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When good funds have bad performance

edited July 2011 in Fund Discussions
Interesting article using, of course, Fariholme as an example. When David had intereviewed Bruce Berkowitz earlier this year about his new fund FAAFX and why the high minimum investment ($25K), Berkowitz replied something to the effect of wanting experienced investors. He didn't want investors that would jump in and out based on short term performance. I think he got them anyway.


  • edited July 2011
    Read Cramer's first book, "Confessions of a Street Addict", for a good discussion of this - he thought he'd done really well for his shareholders at his hedge fund for years and that they wouldn't just depart when the fund had to be opened unexpectedly during a bad year. There was a run on the fund and it nearly went under.

    It doesn't matter if it's $25K or $25M, people are going to act that way.

    In terms of betting on a manager going through a sour patch, I went with Janus Overseas (JAOSX). How's that going, you ask? Not particularly well, although at least I didn't have to drop anything remotely near $25K.
  • Reversion to the mean is a powerful thing.
  • Are you still averaging down into JAOSX or have you given up and jumping ship. I have been buying for the past couple of years and don't quite understand the downward momentum of late.
  • Reply to @DPN: Look at what the fund hold? Maybe you can see some large Indian holdings that has been on a severe downtrend because indian market has been one of the most expensive markets. It did boost returns at one time, and now it is going the other way.
  • I'm not dumping JAOSX because I have a small amount in it (saw the fund was doing lousy this year and thought I'd send some money that way as sort of a contrarian play, I suppose) and have a relatively high degree of confidence in the fund's manager. The issue would appear to be the stakes in the financials, as well as a couple of foreign stocks that have had some issues (Li and Fung being the primary stock concern.)
  • I looked at the fund's M* page and behind Portfolio I see 31.42% of the portfolio in EM.
    EM stocks have been known to be a little volatile.
  • I always remember that I am hiring managers, not buying funds. Unless you go with index funds, you must keep that thought foremost in mind. Great managers will have some periods of underperformance. I have never found one that did not. But great managers also need to have some flexibility in their approach. Those that do not have flexibility risk prolonged underperformance and major loss of assets. Investors tend to invest in a fund because of its record, not ever bothering to learn anything about who runs the fund, how long they have been running it, what their total experience is, what their philosophy is, what their research team looks like, etc., etc. Buying a fund is hiring the management, not about the number of stars in its rating.
  • This is a dilemma. Buy a good manager and stay with him in a down swing or find another good manager to purchase while he is in his upswing. Of course you can always come back to the original manager unless the fund is closed. That is why when I sell, but like the manger I always keep the minimal amount to allow me to get back in.
    If you are very young I would stay with the original manager and dollar cost average during his down turns . That is what I always did years ago and it worked. But I am not young and I have revised my strategies.
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