Bulls, bears debate value of gold investing

Money manager optimistic for 2010 investing

By DIAN VUJOVICH
Special to the Palm Beach Daily News

You may remember Falcone as the former president, co-CEO and portfolio manager of Evergreen Asset Management. She and Stephen Lieber managed the popular and rewarding Evergreen Total Return Fund. Today, this certified financial analyst, who earned her master's degree in business administration from the Wharton School of Finance, is managing principal of NMF Asset Management. This money management firm, opened in Stuart in 2002, follows the same research-intensive quality-and-value investing approach that created her stellar reputation.

Why did Falcone move to the Treasure Coast from New York?

"We bought a second home here, and my husband was spending most of his time down here," Falcone said. "And I'm one of those people who believe either you're married or you're not. So I wanted to be with him, left White Plains and moved the business here."

Falcone's firm has more than $150 million in assets under management and manages money for private individuals (the minimum investment ideally is $1 million), organizations, churches and states. I spoke with her in late December about her investing outlook for 2010. What follows are excerpts from our discussion:

Q. Looking at the New Year, are you an optimist or a pessimist?

A. I'm an optimist and very positive about the market, generally. We're still going to have the swings up and down, and I'm surprised that we didn't have more backing and filling as we did have [in 2009].

It's really been kind of eye opening to me, but I think because we've received trillions in monetary stimulus, it did help in the recovery. But I have been a little disappointed in the stimulus that hasn't gotten to the creation of jobs in roads and bridges, for instance, and other areas to help get the economy moving. Basically now it's all about jobs, jobs and jobs.

But I think that there's enough pressure that has been built in Congress and dialogue going on that the administration is going to have to do something.

Although we have this divisiveness on the issue of spending money versus not spending money, we've got a supportive Federal Reserve. I do think the pressure is building for the U.S. to do more fiscal stimulus. And being an old hand at this, I think that probably will happen.

Q. What are three reasons for your optimism?

A. The first would be the stimulus I just spoke of, and that has been positive. Then you've got money sitting on the sidelines; and third, merger and acquisition activity.

We still have over $3 trillion in money-market mutual funds that hasn't made its way into stocks. People are still redeeming some of the money they have in equity funds and going into bond funds and not investing the money in their money-market funds. So you've got some real ammunition sitting on the sidelines. Once money starts moving back into equities, that should help the stock market's performance.

Then mergers and acquisitions activity is always a strong positive signal in the market and for investors.

Q. You offer your clients two different types of management accounts. One is a multi-cap and the other a small-cap account. How have they performed recently?

A. I've lagged because we stayed with the value concept and investing in companies that have quality balance sheets. Although [in the fourth quarter of 2009], we've come along nicely. We have indeed done very well on a long-term basis in both accounts.

If I had been a trader, which my firm is not -- it is an investing firm, I might have been trading my head off. But that's not what this firm is all about. We believe in people and the businesses they are building and try to find opportunistic times to buy those companies. Then when they hit our target price we sell them.

[The year 2009] has been the kind of market in which a lot of junk rallied. Crummy financial companies that were basically in terrible financial shape and were highly leveraged moved first. That often happens in markets that are recovering.

After about six months or so you'll see that changing, and interest spreading out to the quality companies. And there are still a lot of quality companies out there -- very good quality companies, with value, that have not moved. I know because I see them every day.

Q. Any sectors or companies you like now?

A. We believe in diversity, and each of our portfolios typically holds between 40 and 50 names. Right now I like companies in the tech field, particular those in innovative areas like wireless or touch screen.

I'm always looking for and finding growth in funny places where you might not have looked a few years ago, like profit education companies. American Public Education, Capella and the Apollo Group are a few of the names my clients and I own.

And water is a big concept. There is something like 1 billion people that don't have enough water in the world. So countries like India and China are buying our technology on how to build water systems. Pentair is a large company we've invested in.

Q. Going forward, are you concerned about inflation?

A. We'll be facing the prospect of inflation in a couple of years. So I suggest my older clients keep about 25-30 percent of their holdings in bonds -- short- to medium-term bonds in laddered-portfolio out three to six years.

Q. Are you concerned that the government will stop spending too soon as it did in the 1930s?

A.I think there is less chance now that Federal Reserve Chairman Ben Bernanke has been reappointed. He knows history and the danger involved in tightening too soon. As you know, there is great political pressure and some of it from people who do not know or understand monetary history who are constantly talking about inflation and how we have over-stimulated the economy. But I think Bernanke ... [has] a good handle on history and won't tighten too soon.

Right now job growth is the biggest crisis we're facing.

I still believe in the power of capitalism in this country and companies doing well. We've just been through a very tough period and think that growth in the U.S. is going to be slow relative to the other countries around the world that are experiencing more growth; but as I said earlier, I'm an optimist.

For more information about Nola M. Falcone and NMF Asset Management visit www.nmfasset.com.