I've seen an alarming number of posts over the past year or so touting CGM Focus and its supposed merits.  I'm observing more and more posters allocating a significant percentage of their assets towards this fund.  I'm going to argue that this is a bad mistake.  IMO, this is not a good fund for any investor for any purpose.  In particular, it's a fund that novice investors should avoid.

If you've been investing in mutual funds for any time, you'll realize that every era has a fund like CGM Focus - a fund that seems to defy gravity with a super-aggressive investment strategy.  Such funds tend to attract naive or performance chasing investors who eventually start pushing the fund with almost religious zeal.  JAWWX and WOGSX are excellent examples of this.  Both funds had spectacular returns in the late 1990s, and whenever newbie investors would ask for advice, a large group of posters would push these funds. 

Unfortunately, spectacular recent performance based on aggressive strategies rarely persists.  JAWWX had a seductive performance history at the beginning of 2000 - much like CGMFX, nearly doubling NAV over the course of a year.  Directly afterwards, the fund lost about 60% of its value and has never recovered its peak NAV.  It was even worse for WOGSX - after going up about 200% in a couple of years, the fund lost 75% of its value.  Most investors didn't own these funds when they were establishing the spectacular gains.  They just got the one-way ride down.

Is there any basis to believe CGM Focus is a different story?  Heebner has been managing mutual funds since the 1980s.  His long-term performance is not particularly impressive.  He employs an unusually high-volatility strategy that most investors are unlikely to be able to tolerate over the long-term - for example, he had a period of underperformance that lated for nearly a decade in the 1990s.  For the twenty year period from 1982-2002, he produced a return of about 9.8% per year, underperforming the S&P 500.  Simply stated, there isn't a lot of evidence that Heebner is some kind of investing genius. 

Based on the sum total of his record, I'm inclined to say Heebner has some skill, but nothing close to what people are claiming around here these days.  This is a guy who employs a high volatility strategy - sometimes the volatility shows up on the upside, sometimes on the downside.  If you're willing to ride out the ups and downs, perhaps the fund is worth it over the long-term, but how many people are going to hold onto this fund the next time it declines by 50% or underperforms for a decade?  I really doubt it.  Do you know anybody who still owns WOGSX? 

Best,
Oildog

I agree that a significant portion of one's portfolio in CGMFX is pretty darn risky.

(Pssst....I was one of the ones who lost out on JAWWX. My illustrious Schwab broker suggested it. I bought it in March, 2000. Yes, that was MARCH, 2000!) 

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 

Norbert, I don't think oildog is trying to change your mind on CGMFX, he's just warning folks of the dangers and making some excellent points with history to back up his opinions. I think it needs said if someone new out there is thinking about investing in it. They can do whatever they want of course, it's their money but in the end I think oildog is correct, it's headed for a fall and most people can't stomach that.

I just read in one of these topics a 30 y/o guy who has $500,000 of new money to invest asked some advice as to where to invest etc...  Then in another topic he asked what do you think about my planned portfolio? Someone mentioned I noticed you don't have CGMFX in it and then went on to say in his opinion that's the best mutual fund out there and that Heebner is the best mutual fund manager today (not an exact quote).

I think oildog's post is VERY important when you consider examples like I just mentioned.

Clem

OD? I agree Guy... Don't Invest in CGM Funds

We don't need them to become the Next Way over Loaded D&C funds and end up doing marginal to Index rtns..

As I believe that No  "Non-Index Fund" can be counted on being Invest and forget.. they all change after time and have to be replaced..be they do a Soft to Hard Close, Illegal Issues to Fund Mgr Changes,etc...  and following  " Happiness is a Back Up".

CGM probably Has seen it's best Days and it's been a Great Run...and will probbly settle into Just barely beating the Indexes..or not...

I play these kinds of High Risk/Rtn funds as Not Rebalancing them and let the $ ride..to a point.. and then take your Cost Basis off the table and let the Profits ride..= it's free $

The Key ? is now? Who is the NEXT CGM/ Ken H.?

I think That's some of the fun in playing AMF's ( Active Managed Funds) , IMO...

Of course, I'm an Old Horse Race Player and love the Thrill of Beating the System/Odds..When A Your horse ' Comes Down the Stretch They Come and Wins" and can afford to take those kinds of risks...

just like the Guy who buys a Expensive Sports car.. Just for the Thrill of it

You want Boring? be an  Accountant or an Indexer...LOL

Norbert, I don't think oildog is trying to change your mind on CGMFX,

[/quote]

Hi Clem,

You don't understand.  I WANT him to try to change my mind. I have real concerns about the worldwide impact of the various issues mentioned above (credit meltdown, inflation, scare resources, etc).

I'm just saying that abstractions and comparisons to tech-bubble funds is not good enough.  I know that Oildog can do better.

I agree that it's unwise to throw 50% of your portfolio at Heebner - even if he does walk on water. 

Thanks,

Norbert 

One should consider how much CGMFX has risen the last time oildog warned not to buy it. Which he did on a number of occasions last year. Incidentally, when CGMFX was down double digits earlier this year, he once again tried to scare investors away by pointing out how much it would need to drop in order to wipe out last year's gain. Of course, since that "warning", CGMFX has risen about 20% or so. Quite frankly, I'm glad he provides these warnings. Hopefully, that WILL keep people away and keep the assets down.

