Buying, selling, quickly Hedge fund: At age 34, Joseph Newell of Easton is going about making a name for himself as an investor. His vehicle is Tidewater Growth Partners, the hedge fund he launched in July. So far, so good

October 05, 1997|By BILL ATKINSON | BILL ATKINSON,SUN STAFF

Joseph T. Newell stares into the 17-inch computer screen and his eyes are fixed on a squiggling line tracing O'Reilly Automotive Inc.'s stock price.

He bought shares of the company at $22.50 just hours ago, and he intends to sell if they reach $24.50. The stock jumps and Newell grips his white portable phone with his left hand and punches the speed dial.

"Hey, Meg. It's Joe. How you doing?," he says to a trader at H. C. Wainwright & Co. "You want to handle an order for me? Let's sell 1,000 shares of O'Reilly Automotive."

It's a $1,880 profit in about two hours. That's Newell's style: in and out in a flash.

"You've got to be like a cat, ready to strike," said Newell, 34, who in July started a hedge fund called Tidewater Growth Partners, in Easton, on Maryland's Eastern Shore. "I'm a rapid-fire trader."

Newell is breaking into a business crowded with brokers, bankers, money managers and mutual fund operators who are fighting for investment dollars. Among hedge funds alone there are more than 2,500 that manage $247 billion in assets, according to Hedge Fund Research Inc., a Chicago-based hedge fund research and publishing company.

But hedge funds are not your ordinary investment. While they can pose huge risks, they can reward with extraordinary profits.

Take Reindeer Capital LP, a hedge fund in San Francisco that invests in high technology stocks. It has returned 503 percent on investment since it opened July 1, 1995, by buying volatile stocks when they fall and selling them after they have risen.

Hedge funds are geared toward the sophisticated investor. They are private partnerships that can have no more than 99 investors. To participate, individual investors must have either $1 million in net worth, or $200,000 in income for the last two years.

Some hedge funds require investors to put up $5 million as an initial investment, but Tidewater Growth accepts $100,000. As do most hedge fund managers, Newell charges a 1 percent management fee and takes 20 percent of the profits.

Hedge funds are not regulated by the Securities and Exchange Commission, and they are prohibited from advertising. Most of them use some sort of "hedging" strategy such as shorting stocks, or buying futures and puts. Instead of investing in blue chip stocks, they might specialize in Russian companies, bankrupt firms or foreign currencies.

Tidewater is showing promise in just its first three months of operation.

The fund has about $1 million in assets under management and it is up 22.1 percent after management fees since opening July 1, said Edwin R. Boyer, principal with Asset Strategy Consultants Inc., a Baltimore-based investment consulting firm, that tracks the performance of hedge funds.

Tidewater beat the Standard & Poor's 500 stock index's 7 percent return in the third quarter, and the Nasdaq composite index's 16.9 percent return.

"He skunked 'em," Boyer said. "That would qualify as the top 1 percent of the total money management group."

Newell spends about 15 hours a day researching stocks, reading corporate reports, talking with sources and surfing the Internet to find information about companies. He has even designed a computer program that helps him find the stocks in which he should be taking a position.

"He works constantly," said Michael Walsh, president of Walsh & Co., an Easton-based discount brokerage owned by Walsh and Newell.

"His strongest point is just watching every tick of the stock; a lot of of fund managers don't have the time to do it," Walsh said.

It's hard to believe that this is the same Joe Newell who was so unsettled as a youngster. He hated to study, preferring to spend his time chasing girls and playing baseball and basketball.

"For all I know, I could have been changing sparks plugs at Jiffy Lube," he says.

He spent much of his time figuring ways to dodge schoolwork. Once he told his typing teacher, who lived next door, that he could not study for her class because his mother would not buy him the necessary supplies.

The scheme unraveled when the teacher met Newell's mother, Arlene, on the street running past their homes.

"Can you make time to buy Joe the supplies he needs? He is going to fail," the teacher said.

Newell's mother was embarrassed -- and angry. She had bought him the supplies, she told the teacher.

"He has everything he needs," she said.

Then she read her son the riot act.

It was a near fatal accident, though, that changed Newell. Over the Fourth of July weekend in 1978, members of Newell's family gathered on Chincoteague Island in Virginia where they swam, barbecued and slept in campers.

Newell was 14, skinny and about 6 feet tall. He met friends at a nearby swimming pond, and, while racing one of them into the water, he fell headlong, landing on his face. His friend thought he was playing a trick, as he lay sprawled in the water, so she didn't offer immediate help.

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