Another misstep was the handling of Microsoft Corp. at the start of 1999. The company, with its secure position in the PC-software and computer operating-system markets, had been a company holding for several years. But the growth potential for Windows software was unclear, and the company was attempting to dominate the Internet software market in the same way.
Yeager and his associates were doubtful Microsoft could pull off the Internet play. It turns out they were right, but a year too soon. They ended up selling Microsoft in January 1999, only to see its share value soar before crashing along with other techs in the next year. That one move alone, Yeager says, caused customers-and assets-to walk out the door.
Some of the industry sectors not represented in the company's holdings are also notable. Totally absent, for example, are any companies in the telecommunications industry, including the fast-growing cellular-telephone business.
Yeager says the fund is closely watching the industry but has not yet found a company that has risen out from the crowd as a clear leader. "We haven't reached a comfort level with any of them yet," he says.
Likewise, the fund continues to observe the technology sector, as well as media giants such as AOL Time Warner, which also is on the fund's watch list. "We don't see the moat around them yet," he says. "They're part of our universe but not our portfolio."
As for the high-average P/E ratio of his fund's holdings, Yeager shifts the focus to growth. The fund, he says, has a P/E that's 1.2 times the S&P 500, but the firm's projected growth rate for its holdings are 2.7 times those of the S&P 500. He admits projected growth rates are based partly on faith, but that doesn't seem to be in short supply in Yeager's case.
The financial history aficionado says he sees the current economy as a reflection of the "golden age" of American industrialization in the late 19th century. The common threads between then and now, he says, are the opening of world markets and low inflation. The current slowdown, he says, is normal. "This is just a blip," he says.
