When the going gets tough, some fund managers go shopping for stocks
Published: Friday, June 27 2008
"Undoubtedly, this market is throwing up opportunities that we haven't seen for
decades.. buying opportunities"
CHICAGO -- The crowd was supposed to be sparse, the attitude was supposed to be
bad and the outlook was supposed to be dim.
But instead of coming to bury the stock market, it seemed like the record crowd
at the Morningstar Investor Conference came to praise it, noting that while
some things have changed -- the key role of emerging markets in the global
economy and the growing role commodities should play in an ordinary asset
allocation, for example -- the most important thing, the market's ability to be
resilient, has stayed the same.
"If you're a speculator, this is a gruesome market, but if you're an investor
there's a lot to look forward to," said Morningstar Managing Director Don
Phillips. "The time you want to invest is when the last 10 years have been
flat, overall. That's when the cards are actually in your favor if you know the
historical returns and believe in the efficiency of the market over time. ...
It's uncomfortable and it's hard, but investors do recognize that there are
some things to be excited about for the future, even in the middle of all of
the bloodshed we're seeing right now."
Managers in attendance at the conference shook off the market's freefall on
Thursday. They mostly seem to have adjusted to the idea that the next six to 18
months will be ugly and trying, but that there are sunny days ahead. "Yesterday
was a continuous pouring of salt on a gaping wound that has been open for six
months already," said Brian Rogers, chairman and chief investment officer at T.
Rowe Price.
Leery of financials
The area of the greatest bloodshed has been the financial-services sector, and
it was hard to find anyone in attendance who was willing to do anything more
than dip a toe into the business.
Ron Muhlenkamp of the Muhlenkamp Fund acknowledged that his fund had "made a
lot of money in financials, held them too long and paid a price for that," but
added that he hasn't "had the guts to move back into that area, with one
exception, Berkshire Hathaway".
Muhlenkamp, whose fund has a superior long-term track record but has been
hammered by the market over the last few years, said he needs "one more round
of audited balance sheets" before he'll be willing to move into the sector
again.
John Keeley Jr. of the Keeley funds, who typically looks to buy undervalued
stocks or companies going through significant change, has been underweight in
the financial sector for three years. While he's looking for value stocks,
Keeley said he's still too nervous about most financial issues; he has bought
into a few small savings and loans, but has kept the sector light in his
portfolios, amounting to roughly 6% to 8% of overall holdings.
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