The Next Of The Red Hot SteinbergsEllyn E. Spragins
Even as a kid, Jonathan Steinberg was different. While his peers were perusing Sporting News and Playboy, he much preferred investor-oriented magazines. He bought his first stock, $2,000 worth of Abbott Laboratories, at age 13--with money from his bar mitzvah. The stock went up 53% in six months. "I was interested in beginning my education as an investor," he explains, as if mastering the stock market were every seventh-grader's top priority. "Well," he concedes after a moment, "I came from a somewhat unusual family."
Unusual is one word for it. Jonathan Steinberg, now 26 and the owner of three investor publications, is the eldest son of Saul P. Steinberg, prominent Manhattan socialite, onetime corporate raider, and chairman of Reliance Group Holdings Inc. In the Steinberg household, stocks, bonds, and the intricacies of capitalism were the stuff of everyday conversation. Jonathan ate it up. Accompanying his dad to work on school holidays, the young Steinberg "loved going into the investment department and reading Moody's and Value Line," remembers Saul.
This precocious passion for business information has led Steinberg to an unlikely premise: that there isn't enough of it. A decade of placing amateur investor bets alongside institutional giants convinced young "Jonno" that individuals were being underserved by financial publications on small-company stocks.
DYING BREED. So far, he seems to be right. Although stock-pickers are supposed to be a dying breed, enough of them are out there to have bolstered Steinberg's two publications, Individual Investor Magazine and America's Fastest Growing Companies, and his newsletter, Individual Investor's Special Situations Report. All three were turnaround properties acquired by Steinberg's Financial Data Systems Inc.
The flagship Individual Investor used to be called Penny Stock Journal, a monthly with a circulation of about 35,000 when Steinberg bought it in the fall of 1988. Renamed, redesigned, and relentlessly focused on the profit motive, Individual Investor now has a cover price of $3 and a circulation of around 51,000. Unlike many publications that call themselves investor-oriented, says Steinberg, "the standpoint of every story is: Should you own this stock?" Even in a dismal advertising climate, II's ad revenues were up 85% last year, he says. Steinberg wouldn't divulge the revenue number. Special Situations costs $150 a year, and America's Fastest Growing Companies sells for $245. Each has a circulation of about 650.
Steinberg has no "system" for picking stocks. Instead, he and his staff rely on spadework. They pore over three data bases and countless magazines and newspapers. They're looking for tiny, neglected companies with an unusual product, a low price-earnings ratio, a fast growth record, or some other eye-catching characteristic.
Steinberg hews to a no-guts-no-glory philosophy. Clearly Canadian Beverage Corp., a bottled-water company that remains one of his favorites (table), was a typically risky selection. "My senior editor didn't like it," he recalls. His voice drops an octave and he sounds like a sports announcer reeling off the statistics of a fading athlete: "They were losing money. But their revenues were growing--250% for the quarter. They had just won a design award. I figured, water sells. I picked it on Friday. On Saturday, Perrier had a product recall. It was a legendary pick."
Clearly Canadian was the star of the Special Situations portfolio in 1990, surging 269% from February to June. Overall, Steinberg's stock portfolio rose a stunning 105% by midyear. While he also advises readers when to sell, he's not omniscient: The August stock market rout took its toll. Still, the portfolio was up 60% through February, 1991. In contrast, the Dow Jones industrial average rose just 5%, and the NASDAQ composite was flat over the same 13-month period.
Steinberg's publications don't lack for competition. Hulbert Financial Digest tracks some 125 investor newsletters, and that's by no means the entire universe. But word about Steinberg has gotten around, thanks in part to his name--and The Wall Street Journal. In an ongoing Journal stock-picking contest that pits four pros against a random toss of darts at the stock pages, he won twice last year and took top honors again in March. His winning pick was Dell Computer Corp., which had risen 117% in the six months since he chose it.
Despite his longtime fascination with stocks, Steinberg never gave much thought to working for a Wall Street firm. In high school at Manhattan's elite Dalton School, he spent a summer toiling for his father in Reliance's investment department, and he assumed that's where he would end up after college. But the summer after his third year at the University of Pennsylvania, where he was working on bachelor's degrees in science and economics, he got an internship at Bear, Stearns & Co. Deciding that there wasn't much left for college to teach him, he quit school and got hired as an analyst in the firm's modest mergers-and-acquisitions department. Says Steinberg: "I had a base of business knowledge comparable to men who were 35 years old."
