They Swing for the Fences… and Strike Out

Posted on July 14, 2011
Filed Under 401K, Investment Strategy, Investor Mistakes, Mutual Funds, Personal Investing

Do you know the names Bruce Berkowitz, Kenneth Heebner or Bill Miller? Unless you’re a mutual fund geek, you don’t. But to people like me who live in that world, those gentlemen are stars in the fund manager universe.  Each has been singled out, over the years, for posting some pretty spectacular performance numbers. Which is why I was mighty surprised when I read that their flagship funds “are the three worst performers among large diversified U.S. mutual funds in 2011.” Not among the worst – the worst. Through June 9th of this year, mutual funds they control lost between 11% and 12%, a period when the S&P 500 gained 3.4%.

The funds run by Berkowitz, Heebner and Miller were all good funds. They beat their peers over fairly long time frames, so many would be tempted to buy those funds and hold them. Which might make sense – but only if you don’t look under the hood. It turns out they each achieved their past hefty returns by taking on substantially more risk than most of their peers. Usually that meant placing huge bets on just one or two industries. And that tactic of having non-diversified portfolios often leads to trouble.

For example, at the end of February, Berkowitz’s Fairholme Fund had an astonishing 74% of its stock holdings in financial stocks. He obviously thought that sector was going to be gangbusters.


Financial stocks got creamed this year, and his fund suffered.

Which, strangely enough, provides a partial answer to a question I am asked frequently: “Why do you use Fidelity mutual funds exclusively?”  When someone asks that, they imply that there are other “good” funds out there, and why don’t we use those funds?

Fidelity offers every type of mutual fund we need.  As this story shows, even the best and the brightest star managers can falter badly over the short term. That’s why, rather than fruitlessly search for perfect funds, we are more interested in which segments of the market are attractive at any given time – and then we go into Fidelity mutual funds that invest in those segments.

Here at Weber Asset Management we don’t swing for the fences. Home runs are nice, but we don’t want to run the risk of a strike out in our clients’ portfolios.

Instead, we strive to consistently knock out singles and doubles for our clients. Over the long term, we consider that to be the more prudent strategy.

Here’s the source article:


One Response to “They Swing for the Fences… and Strike Out”
  1. Anonymous on August 5th, 2011 6:13 pm

    I had to read this again, really enjoy it.