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When Bud Leedom first enrolled at San Diego State University, he was an astronomy major, which he is quick to point out is vastly different from being a student of astrology. "I was very much the scientist," Leedom recalls, "heavy math and physical science background.
While earning his degree, however, Leedom stopped watching stars in the heavens and started watching for stars in the stock market. "I got sidetracked with my charts," he explains.
Leedom, a 33-year-old San Diego entrepreneur, publishes Leedom's San Diego Stock Report, a newsletter that tracks local public companies, offering guidance on when to buy and sell. Central to it all, he says, are his accumulation charts.
"It took me six years to form the charts. The charts tip me off when there is institutional money going into a stock," he says. Leedom had noticed an interesting pattern he calls "pulses." These occur when institutional investors are slowly accumulating significant positions in a stock. Interest by mutual funds, pension funds or other large investors frequently precede an acceleration in share price.
Leedom watches for a momentary dip in price, followed by "a large increase in volume, then a large increase in share price. Then things settle back down. I continue to see these pulses until supply is gone. Conversely, too, when a company gets out of favor, you see just the opposite taking place."
Not that institutions know everything, he says. But, "institutions generally tend to be on the right side of things. The key is to see them doing it, rather than waiting for them to file (with the Securities and Exchange Commission)."
Leedom covers all local stocks that trade above the Bulletin Board level. Even when companies trade on major exchanges, it can be difficult to ferret out information. And the job has grown since Leedom's first newsletter in November 1993. "When I started, there were less than 100 local companies, and it’s now 130. By virtue of those 30, we’ve broadened the scope," he says.
Advantages to investing near home include more information available on your companies. You may know founders, officers or employees of a corporation and can evaluate their honesty, enthusiasm and skill. Certainly it is easier to attend the shareholders meeting.
But there are drawbacks. Diversification becomes more difficult, especially in San Diego, where the best companies are clumped in a handful of industries: wireless communications, biotechnology and golf products, to name three. Few large companies are left in the county, so a San Diego-based portfolio might be compared to a small-cap stock fund.
"One out of every five companies is a biotech. High technology is a large part, with an offshoot being telecommunications," Leedom notes.
He cautions that investors not just focus locally. "I advise against (a portfolio of only San Diego stocks) because it’s just too hard to blanket purchase San Diego companies. It just whipsaws. There's a lot of volatility, a lot of danger in it. It’s important to hold local stocks; they just shouldn't be 100 percent (of your holdings)."
In the six months between April 28 and October 8, 1997, San Diego companies, on average, gained 61.2 percent in share price value. Those were the dates when Leedom's San Diego 40-Stock Composite Index achieved its 52-week low and high for the past year. Leedom's index lost nearly half its one-year gain in the fall and winter, but recently has bounced back somewhat.
Despite the blue-chip void in San Diego, Leedom says investors can steer away from high volatility with conservative stocks such as Garden Fresh Restaurants, WD-40 and Enova.
In addition to the charts, Leedom's newsletter has several other nuggets, including a list of insider buying and selling. Leedom warns that it’s safer to buy when insiders are buying than to sell when they are selling. A sell decision may be based merely on the need to pay taxes or a child's college tuition; a buy decision always is a vote of confidence in a company.
Leedom also covers local initial public offerings. Too bad he doesn’t include the company’s founders and officers in the IPO data. Investors who prospered by following the careers of such visionaries as Sol Price or Irwin Jacobs might like that information. In his most recent edition, Leedom says some local stocks have been battered by the Asian Flu and the El Niño effects, but he still has recommendations.
"My favorite stock for the past six months has been Ashworth," he notes. In addition to the golf wear manufacturer, Leedom likes Immune Response, which will release preliminary data on an HIV product in early June. For investors who don’t mind waiting 18 months or so to maximize results, Leedom suggests Cypress Bioscience, a company that recently finished an important clinical trial on an immune response product well ahead of schedule.
Although he is nervous about Qualcomm at the moment, Leedom says for those with a long-term outlook, say five years, it is an excellent investment. "This is a telecom giant that is still in its infancy. There are still some growing pains in next quarter. Long term, the quality of the technology is far and above what’s out there."
An annual subscription to the monthly newsletter sells for $149. It has about 1,000 subscribers, many of them out-of-towners. In May, Leedom will take his accumulation charting system "to the outer limits." He will launch a California stock report, covering 1,300 companies throughout the state.
Beyond that, Leedom says he's now getting into money management. The accounts he handles have a strong San Diego bias, but they are not limited to San Diego stocks. It’s his goal to accumulate $15 million under management, then convert the accounts into a California-oriented mutual fund.
"I think that is the goal of most newsletter editors, to manage money," Leedom says.
Janet Lowe is author of several investment books, including "Value Investing Made Easy" (McGraw Hill) and "Warren Buffett Speaks" (John Wiley & Sons).
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