Evaluating Managed Funds

[Oak Bull]

Some interesting info on Fidelity:

William Danoff, who has managed Contrafund for 15 years, was chosen to manage a new fund, Fidelity Advisor New Insights, in July of '03. New Insights is also a large-cap growth fund, and has very similar holdings to Contrafund. However, New Insights is purchased through a broker, and carries a 5.75% front-end load(compared to no load) and a higher expense ratio (1.22 versus 0.94).

Here is how the two funds currently stack up:

Total Assets: Contra $60,093 mil., NI $1,014 mil.
2004 Total Return: Contra 15.06%, NI 18.75%
2005 Total Return: Contra 16.23%, NI 19.01%

*total returns are net of expenses but not loads.

If you like the Contrafund management style but are concerned by the huge size, this may be a good option to look at. Many people are understandably distrustful of the "sell-side" of the financial world. But using a financial planner/advisor who works on commission is not always as costly as it may seem- if that person is competent and trustworthy. Which is a huge if.

[buffett]

Well, I hoped I would be done with this, but this one is just too great to pass up.....

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If you were trading microcaps for the past 4.5 years, BRSIX is a microcap index fund that did much better.

[/ QUOTE ]
5 year average return for BRSIX (from Yahoo): 23.88%
DC: "For me this approach has been good for a 42% annualized after-tax return."....which would you rather have your $10k grow into: $29,000 or $58,000?

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IJJ (mid cap value idx) and IJS (small value idx) returned about the same as you - around 45-50%.

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"45-50%" cumulative versus "42% annualized after-tax return"....which would you rather have your $10k grow into: $15,000 or $58,000?

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Maybe you were heavy in energy. If so, how did you do versus XLE.

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I doubt the first statement, but I like his chances versus the second.

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Buying 1% of a company and buying 100% of a company is so different that if you fail to recognize this, arguing with you is more hopeless than I ever imagined. Surely you don't believe this and were trying to use hyperbole to make a point.

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I'm sure there are better quotes out there in the BRK letters, but this is all I had time to find right now: "[Graham's] 3 basic ideas...are: 1. that you should look at stocks as part Ownership of a business...." (Buffett quote from 1994 NYSSA Tribute to Ben Graham)

[z32fanatic]

What's the difference between the 5 New Insight funds he manages? I see 2 of them (New insight A and T) have loads while the other 3 (New insights instl, C and B) don't have loads. They all have similar performance and holdings. Why would i buy one with a load if the other ones are no-load? If these questions are dumb please bear with me, i'm new to the mutual fund game. The symbols for these are FINSX, FNIAX, FNITX, FNICX, FNIBX.

[buffett]

here's a start: abc

[DesertCat]

[ QUOTE ]
DesertCat,

Buying 1% of a company and buying 100% of a company is so different that if you fail to recognize this, arguing with you is more hopeless than I ever imagined. Surely you don't believe this and were trying to use hyperbole to make a point.


[/ QUOTE ]

Well this is central to how Warren Buffett describes investing. Treat every stock as a piece of a business. But I can understand how it can be viewed differently. If a company buys another company, they will "merge", find "synergies", cut overlapping headcount.

But that's not the case with Buffett. The companies he buys continue to run as before. There was a great quote in the the story of his purchase of Businesswire this week, that ascribed his promise not to contact the CEO's of his acquired companies more than once a year.

So how does buying 100% of a company provide a higher return for Warren, than the 1%? His return should be lower for several reasons. First he has to pay a premium over what a 1% buyer would pay, secondly he's now illiquid since he never sells companies once he's bought them. Fama is grasping at straws here and I've never heard an adequate explanation of how it offers Buffett better returns. Do you have one?

[ QUOTE ]

If you were trading microcaps for the past 4.5 years, BRSIX is a microcap index fund that did much better. IJJ (mid cap value idx) and IJS (small value idx) returned about the same as you - around 45-50%.

Your results were almost undoubtedly a function of the asset class you traded. If you managed these returns trading large cap/S&P/Dow stocks (which have done poorly for 5 yrs0, then kudos to you.

[/ QUOTE ]

I think Buffett (the 2+2 member) pointed out your errors here, my results were easily double your examples. And no index fund that I'm aware of has achieved a 42% after tax return in the last five years. Remember that mutual fund performance is reported pre-tax. My pre-tax returns were probably around 50%.

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It is impossible to measure one's results without tracking them versus an underlying index. If not asset classes, then a sector. Maybe you were heavy in energy. If so, how did you do versus XLE.


