| Buffett, Dreman, Heebner are due for a comeback | |
| COMMENTARY | | John Dorfman / June 02, 2009, 0:15 IST | |
Some of the nation’s best and most famous investors — Warren Buffett, David Dreman, Ken Heebner and William Miller — had hideous years in the bear market of 2008.
I refuse to believe, though, that people with a long track record of investment prowess have suddenly become stock-market eunuchs.
So I think it’s worth looking not only at what these four men did wrong last year, but at what they’re doing with their portfolios today.
Three of these four celebrated investors run mutual funds, so their results are easy to track:
— The DWS Dreman High Return Equity Fund fell 45 per cent, including reinvested dividend, in 2008, and the fund’s board has since deposed Dreman as manager.
— Heebner’s CGM Focus Fund dropped 48 per cent. It had ranked in the top 1 per cent of its peer group in 2000, 2001, 2003, 2005 and 2007.
—A 55 per cent decline cursed Miller’s Legg Mason Value Trust. From 1991 through 2005, Miller had the investment world’s longest winning streak, beating the Standard & Poor’s 500 Index 15 years in a row.
Buffett is the chief executive officer and 33 per cent owner of Berkshire Hathaway Inc Berkshire’s stock fell 32 per cent last year.
Thus, Buffett was the only one of the four who beat the 37 per cent loss for the S&P 500, but it’s safe to say he wasn’t pleased. He compared the experience of investors last year to that of “small birds that had strayed into a badminton game.”
Buffett buys
I believe that these investors’ past success, and investment experience, worked against them in 2008. Experience may have told them that the US stock market doesn’t decline much more than 35 per cent, especially when interest rates aren’t high or rising.
Their judgment may have told them that, after the sour tone of the first nine months of the year, a rebound was likely. Instead, stocks collapsed in October and November. Relying on judgment and feel honed over a few decades is usually a wise course. But it can give a false reading when the market succumbs to panic.
Buffett’s company recently bought shares of US Bancorp, a bank based in Minneapolis that is a major custodian for mutual funds. The bank has tangible common equity of 3.2 per cent of tangible assets, indicating it is one of the nation’s more solid large banks. Its stock sells for 15 times earnings.
Berkshire Hathaway has also increased its holding in Union Pacific Corp, the second-largest US railroad, which is based in Buffett’s home town of Omaha, Nebraska.
In April, Union Pacific reported that profit had declined less than expected, thanks to lower fuel costs and job cuts. The stock sells for 11 times earnings.
Replenishing purchase
Another recent purchase is Johnson & Johnson, based in New Brunswick, New Jersey. That acquisition replenished a holding that Buffett had depleted reluctantly to fund large fixed-income investments in Goldman Sachs Group Inc and General Electric Co.
Dreman, in the DWS Dreman Small Cap Value Fund, recently acquired shares in Legg Mason Inc. The Baltimore-based money- management firm has posted losses five quarters in a row, but retains a good reputation in the financial industry.
The fund also expanded its holdings in Helen of Troy Ltd (hair-care products), RPM International Inc (maker of Rust- Oleum paint and specialty chemicals) and General Cable Corp (a maker and distributor of cable).
Heebner is known to change his holdings frequently and abruptly, so information based on regulatory filings is sometimes misleading. With that caveat, as of March 31 the biggest position in his CGM Focus Fund was Morgan Stanley.
(John Dorfman, chairman of Thunderstorm Capital in Boston, is a columnist for Bloomberg News. The opinions expressed are his own)
|
Content Guide
