Saturday, July 12, 2008

Value Fund Superstars hunted

I'm not sure whether some of my readers have been puzzled why I claim to subscribe to value investing yet I go on analyzing stuffs on macro-economics, sentiments, commodities, catalysts, politics, stock market indices targets, etc. In short, why doing stuffs traders do? It's because I'm afraid to fall into value trap. Stuffs may look cheap based on book-value, PE and etc but unfortunately fundamentals have deteriorated badly and will take many years to recover, could be never too.

Case in point, there are a few value fund superstars got hunted in the current sub-prime mess.

(WSJ) As financial stocks such as Fannie Mae and Freddie Mac continue to struggle, there is plenty of pain to go around. But those taking a real beating include superstar investors who focus on so-called value stocks.

Several notable hedge-fund and mutual-fund managers -- including Marty Whitman, Richard Pzena, Bruce Sherman and Wally Weitz, among others -- are down about 20% or more this year in certain funds they run, partly because of heavy dollops of financial shares.

"There's a fine line between stubbornness and discipline," said Jeremy DeGroot, chief investment officer at Litman/Gregory, a firm that advises investors and has been having second thoughts about some big names. "We're in the process of reassessing these managers we've had long-term relationships with."

value investors tend to favor financial and retail shares, which have poor outlooks, and have a harder time placing a value on commodities. They also usually aren't comfortable betting against stocks, hurting performance lately.

Many value managers' golden long-term track records in funds they help manage are being erased by the recent decay. Mr. Weitz's $1.5 billion Weitz Value fund now is near the bottom rankings for the past one-, three- and five-year periods. Bill Nygren's $3 billion Oakmark Select Fund also is near the bottom of its category for the past three and five years. Mr. Miller's fund is now among the worst funds in his category for the past three, five and 10 years.

The problem is also contributed by their focus strategy -- taking large concentrated position. Their portfolios will be hurt badly if a handful of them decline sharply. Don't imitate Buffett focus portfolio unless you know what you are doing, even long term successful superstars also grounded - for now.

1 comment:

lsb said...

This is the reason why I emphasize getting the big picture first. You let the trend leads and not to predict trend, and when you think the big picture is turning down get out. When you track a coy or a commodity for years you sense it is time buy and when the trend is in your favour you make big, and this up your yield and financial dealings worthwhile, even with a string of cut losses along the way.

Big picture is important, the bigger the better; world, regional, industry, country, exchanges (Macro up to this point), company (compare all in the industry) (Micro from here on, including technical).