Derek Webb Interview, Part 1 - Outlook and Investment Strategy

May 12, 2008 - recently interviewed [Part 1] Derek Webb, Portfolio Manager, Webb Asset Management. Here are some excerpts from Part 1, in which Mr. Webb shares his outlook and his thoughts about how he trades in volatile and range bound markets. Here are some excerpts:

Regarding the Fed’s recent moves…

Anytime the Fed puts this much liquidity in to the system it’s like blowing into a pipe; all that pressure has to go somewhere—When the Fed drops hay bails of money out of the helicopter, those hay bails of money are like molecules. They have to attach themselves to something.

When you look at the huge amount of money put into the system because of the Long Term Capital Meltdown and Russia—now that liquidity event created the internet bubble. This is no different.

All of this liquidity is going to find a home. I’ll tell you that I think it’s finding its home right now. Fundamentally I am very bullish because of all this liquidity.

On his investment focus…

Through our quantitative homework we found that the delta or change in earnings is the only thing that’s predictable in terms of determining the direction of a stock’s price. That’s all we focus on; that’s all our research focuses on. So, where is that delta accelerating right now—it’s in commodities. Agriculture is number one, Oil and gas are number two, some base metals number three, like copper—The shine has kind of come out of precious metals in the short run, but I don’t think that trade’s over, I think it’s more of a seasonal thing right now.

On when to sell:

[Firstly], If we saw one analyst lower EPS forecasts for Potash, for example, WE WOULD BE OUT. Analysts are out there doing site visits. They’re doing their homework – as long as they’re raising their numbers we’re going to be long. As soon as we would see them hold steady or lower their numbers we would be out.

Secondly, if the earnings themselves just start to de-accelerate, meaning we are looking at a smooth line of earnings, not to get complicated, but we look from 3 quarters ago out to the next quarter and if that rate of change de-accelerates were out.

Thirdly, one negative earnings surprise and we’re out.

And lastly, if the relative strength indicator of the stock de-accelerates were out.

We’re ruthless on all our positions.

And lastly, if the relative strength indicator of the stock de-accelerates were out.

PART 1: Derek Webb Interview,

Visit Webb Asset Management for more information.

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Derek Webb Interview, Part 2 - Earning Superior Income (safely) in a Range Bound Market

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