Case study.Don't ask investors in the Oakmark Fund how they're enjoying the great bull market. They aren't. After a bad year in 1998, the $5.6 billion stock fund managed by Robert Sanborn Robert Sanborn is a nationally known activist for education and children and is the President/CEO of Children at Risk in Houston, Texas. He has been president since 2005. Sanborn was born in Caribou, Maine and raised in Puerto Rico. at Harris Associates in Chicago is having an even worse 1999. So far this year, the fund has dropped 8 percent, while the benchmark Standard & Poor's 500 Index has gained 10.3 percent, counting dividends. Last year, Oakmark eked out a 3.7 percent return, far behind the S&P 500's 28.6 percent gain. You may notice a familiar pattern here: Manager amasses a strong record for several years running a new fund (Oakmark began in 1991), attracts a big following, then suddenly can't seem to do anything right. Over the first six years of the fund, Sanbom averaged an annual return of 26.6 percent, trouncing the S&P 500 by more than 8 percentage points a year. Then came 1998 and 1999. "Warren Buffett's having an even worse year than I am, so I'm in good company," Sanborn said with a rueful rue·ful adj. 1. Inspiring pity or compassion. 2. Causing, feeling, or expressing sorrow or regret. rue laugh. The shares of Buffett's Berkshire Hathaway Berkshire Hathaway (NYSE: BRKA, NYSE: BRKB) is a conglomerate holding company headquartered in Omaha, Nebraska, U.S., that oversees and manages a number of subsidiary companies. Corp., which is not a mutual fund but is often viewed as a de facto [Latin, In fact.] In fact, in deed, actually. This phrase is used to characterize an officer, a government, a past action, or a state of affairs that must be accepted for all practical purposes, but is illegal or illegitimate. investment company valued mainly for Buffett's stock picks, have dropped 15 percent this year. Sanborn said the heat he's getting from shareholders hasn't driven him to change his concentrated, "deep-value" style. "I know it sounds perverse per·verse adj. 1. Directed away from what is right or good; perverted. 2. Obstinately persisting in an error or fault; wrongly self-willed or stubborn. 3. a. , but I'm more confident now than I ever have been," he said. "It's just a growth-oriented, momentum market, the most extreme I've ever seen. People are just buying the same few stocks, and they're grossly overvalued Overvalued A stock whose current price is not justified by the earnings outlook or price/earnings (P/E) ratio and thus, expected to drop in price. Overvaluation may result from an emotional buying spurt, which inflates the market price of the stock or from a deterioration in a ." Oakmark' s troubles have provided fresh fuel for a debate over the merits of value investing Value Investing The strategy of selecting stocks that trade for less than their intrinsic value. Value investors actively seek stocks of companies with sound financial statements that they believe the market has undervalued. , which emphasizes a search for bargains among out-of-favor stocks. Some may discern an even broader moral in this story: It doesn't work to choose a mutual fund the way you would pick, say, a dentist, where the quality of past work serves as a reliable predictor of future results. By the historical evidence, hardly anybody beats the stock market year after year on skill alone. Some investors may see in all this a point in favor of index funds, which save themselves the trouble and expense of trying for standout investment results. If you still want to stay with active managers, it argues for spreading your money around. Chet Currier is a columnist for Bloomberg News. |
|
||||||||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion