Investment Record Speaks Louder Than Words

"The greatest evil which fortune can inflict on men is to endow them with small talents and great ambition."

- Vauvenargues, 1746

In prosecuting one's own personal political agenda, occasionally one must throw a body to the wolves.

It is of no moral or ethical consequence that the body houses an individual of the highest repute. What's a body, no matter how clean, when political ambitions are at stake?

Of course, in this case, the retirement monies of hundreds of thousands of public employees, totaling more than $20 billion, are at stake, but even that is petty next to one's own future.

State Treasurer Dan Grimm wants to see change in the State Investment Board, which controls those billions. In a transparent effort to do that, Grimm's words this week accused, tried and convicted two former heads of the State Investment Board. The accusations are that the former directors bought and sold stocks for their private accounts based on information they gained from managing state funds. The response from one of the former directors, David Weig, was that any trading was done on information that was readily available to the public.

The other director, John Hitchman did not respond. And because our contact was solely with Hitchman, the board's executive director from 1981 to 1988, it is only Hitchman about whom we may comment.

Hitchman took a fund that was underwater - that is, the value of the fund was below the amount of money public employees and employers had contributed - and made it the best fund of its kind in the U.S. He turned roughly $3 billion into at least $15 billion, and set into place investing styles that would run those funds into the $23 billion range. All done without a hint of wrongdoing.

Since Hitchman's voluntary and understandable departure to a higher-paying job with a private money-management firm, the esteemed state treasurer has been guiding a look through some of the most minute factors of the 1980s to manufacture an indictment - or campaign platform.

One of the board's advisers through the 1980s was Ed McMillan, retired Seafirst economist.

"John Hitchman was one of the straightest guys in terms of propriety and ethics I ever met," McMillan said, furious at seeing Hitchman's name abused. "I don't believe anything he did was unethical or illegal."

The intimation has been that Hitchman, like some Dennis Levine or Ivan Boesky or Michael Milken, was using inside information through the state's investments to feather his nest. (In fact, in the stock used as the prime example of Hitchman's misdoing, the state made at least $25 million.) Such tripe would be laughable were it not so horrifying.

A public that witnessed the illegal acts of the others would be excused if it suddenly thought Hitchman were as culpable.

Nothing could be further from the truth. Hitchman, a formal naval officer, worked to enhance the value of the funds. Sometimes, that may not have been the most politic thing to do. His vision was so strong, not all of us might beg to work for him.

But he carried out the dictates he was handed. His timing on putting retirement money into leveraged buyouts was extraordinary. His movement into venture-capital funds, fulfilling a legal mandate for diversification, was not as successful, but produced profits anyway.

The amount in venture capital was so small to begin with, and the amount that turned sour was a fraction of what was invested. Some of those investments are still paying dividends.

"John Hitchman was close to a genius in investment, in his understanding and skill," McMillan said.

For example, within weeks of the 1982 start of the bull market, vast sums of retirement money were being converted from bonds to stocks after Hitchman pled his case to the board. Early in 1987, the state funds began to come out of stocks, so that when the October crash occurred, the stock allocation had dropped from about 60 percent to less than 25 percent.

Thousands of teachers, policemen, state employees, volunteer firemen and others can rest easy, knowing so many billions of dollars are available to cover their retirement, thanks to the acumen of John Hitchman. Here was a public employee, making a fraction of what he could have made privately, attaining such enormous results for the public.

Now, the structure that spawned Hitchman and billions for present and future retirees is threatened by a vagabond bureaucrat out to make a name for himself with allegations.

State-fund beneficiaries ought to howl their protest at the treasurer's shenanigans. His number in Olympia is 206-753-7139. A call to one's legislator might help scuttle dangerous proposals that could handcuff the funds. The urge to put in his home phone is powerful, but one of us has to have scruples.

Let's make a deal. If Hitchman is convicted of a crime related to the treasurer's balderdash, or even if he is censured by an official body, such as the Securities and Exchange Commission, I'll eat these words.