And notice how Kevin says how you shouldn't compare to Heebner's other funds since CGMFX is a completely different fund considering it allows him to short, yet oildog responds by doing just that by comparing those other funds to LOMMX.

Norbert basically has it right. If oil and natural resources do well, then CGMFX is going to outperform. Simple as that. If you believe oil is going down long term, don't buy CGMFX. Short term, oil is overbought so it's due for a pullback. But I wouldn't be counting on oil to drop long term unless new alternatives are developed. By then, I would expect Heebner to invest in these alternatives. Incidentally, he already does have at least one alternative energy investment, that I'm aware of anyways.
 

I don't have near the experience of many on here, and I am one who anticipates taking ~10% stake in CGMFX soon.  I get all the pros and cons, and I get that this is a bit of performance chasing (but that is really what ALL investors do to some extent - Even indexers are chasing past performance).  Imo, funds tank when they can't/won't adjust and when bubbles burst and the fund is heavily invested in the bubble.  If you look at JANUS funds in 2002, you can see the result of just that.  Big difference in their corporate behavior since that painful lesson.  On the whole, their funds' reaction to the last 9 months has been much better.

There's no doubt in my mind that we're seeing at least a short term bubble in commodities and oil, and that it is likely that there IS going to be a correction, maybe a big one, sometime in the future - I'm hoping for it to happen during the summer.  We're also seeing heavy investments in infrastructure globally and especially in emerging markets.  Again, a potential problem short term.  All of these things raise the prospect of generating some pain in a LOT of funds, not just Heebner's.

Otoh, Heebner doesn't tend to sit still.  More than most, he's a tinkerer and seems to have a tendency to be EARLY in his moves, rather than late.  So, ok, we have some bubbles that may burst, but who says that Heebner will necessarily be "on the bubble" when it bursts?  Given his penchant for frequent trading, it seems to me that there may be a reasonable likelihood that he will have zigged while slower reacting funds will catch more of the exploding flak.

Bottom line:  If you can absorb a possible 50% loss in your CGMFX investment without blowing your brains out, the fund's record suggests that the odds are in your favor to do well - Risk/Reward.  The timing is probably not ideal, but that's true for almost any high-flying fund you may choose to look at; they're ALL invested in these bubbles.  Otoh, we DID get a little market correction.  I personally think/hope we'll go sideways for a while, and the bubbles will gradually deflate.  I think 13,000 in the DOW is the ceiling for now.  My fondest hope is for another pullback to 12,500 or less in the DOW over the summer.  If I get it, I'll be putting my 60% cash holdings back into play.

Even indexers are chasing past performance

[/quote]

Bingo - and when they are rebalancing, they are market timing by taking gains in the asset class that has done well and buying low the asset class that hasn't done well.

[quote user="Racqueteer"]

I personally think/hope we'll go sideways for a while, and the bubbles will gradually deflate.  I think 13,000 in the DOW is the ceiling for now.  My fondest hope is for another pullback to 12,500 or less in the DOW over the summer.  If I get it, I'll be putting my 60% cash holdings back into play.

[/quote]

I think there is a good chance the DOW will dip late this summer, but still I am moving cash back in slowly into select sectors now.  Not energy or agriculturals.

I agree 100% with OIldog on this one. I have had CGMFX on my watch list for at least four years and have come close to buying it on numerous occasions. Yet I have never pulled the triger. The reason is that I am suspicious of this fund, despite or, perhaps, because of its unusual performance.

There are three things I particularly dislike about CGMFX.  The first is its almost unbelievable turnover ratio.  According to Mornigstar data, Heebner is churning that portfolio at an annual rate of 384%. Do you know what that means? It means that he is holding his stocks for not much more than three months at a time--it's almost like day-trading!

The second thing I dislike about CGMFX is related to the first; if Heebner is churning his $7 billion portfolio every three to four months, the commissions he is paying must be colossal [I sure would like to be Heebner's broker--if I was, I could finaly get my yacht, or at least my red Ferrari.] 

Now, as we all know--or should know--mutual fund commissions and trading fees are not included in their expense ratios but hidden elsewhere, but it's still the customers who pay the fees.  I would like for Heebner to reveal how much of his customers' money he is spending every year on commissions, but I don't think I am going to get the answer any time soon.

The third thing I dislike about CGMFX is its lousy website.  Now this is purely subjective, but any time I invest in anything--be it a company or a fund--I always check out its website, because that is where the management puts itself on public view.  Some companies and mutual funds have exceptionally informative and user-friendly websites with lots of downloadable documents and data that is updated regularly, but not Heebner's.  It's about the worst of any mutual fund company I have ever researched, and, believe me, I have seen some bad ones!

Bottom line: Caveat emptor.

