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April 30, 2002

New Value Challenges

By Tom Taulli

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Delaware Investments was established during the Great Depression in 1938, a date which might be significant for financial historians who want to explain the firm's singular focus on value investing. The founder, Admiral Linton Nelson, was a strong believer in the adage that, "the best way to make money in the investment markets is not to lose it."

Still, Delaware Investments is not a stodgy old firm. It helped to pioneer the first small stock funds, single-state muni funds, and even high-yield bond funds. The firm has about $100 billion in assets, $30 billion in equities.

Gary Abrams, who joined the firm as a trader in 1997, is aware of Delaware's storied history. And he is quick to sing its praises. After a year on the job, he moved from the small-cap to the large-cap fund. "Of course, the average trade size is much higher today," said Abrams, currently a senior equity trader. "If I trade five million in a stock, it is likely not to make a difference in the stock price. It is a drop in the bucket. This was a big change from doing trades of, say, 500,000 in small-cap stocks."

Some of the challenges that Abrams must deal with today? One is decimalization. "I think it has been a hindrance for traders," he said. He gives an example: Suppose he wants to buy a stock at $80 per share. Before decimalization, this was much easier to accomplish. He could place a limit order and name the price of $80 or better. If someone else wanted the stock, he would have to pay $80-1/8. This extra 1/8th would be enough to deter traders.

But what about a penny? "Basically, I cannot place limit orders any more," Abrams said. "If I want the stock at $80, someone can come in at $80.01. This is done all day long - and it is usually the specialist who does it."

Abrams believes that a successful trader needs to "take a stand on a stock." In volatile markets, this is not easy. "If volume is light, I will not be afraid to take a significant position in a stock," he said. "In a few days, the markets may be roaring up 200 points."

The relationship between the traders and portfolio managers is very close at Delaware Investments. In a sense, the traders act as the PM's eyes and ears' for the market. "Many of our PMs are on the road a lot," Abrams said. "So they will call in often and get updates."

It helps that all traders have spreadsheets that provide real-time access to the PM's portfolios, as well as the benchmarks. "I follow the earnings reports," Abrams said. "I follow the general news, such as from or the It also helps that each trader at our firm focuses on certain industry segments." Abrams specializes in finance, drugs, oils and international.