an old forbes article on Irwin Yamamoto

Irwin Yamamoto: Maui Wowie Nikhil Hutheesing, 02.18.03, 2:00 PM ET


Irwin Yamamoto

Hawaiian born, Irwin Yamamoto, editor of the Yamamoto Forecast, doesn't like publicity, and he will give little details about the success of his newsletter. We do know that Yamamoto, 47, picks stocks from downtown Kahului on the island of Maui, and, according to Timer Digest, his market-timing signals were up 45% in 2002. His success, he says, comes from being a contrarian. As the threat of war with Iraq increases, many advisers recommend fleeing stocks and investing in gold. Yamamoto says to do the opposite.

Forbes: We are on the verge of going to war with Iraq, yet in your latest newsletter you recommend 100% investment in stocks. Why?

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Yamamoto: Right now, everything is about the war. What do I think will happen? I think that it will either be a quick war or, at the very last moment, Saddam will go into exile. So I'm bullish on stocks because I think the market is overreacting. Look at what happened in the Gulf War. As soon as bombs started falling and the market sensed victory, there was a rally. I think the market is currently oversold--on a short-term basis. On a long-term basis, it is still pricey.

So you aren't a long-term bull, just a short-term bull?

Right. This won't be the start of a bull market, but rather it will be a significant, tradable rally. Current price-earnings ratios and book values are too high for a bull market to start. But because of short-term worries about war, the overhead resistance to stocks will be removed. So there will be a chance for profit taking.

When war isn't the overriding concern, how do you pick stocks?

I follow three indicators: fundamental, technical and market sentiment. In the beginning of January, my long-term indicator was bearish. But by the end of January, I changed it to bullish. I turned out to be right. Stocks were heading up until mid-January, then they began coming down. When we had that initial advance, I thought the rally wouldn't last, so I turned negative. I still think the market is waiting for war. But to take a longer view, the war factor has already been priced in and is largely discounted.

So give me some examples of what you look at before you buy a stock?

I look at technicals. Because of the fast decline in January, on a short-term basis the market is oversold. But even if there is no war, I think there will be a reflex rally, a technical bounce. Throw in the fundamentals. Once problems are removed, there should be a rally. Now consider sentiment. Everyone is saying not to touch stocks now. I go to the Borders bookstore here and check Barron's out on Sundays. It always correlates. During the dot-com bubble, the newspaper was always sold out. Everyone was buying, and you know what happened.

Now, because of the war, no one is interested in stocks, and there are plenty of issues of Barron's on sale at Borders. When I invest, my question is, "Have people heard any favorable news lately about this company?" If the answer is yes, I don't buy the stock because I would be paying a premium for it. So I look companies that are hated. I think brokerage stocks fit in that category.

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You are 100% in stocks right now. Which companies do you like now?

The companies I am buying I like on a short- and long-term basis. A.G. Edwards has a spotless reputation and no debt. It is a big regional brokerage firm and a possible takeover candidate. Also, along the same lines is Raymond James. Even if these two are not taken over, they can stand well on their own. I also like Walt Disney. The stock is close to its lows, and when there is a perception that the economy is recovering, advertising will pick up. I recommend Japan Equity Fund because if there is a recovery in the U.S., that will help Japan in terms of exporting goods to the U.S. Japan is on the verge of a major financial change. Once the news is out about the major restructuring changes in Japan and the cleaning out of bad loans, Japan's market will soar.

Playboy is another great buy. You won't get a free subscription as a dividend, but management has said that the next year will be a profitable one. The stock is worth $30, but you can buy it now for $9.50. Alexander & Baldwin is another company I really like. It has over 90,000 acres of Hawaiian land, so it's a great asset play. The stock yield is 3.5%--a great dividend, especially if it's tax-free. Then, Wall Street will be attracted. On a conservative basis, I think the stock is worth $35 to $40, yet it is selling at just $25. So you get the yield while you wait for the price recognition.

What about investing in oil, bonds and precious metals?

As a contrarian, I was into gold and oil when it was low. Remember, buy low, sell high. Oil is high, so I'm selling it. I think when the war starts, in the first hour or so the price of oil and gold will plunge, especially if it looks like it'll be a quick war. In the Gulf War, American markets were closed when the war began. The gold and oil markets continued to surge, but before the U.S. market opened the next day, oil and gold plunged in price because a quick victory was viewed.

As for bonds, right now, bonds are also used as a safe haven. But by the second half of this year there will be an economic recovery, so the multiyear bull market in bonds is practically over. Good news in the economy is bad for bonds, and soon people will think the economy can recover. Then, bonds will sell off, and people will move into stocks.

But many advisers take a different view. They think that gold shares should continue to do well, especially since the current uncertainties remain.

We are at the top of the gold market now. Uncertainty is favorable to gold, but it will be removed within a matter of weeks.

Yes, but gold was showing strength even before talk of war with Iraq. And there are many other factors that are positive for gold, such as weak currencies, the Fed's monetary policy and inflation pressures.

Before the talk of war, gold was going up because of supply and demand and the weakness of the dollar. But over the last month or so, many of the gains have been directly related to the uncertain situation with Iraq. So if things look good with Iraq, gold investors won't be worried about the recession or soft dollars. That's why I think the best opportunities right now are in stocks.

Thank you.

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