Apart from what Oildog correctly notes, I'd add that Heebner is not a spring chicken at 67.  Sure, he might be going strong for 15 more years like Charlie Munger, but do you want to bet (some portion of) your retirement on it?

For these reasons I simply cringe when I see people, particularly those who purport to be roughly 10 years from retirement, with 15% or more of their nest egg in CGMFX.

I can see the argument for a modest stake, but the people piling into the fund in huge amounts are taking I risk I couldn't stomach.

Allow me to dissect the original post:

1.  There is a lot of evidence that the Efficient Market Hypothesis is real, and that most investors -- novice and self-perceived experts alike -- should stick with a diversified portfolio of low cost index funds or ETFs, which, over the long haul, should prevail over a mix of actively managed funds.

2.  If you look at the performance of CGMFX vs. JAWWX/WOGSX, even a novice investor will realize that there are absolutely no similarities:

CGMFX: 9 years up, 1 year down; returns 2000/2001/2002 = +53.93%/+47.65%/-17.79%; 1-,3-,5-, 10-yr annualized returns=+72.9%, +39.97%, +36.4%, +24.25%.  

JAWWX: 13 years up, 3 years down; -16.87%/-22.88%/-26.01%; -6.22%, +10.57%, +10.78%, +3.33%; plus change in fund management.

WOGSX: 9 years up, 6 years down; +3.6%/-39.05%/-40.01%; -3.9%, +4.4%, +4.5%, -0.54%.

 3. As has been pointed out numerous times, CGMFX is the only non-diversified fund that Ken Heebner manages that is allowed to short and use leverage.  Therefore, CGMFX cannot be directly compared with the other CGM funds. Also, since the unique CGM Focus Fund has an inception date of 9/3/1997, one cannot objectively quote anything more than a 10-year performance record for this fund.  If you compare CGMFX to most other funds, there is an overwhelming body of evidence that Ken Heebner, when allowed full flexibility with portfolio management (i.e., ability to short, use leverage, and construct a non-diversified portfolio), is indeed an investing genius. 

4.  I totally agree with Dan Fuss of Loomis Sayles Bond, who named Ken Heebner as the best stock picker at this time on a recent WealthTrack show.   No question about it, CGMFX is very volatile, but I expect to be rewarded over the long haul as long as Ken is managing the fund.

5. I would like to commend the original poster who overwhelmingly convinced me that he or she should not own CGMFX.

Kevin
 

I used to think all of the things that Oildog thinks... this fund is a flash in the pan, look at his record in other funds, look at the risks, look at the asset base, look at the... etc etc etc...

Then I got tired of watching the fund contribute sick returns to test portfolios I had come up with while I was getting none of it... and I just gave in... and for the past five or six years or so I have held a small position which of course has become more than small... I have not added to it and I would agree that folks buying the fund today expecting 100% return will likely be disappointed... and will probably sell the next time it loses 8% in a day...

But those who understand that building a portfolio of several focused funds, no matter how volatile those individual funds are, winds up producing a portfolio which is your only real chance at beating the overall market will probably look at giving Heebner a role in their mix...

If you hold 4 to 6 focused equity funds as part of a 60/40 or 70/30 overall portfolio you will wind up with individual stock holdings which are between half and two percent of your total portfolio... and if you look at almost any diversified mutual fund, you will probably find that percent or more of the scaldingly hot agricultural, energy or emerging markets stocks that Heebner likes to exploit in CGMFX... so while that holding might go way up or way down on a given day, its contribution to your overall mix is not really all that ridiculous...

You can certainly say that Heebner may not and likely will not continue his recent streak of success... but you cannot argue with his performance over the short, mid or long term because the scoreboard just drowns out your logic...

The point being investors should embrace volatility in their individual fund holdings in an attempt to create overall portfolios with a chance at outperformance...

