PRINT
EMAIL
COMMENT
BUZZ UP
DIGG THIS- Ask Kim - Hold Off on Your IRA Distribution
- Fund Watch - A Disastrous Year for the Kiplinger 25
- Starting Out - 10 Holiday Money Mistakes
- Value Added - The Low-Risk Way to Buy Asia
- Cash in Hand - The No-Stock Portfolio
- Money Smart Kids - Yes, You Can Say No to Your Kids
- Drive Time - Best Midsize Sedans
- On the Job - Kindness, Gratitude and Your Career
- Tax Tips - Benefit Right Now from New Tax Credits
- More
You quit believing in Santa Claus long ago. Ditto for the Easter Bunny. Later on, as you grew up, you learned that life isn't always fair and that bad things really do happen to good people. Perhaps now is the time to lay to rest an article of faith among investors and own up: There are no geniuses in this business, after all.
R.I.P., Bill Miller (Legg Mason Opportunity fund, -59% for 2008 through October 30). And Mason Hawkins (Longleaf Partners, -47%), Bill Nygren (Oakmark Select, -36%), Chris Davis and Ken Feinberg (Selected American Shares, -36%), Ron Muhlenkamp (-37%) and the guys and gals at Dodge & Cox Stock (-41%).
They were the cream of the crop of value-oriented investors, and they all got creamed this year. Turns out that too many of the stocks they deemed undervalued were actually overvalued. Miller, for instance, rode Freddie Mac all the way down. Nygren was too smitten with Washington Mutual. Davis held on too long to Merrill Lynch and AIG. Muhlenkamp's portfolio at last look was loaded with energy stocks about to deflate.
Yes, some of these Former Genius Investors will come roaring back when the current unpleasantness ends. Nothing would please me more. But it's also true that as elements of the investment landscape change, some prominent investors believe their press clippings a bit too much and lose their touch. Now they have to get it back.
Do you remember Rod Linafelter? He was Bill Berger's protégé, and Berger credited him with propelling Berger One Hundred fund to an 88% gain in 1991. Trouble was, what worked for Linafelter in 1991 didn't work in subsequent years. He finally left to sell shoes in Las Vegas, and Berger One Hundred faded into the woodwork of the Janus fund family.
Who among the fund managers today still has the touch? I'm going to name three whose reputations for deft investing survived the crushing Panic of 2008. The first is Bruce Berkowitz, a name that has appeared a lot in the past year on Kiplinger.com and the pages of Kiplinger's Personal Finance. To give you an idea of his sense of humor, Fairholme fund (symbol FAIRX) is named for the street in London where his family lived two decades ago.
Now working out of Miami, Berkowitz is the rarest of value investors -- one who resisted the siren song of the banking stocks. He simply concluded several years ago that bank finances were black boxes that neither he nor the bankers themselves understood, and he avoided them. "Companies thought that by slicing, dicing, securitizing, they were getting rid of the risk, but they weren't," he says. "It always comes back."
Right now, he is "selling what is cheap to buy what is cheaper." He's bothered a bit that the stock market's downdraft in October took Fairholme from almost break-even in 2008 to a total return of -30% in about the blink of an eye. On the bright side, "This has been a bargain hunter's dream," he says. "This is when you make your money. But you don't know it at the time, and sometimes you feel like an idiot." As of October 30, Fairholme was down 24.8% for the year.
David Winters got his higher education in investing from the legendary Max Heine, an Austrian Jew who fled the Holocaust and started Mutual Shares fund in 1950. Heine's investing model was a three-legged stool-one leg an arbitrage of companies being acquired by other companies, another the bonds of bankrupt firms and the third deeply undervalued shares of small companies. Winters was hired in the 1980s when he made a cold call to Heine and gave a convincing case for buying the shares of an obscure Virginia railroad that was later scooped up by CSX.
Winters ultimately ran Mutual Shares and its sister funds on Heine's investing model, but he left to start Wintergreen fund (WRGNX) late in 2005. After returning 20% in 2006 and 21% in 2007, Wintergreen was down 36% through October 30. But because it fishes in global waters, Wintergreen's results were a lot better than those its peers reported.
At last report, the fund had about one-third of its assets in Asia-almost twice its allocation to U.S. stocks. "We still believe the future of the world is going to be in the Far East, and Asia has been pummeled," Winters recently told Kiplinger.com columnist Steve Goldberg. "People have liquidated everything." And Winters is more than happy to take what they're throwing away.
At Hussman Strategic Growth fund (HSGFX), John Hussman is so close to making his shareholders money this year that you can smell the bacon cookin'. Despite his fund's name, he's a value rather than growth investor, and he sells indexes short to protect his shareholders when he thinks the market is overvalued and also to magnify the potential gains when he deems it undervalued. Year-to-date through October 30, the fund lost a minuscule 1.8%.
A couple of decisions based on Hussman's big-picture analysis spared shareholders a considerable amount of pain. Strategic Growth had zip invested in financial stocks at midyear, and not a penny in energy. That last bit sure helped when the bottom fell out of the energy stocks in the second half of this year.
Keep your eyes on these three guys. I wish only the best for those Former Genius Investors. From now on, however, they'll face heavy competition from this trio of rising stars.
POSTED BY: Larry G. (November 04, 2008 02:04 PM)
Betting against Longleaf Partners would be a big mistake. Mason Hawkins has been in the business over 30 years and made a ton of money for his partners. More importantly, rather than report of his dismal results why not look in his portfolio's and see if what he owns is selling at a discount or a premium irrespective of the market. For example, they have a big position in Dell which has been hammered...Dell has $4 in cash net of debt and is selling at $13. Back out the cash and you can buy Dell at $9/share and it's generating $2/share in free cash flow. That is selling for 4.5 times cash flow for a yield of 20%. I'm not a partner in any of the funds but from what i have seen in his funds he has a lot of bargains, which bodes very well for the future returns of the fund.
POSTED BY: Greg Weis (November 05, 2008 08:11 PM)
Before we all succumb to the current wave of adoration for Hussman, take a look at what he was able to return to his investors in the four-year bull market before the melt down. He didn't participate. Every week, month after month after month, he said in his newsletter that the market was over-valued. He was years "early" in his call, which is really another word for "wrong."
POSTED BY: Tom Rinaldi (November 16, 2008 03:55 PM)
Weis the problem with your comment is that now on a 10-year look Hussman is up 8% annualized or more vs. a flat stock market...Owning anything else you would have given back all your gains and more from the "bull market" of 2004-2006. Do the math.
Reprint Article
