Before the Fall

William Ehart

THE SUDDEN BULL MOVE of 1991 enraged me. Mr. Market waved the red flag and I charged. Forget balanced, S&P 500 and large-cap value funds. I was gonna get me one of them aggressive funds that goes up 99% in a year.

I greedily and resentfully scanned the list of 1991’s 10 top-performing mutual funds. Why didn’t I own any of them? Oppenheimer Global Biotech was up 121%. Vanguard Windsor II, which I owned around that time, was up 28.7%. Clearly, value stocks were not the place to be.

But like Fredo in The Godfather, I was “smart.” I wasn’t going to chase last year’s hot sector. I wanted a fund manager who could hop into and out of the right stocks and sectors at the right time, so I ruled out the three biotech sector funds on the top 10 list.

What about the other seven, each of which gained more than 87% in 1991? At least six trailed the S&P 500 by a large margin over the ensuing 10 years. (I can find no trace of the seventh, MFS Lifetime Emerging Growth.) Still, back in 1991, four of the top 10 funds struck my fancy:

Bill BergerBerger 100. Bill Berger, founder of this Denver-based fund, played up his mountain-man, far-from-Wall-Street image, wearing a cowboy hat and string tie in his ads. This had a certain tactile appeal for me, as I recalled the mountain air from a visit to the Continental Divide. I also read about Berger 100 in a book called, “The Best 100 Mutual Funds.”

But ultimately, I didn’t take the plunge. I can’t find performance figures for the 1992-2001 period, but they were bad enough to cause portfolio manager Rod Linafelter to lose his job in 1997. The Berger Financial Group was sold to the parent of the Janus funds, and Berger 100 was merged out of existence in the early 2000s.

Montgomery Small Cap. This little San Francisco-based fund seemed cool, sophisticated and tech savvy. But I was impressed that it wasn’t all about tech and biotech. One of its top holdings at the time was meat producer Smithfield Foods. Montgomery Small Cap had a high expense ratio (at least 1.4%) and proceeds were used partly to mail out fund literature on heavy bond paper.

I called the office for more information and, in response to one question, the woman on the phone said of manager Stuart Roberts, “Oh, he’s very good.” I gave her a mulligan for that answer and mailed a check for the investment minimum of $5,000. Fund performance actually was great relative to the weak 10-year results of the Russell 2000 growth index. But I didn’t stick around that long. I was trying to beat the S&P 500. Montgomery Small Cap is now the Wells Fargo Advantage Small Cap Growth Fund.

American Heritage. Ah, Heiko Thieme, the German fund manager who was a fixture on CNBC for years. He managed to lose 53% during the 1990s, despite his fund’s 96.6% surge in 1991. I called the fund’s offices in 1992 and inquired about his investment strategy. I remember the voice of a German man talking about dividend capture. That didn’t sound smart to me and I held on to my dough. In different years, Mutual Funds magazine named Thieme both one of the industry’s best managers—and one of its worst. American Heritage was liquidated in 2008.

CGM Capital Development. I wanted this one bad. A concentrated, aggressive portfolio with a value tilt, it was up 99% in 1991. Ken Heebner—lionized in the ’90s and ‘00s, perhaps more than any other active fund manager—made a reputation for shooting the lights out with big investment bets. Unfortunately, CGM Capital Development had long been closed to new investors.

Years later, I got my chance with Heebner’s newer CGM Focus Fund, an even more concentrated portfolio. The new fund also had the ability to sell short—that is, bet that stocks will fall in price.

CGM Focus rocketed 80% in 2007, and continued to rise through mid-2008. Yup, I missed that one, too. Fortunately, I also missed the 66% cratering from June 30, 2008, to March 9, 2009. Finally, I invested more than $11,000 on March 8, 2010, using money from a 401(k) rollover. I vowed to hang on through thick and thin until the next Heebner homer.

I’m lucky I moved on when I did, on July 1, 2014, with a total gain of just 36%. The S&P 500 had jumped 87% while I waited for Ken to connect. By that time, I was getting into indexing, asset allocation and (I admit it) emerging markets ETFs. The latter so far has been another wealth-destroying move, at least compared to the S&P 500’s 66% gain.

CGM Focus has lost 16% since I withdrew my money. It is down 14% in 2019 through late June, versus the S&P 500’s gain of 18%. The fund is off 41% from its early 2018 peak and down even more from its mid-2008 high. That’s right: The man, who was called perhaps “the best fund manager alive” by TheStreet in July 2008, is underwater for the past dozen years, unable to eclipse his pre-crash high, despite the longest bull market in history.

Currently, Heebner is betting the farm on Brazil. At last report, his biggest holding was Petrobras, at 14%. More than half of fund assets are invested in Brazil.

Maybe soon Brazil—and Ken Heebner—will knock the cover off the ball again. I’m sure they will at some point. But I’m out of the home run derby. I’m behind the count on my retirement hopes. Singles can get me where I need to go over the next 15 or 20 years—but I can’t afford to strike out again.

William Ehart is a journalist in the Washington, D.C., area. Bill’s previous articles were No A for Effort and Father Knew Best. In his spare time, he enjoys writing for beginning and intermediate investors on why they should invest and how simple it can be, despite all the financial noise. Follow Bill on Twitter @BillEhart.

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