But I agree that if you dont already hold CGMFX, you are either too new to investing to hold it or too uninformed to hold it... the best holders of this fund are long term investors who understand and accept the volatility and who have been playing with the house's money for a long time

For those investors, the only decision is when to lighten up on CGMFX... for most thats when your original 5% becomes 20% of your portfolio

Ajw 

Oildog,  While you make some very good points, which I agree with, I don't think you give the fund enough credit. I agree with Ajw, CGMFX is not a flash in the pan.  It is thee top fund for 10 years with a 24.25% return. That's long term outperformance. And by a significant margin. AND not only that, it was in the top one percent of its in category 5 (almost 6) of those years... not just in 2007. 

I too watched the fund's early performance in awe - wishing I could buy it while it was closed, and unable to find a broker who carried it.  I finally bought in 2006, and now have a 100% gain with a 42.7% annual return over that period. 

Now its a 7.5 billion dollar fund (almost doubling assets each of the last 3 years) , and it could easily underperform coming out of the bear mkt like it did in 2002, but I personally am prepared for that.

2.  If you look at the performance of CGMFX vs. JAWWX/WOGSX, even a novice investor will realize that there are absolutely no similarities:

Let's take the same method you used and rewind to 2000.  Here are what the total return histories for the three relevant funds looked like:

JAWWX 

WOGSX

LOMMX (Heebner's fund) 

So, you tell me - what conclusions do you think our novice investor would have drawn?  Heebner's fund underperfoms the category average 5 out of 7 years and underperforms the S&P 500 by a whopping 13% per year for the trailing 5 year period.  JAWWX and WOGSX are blowing everything out of the water.  WOGSX 5 year annualized returns are  39% - higher than "genius" CGMFX trailing returns today of 36%. 

Unfortunately, novice investors indeed concluded that JAWWX and WOGSX were infallible genius funds and piled in like lemmings - and they were burned.  Just like the investors today who are diving into CGMFX without any sense of history or understanding of how to properly analyze mutual fund returns. 

Best,
Oildog

IMO, the fact that knowledgeable investors are giving in and joining the party only makes the situation worse.  All the justifications I see for holding CGMFX today would have applied to the countless "aggressive" growth funds of 2000.  There is no "genius" in producing spectacular-looking returns using a super-concentrated strategy (not only few stocks, but extreme sector bets).  We're just observing a set of lucky draws from a very wide distribution.  When the draws start coming from the other end of the distribution, we're going to have some very unhappy campers. 

Best,
Oildog

I appreciated Oildog's skepticism on TRAMX and I now value his attack on CGMFX.

The problem is that I want more.  I want substance. 

Comparing CGMFX to tech-bubble aggressive growth funds - or doubting TRAMX because they are building desert skyscrapers in Dubai - just isn't enough for me.

--- 

Other posters have commented on Heebner's excellent CGMFX record.  I agree with their view that his record is excellent and his stock picking is brilliant.  Furthermore, he's not just riding a bullish wave; he opened short positions in US financials early on last year while most people were still picking their noses.

But ... 

When I last heard Heebner talk on CNBC (that bastion of journalistic excellence) a couple of weeks ago, he said that 2008 is like 1982:  people are avoiding stocks at precisely the wrong time. Heebner sees a buoyant future and continued strong global growth.

IMHO, if you buy the global growth story, then Heebner's your man.  Me, I believe in it.  I have about 4% in CGMFX / CGMRX at present, plus 20% in the best, most conservative EM funds I can find. Plus, I'm invested in energy and natural resources long term.

Heebner is a great complement to buying EM funds; he invests in the big global growth themes:  infrastructure, resources, agriculture, steel, and telecoms.

My take is that the global growth we're experiencing bears zero resemblance to the insane, profitless tech bubble.  So, I don't want to hear about some crazy growth fund that swooned for the tech bubble. 

I need to hear why investing in global growth is a bad idea and why Heebner's approach to investing in that space is bad.  And, why is Heebner wrong in saying that 2008 resembles 1982?  Is he wrong on his bullish global growth outlook?

• Will the BRICs implode?
• Will natural resource costs bring growth to its knees?
• Will inflation dominate?
• Will the global credit crisis cause a global slowdown - like many economists predict?
• Or?
  

IMHO, that's the big risk: global growth will fail us.  Because, that's how he's invested. 

Why is he wrong to be bullish on global growth?

Thanks in advance! 

Norbert