At Bear Stearns he began talking to Scott Rosenblum, who had attended Penn at the same time as Steinberg, about the shortage of good information on small companies. Early in 1988, Steinberg left Bear Stearns to work full-time on acquiring Penny Stock Journal. As negotiations progressed with its owner, Dalton Communications Inc., Steinberg persuaded Rosenblum to quit, too. They closed the deal in October, 1988. Rosenblum, 26, is now publisher. Although he had hoped his son would join him at Reliance, Saul Steinberg is backing the fledgling publishing enterprise. Jonno put up a significant amount of equity for Penny Stock Journal and the other purchases, while his father provided the financing. The combined purchase price comes to less than $1 million, he says.
TIELESS. If anything threatens Steinberg's new ventures, it isn't spiraling costs. In downtown Manhattan digs that still have the look of unfinished space, Steinberg brings new meaning to the term "low overhead." His editor-in-chief's office, which is shared with Rosenblum, is decorated with a handful of maps thumbtacked to the wall.
Visitors to the company's investment meetings encounter Steinberg's fresh-faced editorial staff of four. They resemble a college study group--tieless and, in one case, sockless. In contrast, Steinberg is starched, suspendered, and pin-striped. Nevertheless, the tone is strictly egalitarian. He asks staff members--and two student interns--to come up with one stock choice each week and announces a $100 prize for the stock that performs best over the next month and another $100 for the best over three months. In considering potential company stories, Steinberg cautions everyone to consider the recession's impact on stocks and requests more "internationally oriented stuff."
Nearly all of the publications' investment ideas are generated in-house, chewed over, and then assigned to free-lancers or written up by the staffers. "Jonno will go through every corporate-earnings report," says Rosenblum. "If there's a company around our size and it's having decent income growth, we'll call the company and get the financial data." The staff then does its own analysis of the financials and interviews management, if possible.
Making a "sell" recommendation seems to be Steinberg's weak point. "Jonno's strength is that he truly understands business concepts very quickly," says his father. "His weakness is that he falls in love with all these concepts." However, Jonno's most public failure had nothing to do with a sell recommendation. Last May, he chose Management Co. Entertainment Group Inc., a movie production and distribution company, for the Journal's stock-picking contest. It was selling at $2.25. The company then defaulted on a loan, and by the end of October, the stock had fallen to 7~. "It's a shame, and I did badly," says Steinberg. "I started feeling a little invulnerable."
OVERHAUL. Steinberg says Financial Data Systems is probably at least a year away from profits. But his aspirations are much longer-term. Steinberg envisions the company as more than just a stock picker. Rather, he wants to establish a vast research pool that clients can tap for information on many different stocks. "I hope my service is going to be the best in the 1990s," he says. That's a tall order. But if he can keep racking up 60% annual gains in his portfolio, that distinction might not seem like such a long shot.
JONATHAN STEINBERG'S BEST SELECTIONS... Date Price Price on Percent recommended 3/26/91 change CLEARLY CANADIAN 2/15/90 $ 1.44 $10.00 594% DELL COMPUTER 7/15/90 11.38 28.63 152 MYLEX 10/15/90 1.38 3.31 140 TANDON 1/15/91 1.88 3.44 83 ARCHIVE 12/15/90 5.25 8.13 55 ...AND HIS WORST FNN 8/15/90 8.00 0.63 - 92 S2 GOLF 12/15/89 1.50 1.13 - 25 IMAGE ENTERTAINMENT 3/15/90 8.00 6.50 - 19 AUTOINFO 4/15/90 5.19 4.38 - 16 NATURAL ALTERNATIVES 1/15/90 2.63 2.25 - 14 CURRENT FAVORITES CLEARLY CANADIAN TANDON FIRST TEAM SPORTS DSP TECHNOLOGY IN-STORE ADVERTISING DATA: FINANCIAL DATA SYSTEMS INC., BRIDGE INFORMATION SYSTEMS INC.