The other part of the deal is this: If Hitchman did no wrong, and is not censured or convicted, the state treasurer (or ex-candidate for governor or whatever race he lost) will hold a news conference to issue his public apology. And he will renounce his share of the retirement funds accrued during Hitchman's tenure.

The envelope, please. It's time for stock pickers to face the music - an analysis of first-quarter stock performance.

First, the biggest stinker was the Dow Jones industrial average, up only 2.1 percent. Our own database of 118 stocks jumped 14.1 percent.

At the end of 1991, we asked five market professionals to volunteer the names of five stocks they thought would do well in 1992. At the same time, 310 readers submitted lists of their 10 favorite stocks. We tallied their choices to create one portfolio, then picked 10 names from a hat.

At the end of three months, the hat was ahead, by a lot. The 10 random choices are up an average 17.1 percent. The readers' 10 picks, weighed down by losses in Immunex and Nike, are up only nine-tenths of a percent.

Among the pros, Seafirst's Donna Jaegers sprinted ahead. A good stock picker blighted with bad luck previously, Jaegers' five names rose an average of 28.7 percent.

Les Childress of Childress Investment Research is up 16.5 percent. Defending champion Bill Whitlow, who heads a team representing Pacific Crest Securities, stands 15.5 percent ahead. Mike Kunath of Kunath Karren Rinne & Atkin, the first-ever Times champion in 1986, is a plus 6.4 percent. Terry Douglas, the newcomer from Piper, Jaffray & Hopwood, is well in touch at plus 5.4 percent.

Year-to-date and first-quarter only results for the readers' and random portfolios appear below.

The Dow Jones industrial average of 30 blue-chip stocks last week rose 17.67 points to 3,249.11.

The Murphey Favre Northwest 50, 50 stocks weighted by their regional economic impact, fell 51.40 points to 2,320.01.

The U.S. Treasury's 30-year bond added $10 per $1,000, closing at $1,014. That was priced to yield 7.88 percent.

Tax-exempts added $5 per $1,000, reported Security Pacific's Judith Cochrane. A trading range remains in place, she said.

On portfolios: Here are percentage gains since the start of the year for two sets of stocks:

Readers' Portfolio (10 NW stocks preferred by readers) - Data I/O +4.8 percent, Boeing -5.5, Costco -5.8, Immunex -44.9, McCaw Cellular -4.2, Microsoft +5.6, Nike -6.4, Nordstrom -3.1, QFC +34.1, Washington Federal S&L -6.6. Average: -3.2 percent. What $1,000 invested in those stocks would be today: $968.

Readers' Non-Portfolio (10 NW stocks picked randomly, excluding the readers' top 10) - Pioneer Savings Bank +7.2 percent, Lattice Semiconductor +36.0, Nendels -10.0, Penwest +44.3, Bioject +28.9, Interpoint -1.9, Westmark International +1.9, ProCyte -20.0, Willamette Industries +22.7, AirSensors +50.0. Average: +15.9 percent. What $1,000 invested in those stocks would be today: $1,159.

On portfolios: Here are percentage gains for 1992's first quarter:

Readers' Portfolio (10 NW stocks preferred by readers) - Data I/O +14.3 percent, Boeing -8.1, Costco +1.6, Immunex -26.2, McCaw Cellular -2.5, Microsoft +6.5, Nike -12.1, Nordstrom +2.8, QFC +36.4, Washington Federal S&L -3.8. Average: +0.9 percent. What $1,000 invested in those stocks would be today: $1,009.

Readers' Non-Portfolio (10 NW stocks picked randomly, excluding the readers' top 10) - Pioneer Savings Bank +9.4 percent, Lattice Semiconductor +43.0, Nendels 0.0, Penwest +43.3, Bioject +31.6, Interpoint -7.7, Westmark International +2.8, ProCyte -24.4, Willamette Industries +23.1, AirSensors +50.0. Average: +17.1 percent. What $1,000 invested in those stocks would be today: $1,171.

Wall Street Recap appears Sundays in the Business section.