By Brendan Intindola
NEW YORK, June 25 (Reuters) - In a stock market with few reasons to buy, learning how to sell is increasingly important, says Jeffrey Saut, a 30-year Wall Street veteran and market strategist for Raymond James Financial Inc.
"The secret of longevity and preservation of capital is knowing how to lose. How to limit your losses," said Saut in a recent interview with Reuters.
"Always have a sell discipline," he said. "Everyone knows how to win, but not a whole lot of people know how to lose."
And when it is time to buy, Saut recommends looking beyond common shares to issues like preferred stocks. Some pay hefty dividends, a steady return on capital that makes watching the market scrape out new lows for 2002 a bit less wrenching.
Saut, 53, knows what it is like to be in the equities bunker. "I started writing market strategies at the absolute low in November 1974, on a typewriter." This after a childhood exposure to stocks through his father, an individual investor who in his eighties still charts the market.
"I remember my father looking over his charts during the 1962 Kennedy confrontation with the steel industry. This is when I first started having an interest in the stock market," he said. Forty years ago, President John Kennedy railed against the steel industry's "utter contempt" for all Americans by raising the price of steel.
For today's market, Saut said he foresees a tight range, with the Dow Jones industrial unlikely to break above 10,500 any time soon. "I think we could be in that trading range for a lot longer than most people think, though I believe we made the cycle lows back in September."
Saut's selling rule may be more important than ever in this difficult market: Seriously consider selling if the stock falls 15 percent below the purchase price. If there is reason to believe a turnaround is in the offing, Saut urges giving the shares a limited second chance.
But if the slide continues, and the stock goes down another 5 percentage points, losing a fifth of the purchase price -- put in the sell order.
"Sell somewhere about 20 percent down, I don't care what anyone says. There are some horrific stories out there," Saut said, referring to dozens of technology stocks that have lost most of their value from stratospheric highs attained two to three years ago.
Art Huprich, a technical analyst at Raymond James, said Saut's views benefit from his long involvement with the stock market. "Most people have known only a bull market. He has seen the market in rough times. He has been watching the markets for a long, long time, not just as an adults, but as a child.
"I have a few mentors on my life - Jeff taught me more about how the stock market works than anybody I have worked with," Huprich said.
Many Wall Street strategist, he added, are often unwilling to change their views as the market changes. "They are myopic in their approach. You have to be willing to change with the landscape, and that comes from having a lot of experience.
FORD CONVERTIBLE
Instead of trying to divine the bottom for technology or telecommunication stocks and shooting for a possibly dubious bargain, Saut sees compelling value in blue chips. Two of the names he likes: Motorola Inc. and Ford Motor Co. .
"While all these yahoos are trying to guess whether Cisco has bottomed, asking 'Should we buy Cisco?' Ford issues a preferred (stock), yielding 6.5 percent at $50 (per share) And it has gone up to $61," Saut said, referring to a convertible preferred series "S" issued by Ford five months ago at $50 each.
As for the carmaker's fundamentals, Saut said Ford's current turnaround plan should begin to bear fruit in two or three years. Last year, the company reported a loss of more than $5 billion.
Saut emphasizes income, typically in the form of dividends. "There is going to be a shortage of unearned income" he joked, referring to the taxman's description of market gains. "So if I can get 7 percent return a year in a dividend and maybe get lucky and make another 10, 15, 20 percent in capital appreciation, I am tickled to death."
Reminding of the importance of dividends, Saut says that $100 invested in the Standard & Poor's 500 in 1926 would be worth about $250,000 today, including compounded dividends. Without the dividends, he said, that same investment is worth about $10,000.
"In the bubble market, people forgot about dividends," said Saut, who started his career at Godnick & Son, in January 1971, in lower Manhattan. "After knocking on 100 doors I went to work for $100 a week just to get in the business."
UNITS BY MOTOROLA
Saut said he recently bought "units" issues by Motorola last fall. The unit has two elements: an interest-bearing note and a obligation to purchase Motorola stock in 2004.
It pays a fat dividend of about 7 percent while the venerable tech company copes with the downturn on the telecommunications-equipment market.
"Motorola is one big cap name I think is trying to turn the corner. Their semiconductor business has always been the stone around their neck. They brought in some new managers for that business and I think they are going to shrink it and just focus on the profitable sectors."
And like Ford, he will take the payout until the company fundamentals improve.
"I don't think that is going to happen in the next two, three, four quarters. So what I did instead of buying the common, I bought (units) I bought it around $41, $42," he said. They now trade at about $46.