John Buckingham is the CEO and Chief Investment Officer of Al Frank Asset Management, and the editor of The Prudent Speculator, a monthly investing newsletter. Recently, he sat down with Steve Forbes to talk about Al Frank’s strategy, investor psychology and why he loves dividend-paying stocks. Video and a transcript of the first half of their conversation follows.
Steve Forbes: John, thank you for coming by. In the name of full disclosure, Forbes publishes The Prudent Speculator, a newsletter that comes out each month, where you have specific recommendations and also some punditry and words of advice to your readers. You also manage money for clients and two mutual funds, the Al Frank Fund and the Al Frank Dividend Fund?
John Buckingham: Correct.
Forbes: And about $100 million [in the mutual funds]. The rest of your clients about $400, $450 million?
Buckingham:Correct.
Forbes: And no white hair yet. Very good.
Buckingham: I’m getting some.
Forbes: Going back to Al Frank, a real person. You cut your eye teeth with him. How would you describe your approach to investing? It’s not quite contrarian, not quite traditional value investing. You have your own metrics – algorithms as we call them. Please define them.
Buckingham:Sure. Well, I learned at the foot of the master, Al Frank, who was a self-taught investor. Al set out to learn what worked on Wall Street, and what he found is that companies trading at inexpensive valuations – low P/E ratios, low price-to-sales ratios, low price-to-book value ratios – those companies historically outperformed. And importantly these days, companies that pay dividends have historically outperformed.
My strategy is pretty much very similar to what Al would do, trying to find bargains. The amazing thing is, though, what we do is what people do in their every day life. You search for a deal. We just try to find the deal in the stock market supermarket, as opposed to going to the local grocery story.
Forbes: That gets to psychology, but you can define it as if you look for stocks on sale.
Buckingham: Right. Absolutely. Well, companies that are trading at inexpensive valuations. Over time stocks are seldom priced at fair value. They’re either cheap or they’re expensive. Our job is to try to exploit those pricing anomalies and try to buy low and sell high. It’s not always easy.
Forbes: Now, your universe is the Russell 3000?
Buckingham: Yeah, we screen on 3000 companies – that algorithm that you mentioned. We’re always trying to find companies that fall into our parameters with our initial quantitative screens.
Forbes: ADRs as well?
Buckingham: Absolutely ADRs. We like to look overseas. We have about 200 stocks in our universe that we’ll look at. You need to have sufficient volume and need to get financial information and so forth on them. But once we’ve got that quantitative review, then we’ll go ahead and do a qualitative review.
