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Articles
Screw The Funds
by
Jason Kelly
10/11/2002
Are you as angry at your mutual funds as I am? Judging from
the mail I've received, you are.
What are we paying fund managers for? I understand
that this is the biggest bear market we've seen since
The Great Depression, but it didn't exactly arrive yesterday.
It's been creeping in for the past two-and-a-half years and
the news has been worsening every quarter.
I'm a long-term bull. I always have been and always will be,
not because it's hip but because the numbers support my
position. The market rises about twice as often as it falls.
But it's been falling a long way for a long time, and the
managers who've held tumbling shares like scared raccoons
clutching shiny objects in a nail trap should be ashamed.
Instead, they're giving us rosy forecasts in an attempt to
make us forget that they've vaporized the profits they
accidentally achieved. Their names are
showing up in publications like TheStreet.com. There,
last week, Kevin Landis of Firsthand Tech Value suggested
that we buy shares of FLIR Systems and PEC Solutions. His
reason is that these stocks are poised to "capitalize on
the government's growing need for better security systems."
What insight. What groundbreaking research. I can't name
anybody who's NOT
aware that the War On Terror is ramping up defense
spending and that airports will be retrofitting their
scanning systems and security. What expert analysis
did Mr. Landis oversee? Reading the front page of the paper?
Meanwhile, his Firsthand Tech Value (TVFQX) is down 68%
so far this year. A bad year, sure, but that's what the market
serves now and then. As a PROFESSIONAL MONEY MANAGER, Mr. Landis
is expected to do something about it. Did he assume that the
market would continue its perpetual march upward from the
good old 90's? Evidently. He hasn't adjusted one iota of his
fund's strategy and that's precisely why its 5-year
average annual performance is -15%. The Nasdaq 100, readily available
to anybody as trading symbol QQQ, is down only 50 percent so
far this year. Had Mr. Landis stopped reading the front page of
the paper
and just bought QQQ with his clients' money, he would have
spared them the extra 18% loss.
We should keep picking on Mr. Landis because he is a star
of the tech investment industry. Let's stop pulling punches
in our look at what has gone wrong and call Mr. Landis and
other tech stock investing
fund managers what they are: lucky to have been in the right
place at the right time.
That right time is long
gone.
Examine some gems from Mr. Landis'
top ten holdings as of January, along with their performance
so far this year: PeopleSoft (-69%), Intel (-56%), and Cisco (-46%).
Gee, have you ever heard of any of these companies? How on
Earth did the magicians at Firsthand Funds discover such
hidden treasure?
This is the problem with tech funds today. They all
hold the same stuff and they hold it no matter what is happening
and they continue telling investors that the industry has great
long-term prospects. Well, no kidding, but that doesn't erase
the fact that their funds held the stocks during a fairly long time period
when they didn't have good prospects. Such a long, bad time period
that it will take a miraculously long, good time to get you back
to zero. Did you catch that? Not back to wealthy. Back to what
you would have had if you'd just put your money in the kitchen
cookie jar. Recovering from a 56% loss in Intel will require the
stock to stage a Phoenix-like rise of 128%. Imagine the excitement
of watching a 128% run -- and the subsequent thud when you
realize that you've only just returned to zero. Thanks, tech
fund geniuses. Did they not mention the sell button in Fund
Management 101?
All the while, folks like you who were smart enough to
get on this website's free email list and
to continue reading
level-headed
books like my Neatest Little Guides, are well aware that
bellwether stocks such as Microsoft and Intel are indeed to be
bought at these levels. I suggested that you start buying Intel
at about the $15 level. It's now around $14, a bit of a loss but
nothing anywhere near Mr. Landis' 56% bellyflop. Did it not occur to
him that nobody was ordering Intel's chips for a good part
of the year and that maybe a keen eye on the company's earnings
might provide a clue as to when it makes sense to own the stock?
Look at almost any tech fund's holdings and you'll find these names: Microsoft,
Intel, IBM, HP-Compaq, Oracle, and Cisco. You'll also find them
on the Dow (the first four) and any tech indexes. Finding them is not
difficult and doesn't
require paying a newspaper-reader like Mr. Landis an annual
expense ratio of 1.8%, which is what Firsthand Tech Value charges.
The only thing these tech fund managers are doing is following a
list of tech names. That's indexing, and the indexes do a
better job of it than the managers.
As for my current take, I'm still holding out for a buy price on
Microsoft at $42 and Level Three at $3.70. I averaged down on my
Intel buy at $15.10 and bought more at $13.90. Thus, my average
buy price is $14.50. Perhaps Mr. Landis and his peers should
take note. You and I and lots of other people were aware of
Intel and all it represents
in January when it sold for $35 and when Firsthand Tech Value
reported the stock as being in its portfolio. We read the same reports
about a resurgence of chip-demand in the second half of 2002.
We had the same thoughts about beginning a new year after two
solid years of declines, and considered the statistical odds
of a third year drop. They were low. The market should have
risen. Intel was down. The sun would rise again.
But you know what? We didn't buy in January because the P/E
was high and there was a lot of uncertainty. We didn't start
buying until the past few weeks, as a matter of fact, and even
now we're moving gradually.
If a few of America's former
tech fund stars would exercise the same common sense in their
portfolio management, it would be a merrier Christmas on the way.
For current quotes on Microsoft, Intel, Level 3, IBM, HP-Compaq,
Oracle, Cisco, and Firsthand Tech Value,
click here.
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