to investors tremendous returns throughout the bear cycle. There are companies in digital photography or global navigation positioning systems that have had tremendous returns throughout this whole recessionary period. Magnet picked them, identified them and gave us the opportunity to further investigate their product lines and ultimately reward our investors.
Q: Computer driven stock selections models are seeing increased use. Why did you go in this direction?
Clearly, there are too many choices out there. There has to be a way of narrowing them down. Our process is the starting point to quantitatively make selections. We do have the ability to reach out to management, but not for them to blow their horn and advertise the best-case scenario to us. What we're asking is: Is your business just concentrated among a few clients, or are your profits derived from just a single product? Those situations carry a higher risk and therefore more scrutiny. When we identify a company that scores high on Magnet, only 3 or 4% is owned by institutions, the company's customers are not concentrated in any way, and they have multiple products that they’re deriving profits from -- those situations have been our very best investments. And, I think that they will continue to be our best investments.
Q: I am aware of your selection system being incorporated into products sold by John Nuveen as unit investment trusts, but this is the first time I've seen the symbol GEMS.
That was their own acronym, but we were extremely proud to be offered contracts not only by them, but also by Van Kampen. Both of these entities are 100-year-old, billion dollar companies that move very slowly. Their due diligence took well over a year. For us to receive those contracts – the only contracts those companies offered independents – was truly a gratifying moment in the Magnet Investment Group's history. Several other investment groups have looked at the Magnet stock selection process. I believe that I can conservatively tell you that more applications for our process are under development. There is an institutional interest in what we've done and it is clearly leading to new relationships at this time.
Q: Since you use a computer driven modeling system, which we know is proprietary, do people still ask you, 'What's in that black box?'
At lot of conferences where I'm asked to speak, unfortunately, a lot of questions still come out as, 'What's your best current idea?' That leads me back to the expression, give a man fish and you feed him for a day; teach a man to fish and feed him for life. It is important that investors not look for a free lunch in a hot pit, that they're actually willing to spend their time and effort in following and maintaining a portfolio. If not, those investors are best suited to stick with the indexes, and let the indexers change the symbols when they think it is important. Let me share two thoughts. I wouldn't feel comfortable reading a manual and performing brain surgery in the afternoon. I would definitely leave that to the expert. The other side of it is regardless of how insightful or smart anyone may be, I remind people in my book, no one ever won their first chess game. There is something in our industry called paying tuition. That is, making enough mistakes and hopefully the wise investor will not make the same mistakes over and over again. Investing in the stock market is just not easy. It requires all kinds of control over emotion, to understand that a lot of information is put out to get people to do the wrong thing. Gerald Loeb wrote one of the best books on investing. His comments were that you could only become successful in the market by opening and closing several transactions, understanding your emotions at each point, and improving over time. I completely agree with his philosophy.
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