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Taking the Plunge As Stocks Are Low

Olstein Avoids Losses by Buying Shares That Have Already Collapsed

By Edgar Ortega
Bloomberg News
Sunday, April 10, 2005; Page F04

Robert A. Olstein, whose Olstein Financial Alert Fund (OFALX) outperformed the Standard & Poor's 500-stock index in eight of the past nine years, said he tries to avoid money-losing investments by buying stocks that have already collapsed.

Olstein added to his stake in Tribune Co., the second-largest U.S. newspaper publisher, in January as the stock slid to a 2 1/2-year low. The drop reflected a decline in advertising sales after the company admitted it had overstated circulation at its Newsday and Hoy newspapers in New York.

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Shares of Interpublic Group of Cos., the fund's biggest holding at the end of January and the world's No. 3 advertising company, dropped 78 percent from an all-time high set in 1999. The company reported losses for the past seven quarters and discovered acquisition-related accounting errors this year.

"We like to buy bad news because it produces the right price," the 63-year-old money manager said in an interview from his office at Olstein & Associates LP in Purchase, N.Y. "We look first at how much we can lose before we think of the upside."

Olstein's $2 billion fund has risen an annualized 16 percent a year since it was introduced in September 1995. The only year it performed worse than the S&P 500 was 1998, when the fund's 15 percent gain fell short of the index's 29 percent advance.

The fund's 10-year performance was the second-best among 78 "value" funds tracked by Bloomberg that invest in companies of any size. These funds focus on stocks that trade at a relatively low price, compared with the value of their assets. The Allianz OCC Renaissance Fund, up 17 percent annually, was first.

During the past 12 months, Financial Alert slipped in the ranks because of a plunge in Merck & Co.'s share price. The fund is up 1.4 percent, placing 198th of 226 similarly run funds.

Olstein, who has a master's degree in business administration in accounting from Michigan State University, and his associates go through hundreds of financial statements. They look for companies whose non-cash expenses, such as costs for depreciation, mask improving earnings prospects. He buys shares trading at a discount of about 50 percent to free cash flow, or profit from operations minus capital expenditures.

His track record has attracted the likes of George Soros, the fund's biggest investor. Michael Vachon, a spokesman for the billionaire financier, declined to comment on the investment.

"Olstein's curiosity for digging deep into financial reports, and the skill he has for that, is clearly why he has been a successful money manager," said Howard Schilit, chairman of the Center for Financial Research and Analysis, an accounting research firm in Rockville. Schilit first met Olstein when the manager began Olstein & Associates 10 years ago.

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