Longtime fund managers worth listening to

Your Funds

Dollars & Sense

July 28, 2002|By CHARLES JAFFE

THE QUESTION I get asked most often is, "Who are your favorite fund managers?"

The glib, stock answer is, "Whoever is making money." The truth, however, is that some managers not only make money, but they also bring perspective and history to their job and are fun to talk with. In general, these managers are the long-timers, the ones who have lived with being out of sync with the market and had their share of humbling moments on the road to success. They are worth listening to.

Ralph Wanger is one of those managers. The lead portfolio manager for the Liberty Acorn Fund, Wanger has run his own investment shop for more than 30 years. He has been successful running money - a 12.5 percent annual average gain over the past five years, nearly four times the return of the average fund - and managing a fund family.

He sold his small firm to Liberty Financial Cos. (now part of FleetBoston Financial's mutual fund operations) for $450 million about the time the market was peaking in 2000.

On a recent visit in Chicago, Wanger discussed the stock market, the state of the fund industry and more:

On today's stock market compared with those of the past: "There are always differences between current markets and the past. One thing I haven't heard a lot of people talk about is that trading volume is as high as ever, which is very healthy.

"As I remember, the markets in times like 1973- `74, the volume dried up.

People got discouraged, and they didn't think there was anything useful to do, so they stopped investing. This time, it doesn't look to me like people have given up on the market ... at least not yet."

On how investors have changed since the market peaked in March 2000: "It seemed so easy to get rich quick that retired wallboard tapers in New Jersey were becoming day traders and basically turning their home computer into a slot machine. You had 24-year-olds who would get an idea one day and get paid millions for it the next day. You had people making more money from investing than they ever could have imagined.

"Morality crumbled under that sort of wealth. ... Everybody jumped in the tub. Well, the get-rich-quick part of the investor's mindset is gone now. People have certainly sobered up. ... Right now, it sometimes looks like the market is being used for human sacrifice, where not a day goes by without someone being dragged to the top of the hill to have their heart cut out in front of everyone.

"It'll make people cautious again for a long time."

On the scandals that keep rocking the market: "Actually, these problems have restored my faith in the market, convinced me that things are somewhat normal, because this is exactly what you always see in this kind of market. In the 1930s there were guys taken to court for selling things that weren't as green as they made people imagine. There were others in the 1940s, '50s and '60s, on up to Michael Milken a few years ago.

"These are the poster boys for wrongdoing, and there has always been someone who kept things going or made things look better than they were.

"Wall Street still has not gotten honest. ... You can still see reports where they're not showing the numbers you really want to see ... but the hope is that it is moving more in that direction. Each time someone else gets caught doing something wrong, we get closer to when everyone else will do things right.

On the fund industry's ratings and rankings systems: "They haven't changed the way I do things, but it has changed the way people think I do things. For example, the Liberty Acorn Fund has been in three different Lipper-style boxes in the last 12 months and we have done nothing to make that happen. We've had 20 percent turnover. We changed style boxes because when one stock goes up or down 30 percent and you are near the line, you get whipped from mid-cap to small-cap. That's one stock out of a 300-stock list.

"I'm fortunate that I don't get punished when it happens, but I can see where a new manager or a fund company would be concerned and might feel they have to do something to stay in the box. That's when the algorithms start running funds, rather than the managers."

On investment psychology: "The feeling you get buying some of these things and seeing them go up 10 times in a year is like being a gambler at the craps table who has won six throws in a row. It's a giddy feeling of omnipotence. Once you have had it, it's a very addictive experience and it's hard to switch.

"At some point, you have to try to introduce rationality to it. ... You have to plan as if that kind of run is going to end because, sooner or later, every run - good or bad - does. That shouldn't surprise anyone."

Chuck Jaffe is mutual funds columnist at The Boston Globe. He can be reached by e-mail at jaffe@globe.com or at The Boston Globe, Box 2378, Boston, Mass. 02107-2378.

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