[/ QUOTE ]

I refuse to touch energy as I have no insight into the future of energy prices. And I only hold about ten stocks at a time, usually with 80% of my portfolio in just 3-4 stocks. So it's hard to say my returns are correlated with any index.
5 year return of microcap vs midcap value vs small value

BRSIX is only a quasi-index fund, it actually looks like a "managed index", holding like 500 stocks that meet their proprietary criteria. That over-diversification is a big reason their performance lags mine so badly. For example, in 2005 BRSIX's big winner was EndWave, up 400%. My big winner was Metropolitan Health Networks (MDF), up only about 350%. But I put 25% of my portfolio into MDF, while BRSIX put less than 1% into EndWave. And they're average stock is way overpriced, PE of 24, price to cash flow of 23! When I bought MDF, it's PE was 4!

[ QUOTE ]

Because you managed 50% over 4.5 years doesn't make you a SuperInvestor, standing mightedly in the shadow of Warren Buffet. It probably means you traded stocks in asset classes that have done well over that time.

[/ QUOTE ]

Well the first line certainly is true. I still have a long way to go to establish my long term skill level. In fact, since Warren Buffett has publically stated that he would guarantee 50% returns with a similar portfolio size to mine, he probably wouldn't be impressed by my results at all.

But I didn't float along in the current of my asset class. I dramatically outperformed it. The real reason is that my asset class is very inefficiently priced. Anyone who is patient and works at it, can find very underpriced securities in the micro-"crap" area.

[Derek in NYC]

Ed you seem like the type who would enjoy doing this, so whatever funds you ultimately decide to go with, you should do an efficient frontier diversification looking at the co-variance of holdings, etc.

[Derek in NYC]

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I think it's highly likely the dollar has a bad year next year and that this will continue until we address our budget deficits.

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So does Mr. Buffett.

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Buffet has lost his shirt betting against the dollar. As long as Asian central banks are buying US long bonds, the dollar is going to be fine.

[buffett]

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Buffet has lost his shirt betting against the dollar.

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Perhaps we have different definitions of the word "shirt."

Here is a quote from Mr. Buffett in BRK's 05q3 10q:
"Berkshire first began “shorting” the U.S. dollar in 2002 and since inception in 2002 through September 30, 2005, has recognized pre-tax gains of $2.1 billion from foreign currency forward contracts."

[Evan]

[ QUOTE ]
[ QUOTE ]
Buffet has lost his shirt betting against the dollar.

[/ QUOTE ]
Perhaps we have different definitions of the word "shirt."

Here is a quote from Mr. Buffett in BRK's 05q3 10q:
"Berkshire first began “shorting” the U.S. dollar in 2002 and since inception in 2002 through September 30, 2005, has recognized pre-tax gains of $2.1 billion from foreign currency forward contracts."

[/ QUOTE ]
Perhaps he should look for his shirt in that large pile of cash? It must have slipped off while he was swimming in it.

[Derek in NYC]

[ QUOTE ]
[ QUOTE ]
Buffet has lost his shirt betting against the dollar.

[/ QUOTE ]
Perhaps we have different definitions of the word "shirt."

Here is a quote from Mr. Buffett in BRK's 05q3 10q:
"Berkshire first began “shorting” the U.S. dollar in 2002 and since inception in 2002 through September 30, 2005, has recognized pre-tax gains of $2.1 billion from foreign currency forward contracts."

[/ QUOTE ]

If you're going to quote the 10Q, please quote all of it. "During the first nine months of 2005, the value of most foreign currencies decreased relative to the U.S. dollar. Thus, forward contracts produced pre-tax losses in 2005 of $897 million for the first nine months." It is widely known that Buffett lost $1B last year shorting dollars.

My point was this. Moving into non-dollar investments might make sense as a long-long term issue, but as a short term macro factor, you can be dead wrong. One reason is that, so long as the current account deficit continues, Asian central banks will pile up dollar reserves. If they sell them, they screw themselves because the value of their holdings decline. Thus the Asian central banks continue to buy Treasury long bonds, and will continue to do so for the forseeable future.

Second, even if the dollar were to decline against other currencies, for a domestic investor who pays for things in dollars, it's not the sort of issue that immediately hits your pocketbooks. Over the longer run, you will see a weaker dollar reflected in the form of more expensive imports, and possibly, inflation, but from Ed's point of view, dollar investments arent necessarily a bad thing short term.