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BEHIND THE NEWS: Opportunities start to arise for steely nerved investors

October 13, 2008

"Be fearful when others are greedy and greedy only when others are fearful."

This philosophy, which Warren Buffett espoused to a group of Columbia University students when he was just 21, has served the billionaire investor well. And it may serve you well as you navigate the ugliest stock market in three decades.

To be sure, the thrashing that stocks in Indiana and across the globe have weathered in recent weeks has been nearly across the board-savaging the shares of companies both good and bad.

Some firms-especially those loaded with debt-could go under. But other businesses are fundamentally solid and have plenty of financial firepower to ride out the recession many experts say we're now in.

Want a promising name? How about Jasper-based Kimball International Inc., the maker of office furniture and electronic assemblies.

Kimball shares are off 48 percent this year, driven down, in part, by the company's $9.8 million loss in its latest quarter. But here's

good news: The firm has no long-term debt, is holding $30 million in cash, and the stock-price decline has pushed its dividend yield past 7 percent.

"Seven percent and a solid balance sheet is almost a no-brainer," said Ken Skarbeck, president of Aldebaran Capital of Carmel.

That's not to say investors will be rewarded with a nice pop in Kimball's stock price anytime soon.

If you're starting to think the decline surely can't get worse, history shows otherwise. In 1973-1974, the S&P 500 fell 47 percent, and it didn't recover for seven years. In this bear market-which started last October-stocks so far are down less, 37 percent.

Yet as Skarbeck, a Buffett disciple who's been in the business since 1981, points out, "Your best investments are made in bear markets. It's just that you don't feel good about them at the time.

"You look for solid balance sheets and quality companies. And the further they drop, the more you buy them-even though your stomach may rumble a bit. It's a little nerve-wracking."

Analyst sees Simon deal

The financial crisis at Chicago-based General Growth Properties Inc. has worsened in recent days, and now analysts are saying locally based Simon Property Group Inc. may scoop up the entire business.

"I actually think Simon is going to buy General Growth," Rich Moore, an analyst with RBC Capital Markets in Cleveland, told IBJ.

It would be a doozy of a purchase, largely because Simon would be absorbing more than $27 billion in General Growth debt. The cost of the stock itself would be relatively modest. An 88-percent decline in General Growth's shares this year has reduced its market value to just $1.5 billion.

Moore said Simon could buy General Growth outright but, given the trying times, it may take the more conservative route of buying it in partnership with another real estate company, such as Australia's Westfield Group.

"This is a very trying environment to stick your neck out," he said.

A Simon spokesman declined to comment.

General Growth would be a prize for Simon, which already is the nation's No. 1 mall owner, with interests in more than 380 properties worldwide. General Growth is No. 2, with more than than 200 malls, including such high-end properties as Fashion Show in Las Vegas and Water Tower Place in Chicago.

No one would be speculating about a General Growth buyout were it not for the credit crunch, which put the company in a financial vise. The company has a huge chunk of debt coming due on its $7.2 billion purchase of Marylandbased Rouse Co. in 2004.

"It's been a long battle for this troubled mall giant, but we believe the end is finally near," Moore said in an Oct. 3 report. "A strategy of excess leverage has systematically brought the company to its knees."
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