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May 26, 2005

The Unexploited Values': Delphi Management's Scott Black Digs Deep for Margin of Safety

By Kathryn M. Welling

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  • The Unexploited Values': Delphi Management's Scott Black Digs Deep for Margin of Safety
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Scott Black knows value, in stocks, in the market, and in art. For the first two qualities, his clients at Boston's Delphi Management must be exceedingly thankful. For the last, museums in his home town and dotted around the East, regularly give thanks. Yet currently, after five years of outperformance by value stocks, even Scott complains the market offers slim pickings. Nonetheless, when we called, he graciously dug deep into his portfolio and came up with a handful of stocks that meet his exacting standards and can be called unexploited values. Names and numbers follow. -KMW

One quarter down, and so far 2005 is no picnic for investors, Scott.

Our accounts are up on the year. The Russell 2000 Value, with dividends, is down 4 percent, the S&P is down 2.1 percent, Nasdaq is down 8.5 percent. Our performance is not because we are holding cash. We are up only fractionally. But at least we haven't killed anybody. Remember what Ben Graham said? "The three most important things in investing are don't lose money, don't lose money and don't lose money."

A sentiment worth repeating.

I said we'd "muddle along." That's really what we're doing. I'll put this on the record: George Bush and his economics team are not politically or intellectually correct, notwithstanding the editorial page of the Wall Street Journal, which loves everything he does. This President is a disaster. It is no accident we made money in the Clinton Administration. We had a balanced budget. We had a strong dollar. I've never seen a weak dollar policy help a country. Devaluing your currency into prosperity doesn't work. We are up to $8.3 trillion on the federal deficit ceiling. We have massive deficits as far as the eye can see. They use patchwork accounting. They submit a budget with a $400 billion deficit and promise a "supplemental" for another $85 billion of war spending. Talk about fuzzy math. We had huge surpluses when Bill Clinton exited. We have added over $2 trillion to the deficit and are selling wallpaper to the world. Great. This Administration has made America the Blanche Dubois of economies.

A great line-

But the reality is not good. We are transferring our political capital overseas. It is not all about military might. We are not going to have leverage with China over their plans to build pipelines in Iran, if they are our largest creditor. Meanwhile, the economy has been growing, but only because Alan Greenspan spiked the punchbowl, and everybody has been drinking from it. We've gone from $1 trillion to $4 trillion in private mortgage debt outstanding through the refi mechanism. We have gone to about $9.7 trillion in household debt. Everybody is defending their standard of living by going deeper in debt. This isn't even like Vietnam. Forget Korea or World War II. It is as if it doesn't even exist. It is on another planet.

More like an alternate universe.