This Contest Deserved Only Finest Sherry

"The ability to prepare to win is as important as the will to win." - Bobby Knight

It may take a while for the enormity of this to turn on that little light in the brain and say, "Wow, how'd he do that?"

In a year in which stocks moved sideways at best, Mike Sherry selected 10 names that rose an average of 64.5 percent.

That's 64.5 percent. Yes, 64.5.

And he didn't do it with mirrors, or a single low-priced strategy, or by pulling names out of a hat. He did it with logic that seems crystal clear, a year later.

For his effort, Sherry wins The Seattle Times' third-annual stock-picking championship, topping more than 250 others.

His triumph nets him a visit to The Times, a lunch at one of Seattle's swank restaurants and a Times souvenir. Sherry's guest-of-honor status will be shared at a luncheon with Bill Whitlow, a partner and analyst at Pacific Crest Securities, who for the fifth time in eight years won The Times pro pickers' contest.

About two-dozen readers asked The Times to check their 1994 ballots. Second place went to Phil Tom, a sometimes contributor to this column and a broker for Prudential Securities, whose portfolio rose 51.5 percent, and third went to Randy McKenzie, a Nordstrom employee from Bothell, up 43.1 percent.

Sherry not only had 10 stocks that gained in 1994, he believed in them.

"I own six of those stocks," the Bellevue resident said. "If you're not doing any research, that's a good reason not to own a stock. Most of those companies I own and think highly of."

Sherry's 1994 list: Digital Systems International, 225.9 percent; Data I/O, 125.6; Esterline Technologies, 80.3; Nike, 60.9; Edmark, 51.2; Egghead, 30.6; Summit Savings, 29.4; Key Tronic, 27.3; Advanced Technology Labs, 10.4; and Lattice Semiconductor, 3.1. Not a single loser in the bunch.

"You look at these companies and you say they're the best in their industry and they got trashed because an analyst's report was negative or because two quarters of earnings came in below expectations," Sherry said.

Sherry is in the investment business, in a different way. He and Tom Elzey operate Alexander Hutton, a Seattle mergers and acquisitions company. (Alexander is Sherry's middle name, Hutton is Elzey's.)

Among recent corporate achievements, the company assisted Washington Mutual in the sales of its personal benefits and trust units. It hooked up the Locker Room stores with Athlete's Foot, sold off Washington Energy's biowaste unit and recently merged a company into the burgeoning Mid-Com Communications.

Sherry grew up in Spokane and picked up a chemistry degree at the University of Washington. Just before heading for medical school, he decided to switch to finance. His wife-to-be, Janet, was the daughter of a banker. (Janet's brother, Tom Elzey, eventually became his business partner.)

After grad school, Sherry worked for Sally Narodick at Seafirst Bank. (He said Edmark was on his 1994 list partly because his children, Elizabeth, 7, and Alex, 4, play Edmark's games a lot and partly because Narodick runs the company so well.)

In 1986, after five years at Seafirst, Sherry and Elzey founded Alexander Hutton.

Sherry's stock list featured a number of issues that had been battered in 1993: Digital Systems, Nike, Egghead, among others.

Sherry saw another theme: Many had been the subject of shareholder lawsuits.

"You're not going to go after someone who can't pay the settlement," Sherry said. It's as if, Sherry said, the lawyer has already done the investment analysis for you.

Did Sherry capture lightning in a bottle? His 1995 picks will tell. He chose them with the same care as 1994's, looking for good companies temporarily beaten down.

His 1995 choices: Airborne Freight, Lamonts, BMC West, Washington Mutual, Louisiana-Pacific, Paragon Trade Brands, Wall Data, Hecla Mining, Targeted Genetics and CellPro.

A couple personal connections dotted that list. Sherry has worked with Washington Mutual and feels strongly it is a well-run institution selling well below takeover value. Targeted Genetics is run by H. Stewart Parker, a grad school classmate of Sherry's whom he recognized as a bright, capable individual.

Sherry dethroned Win DeForest, the Mercer Island resident who won the only two previous stock-picking titles. DeForest's 1994 choices finished slightly negative.

That means Sherry has another distinction: The only contestant with a perfect record.

"I'm a first-time entrant," he said.

The vagaries of stock-picking may make him wish he had retired undefeated.

Odds and ends

Final calculations done by the Frank Russell Co. in Tacoma demonstrate how rough 1994 was for stock pickers.

The Russell 3,000 of the 3,000 biggest stocks gained only 0.18 percent. The 1,000 largest stocks, the Russell 1,000, closed up 0.38 percent. But the 2,000 smaller stocks fell 1.82 percent.

By comparison, the Dow Jones industrial average of 30 of the biggest stocks gained 2.1 percent, but every other major index lost from 1.5 percent to 9.1 percent.

Those figures help explain the Readers' Portfolio and the Non-Readers' Portfolio. Busting a three-year losing streak, the Readers' 10 picks for 1994 rose 6.5 percent. Those reflect the most popular, and usually biggest, regional issues.

The random stocks, more heavily favoring smaller stocks, fell 3.7 percent. Meanwhile, the 12 stocks from a year ago that received no votes from anyone (they were largely too new or unknown at the time) sank 19.7 percent. That was called the Bill Swailes List, in honor of the Bellevue financial adviser who suggested the list.

Stocks and bonds

The Dow Jones industrial average of 30 blue-chip stocks last week gained 32.97 points to close at 3,867.41.

The Murphey Favre Northwest 50 of 50 stocks weighted by their regional economic impact rose 24.57 points to 2,429.44.

The U.S. Treasury's 30-year bond ended unchanged at $957.50 per $1,000 of face value. That was priced to yield 7.87 percent, said Pamela Warren, Seattle-Northwest Securities vice president.

The bond had been higher, but fell when Friday's employment news was a bit too robust. Existing bonds lose value when inflation greets new bonds at higher, more attractive rates.

Warren said the shorter end of the market was boosted by international money - investors seeking a safe haven after the Mexican peso revaluation.

Tax-exempt municipal bonds also were unchanged, reported Judith Cochrane, Seafirst Bank municipal trader. The market is edgy, she said, because bond funds have sold $8 billion in the past two months and may sell more.

In 1995, a first will occur, Cochrane added: More bonds will be redeemed ($190 billion) than sold ($145 billion).

Wall Street Recap appears Sunday in the Business section of The Seattle Times.