Jagor    

Let's imagine a scenario where a manager has 2 funds, one in which he can short and use leverage and the other in which he cannot.  The one where he cannot use these tool beats the fund where he can.  Fans claim he's a genius, yet detractors point to the other fund which has a lousy long-term record.  Fans then go on to argue that open-end mutual fund managers should not use leverage or sell stocks short--you should really not look at the record of such a fund.

Dao
 

One should consider how much CGMFX has risen the last time oildog warned not to buy it.

I've never made any claims about being able to predict short-term fluctuations in fund NAV.  Nobody has that ability.  Short-term fluctuations are nothing more than noise.

And notice how Kevin says how you shouldn't compare to Heebner's other funds since CGMFX is a completely different fund considering it allows him to short, yet oildog responds by doing just that by comparing those other funds to LOMMX.

I've responded to this line of argument many times in the past.  The argument is nonsensical.  If leverage and short-selling can transform a toad into a princess, all of us could produce spectacular results by doing those things.  If you gave 100 people the ability to create super-concentrated sector portfolios with leverage and short-selling, several will produce results that look like CGMFX.  Does that make them geniuses? 

Best,
Oildog 

Why is he wrong to be bullish on global growth?

I think it's rather pointless to debate Heebner's investment themes.  It's a fund with 400% turnover.  We could discuss his global growth thesis ad nauseum and in a few months he could have moved onto a different theme.  In the late 1990s, his funds did rather poorly because he made a similar focused bet on REITs.  He was about five years early, so his funds suffered.  He might be way early or way late on his next theme too. 

There's no question that global growth will continue over the long-term.  However, you also have to remember that the past five years or so have been an unprecedented period of auspicious conditions for emerging markets - fewer financial crises, rising commodities prices for primary exporters, lack of geopolitical or internal destabilization, robust growth in export markets, etc. etc.  We're already seeing signs of strain - the US economy is slowing down (major export market), input prices are rising dramatically (inflation rates are way up in developing countries), we're beginning to see food riots and potential signs of political destabilization, etc. etc.  There's also always the possibility of major political or geopolitical upheaval in China. 

Also, what price are you paying to ride global growth?  Lots of Heebner stocks are selling at nose-bleed P/Es, not unlike those you observed in the tech bubble. 

Best,
Oildog

It is really hard to argue with these returns.  This is not a short-term fluke. I think you must give credit where credit is due.

There's plenty of volatility (see quarterly performance below), but the end results seem to be worth the ride. 

                                          1Q                      2Q                   3Q                    4Q

I'm basically repeating myself here, but that's exactly the kind of logic that gets investors burned over and over again. 

Here are the returns of WOGSX from 1993-2000:

1993 -0.3%
1994  6.3%
1995 52.7%
1996 32.3%
1997 24.3%
1998 39.5%
1999 50.1%
2000 29.7%

Hard to argue with those returns, wouldn't you say?  Hard to say that's a short-term fluke, wouldn't you say?  Except when you realize what happened directly afterwards:

2001 -39.1%
2002 -40.0%
2003  52.6%
2004  -3.2%
2005  -5.1%
2006  -0.1%
2007 15.0%
2008  -9.0%

Net result is that WOGSX is down about 60% today from the peak. 

I should add that this isn't a case of asset bloat or manager/strategy change.  It's aggressive investing using an all-or-nothing sector-oriented strategy.  That kind of strategy either shoots the lights out or crashes and burns. 

Best,
Oildog

I dont know how knowledgable I really am, but I dont feel a big conflict between being a fan of slow, methodical, sober value investing and holding a 10% stake in the flamethrowing CGMFX... I think its a good thing to have something in your portfolio that makes you uncomfortable (as long as you dont get spooked out of it), and what could make someone more uncomfortable than this fund?  

You can make all the perfectly valid points you want to about the rapid turnover, heat seeking, flash in the pan, unlikely to continue qualities of this fund, but in the end you can either watch from the sidelines or get some of the returns... although I prefer Marty Whitman's investing approach to Ken Heeber, their respective contribution to my own portfolio is lopsided, with Heeber contributing many times what Whitman has... do I wish that his approach would fail because I dont agree with it or it shouldnt work?  No, but I am ready for it to blow up... although I think the thing that most dont consider is the edge that technology has given to investors like Heebner... having a constant stream of data to support or refute his big picture themes could mean that his stumbles will be sharp but shallow and his ability to make up for them is enhanced in comparison with some of his prior down years

Of course no one should place too much belief in any one manager, but to exclude Heebner from the group of the better mutual fund managers that one can draw from in assembling their own portfolio is to place one's own beliefs and prejudices over the reality of long term investor returns...

I appreciate Oildog's takes on this fund, and I agree that new investors who say today that they are considering initiating a 10% position in CGMFX should listen to him and look at other areas in their portfolio while they learn about this fund, its history and possible future...

But to say that this fund is more dangerous today than at any other period in its history is just wrong... its a decent choice for a small portion of the tax sheltered portion of a portfolio that needs some contrast to other management styles... again, keep the percentage of his stock picks in your total portfolio in mind rather than the day to day NAV of CGMFX alone

Ajw

Oildog, didnt those other funds you mention make their outsize returns from tech and tech only?  If you look at how many times that Heebner has been right on both the long and short sides in a variety of industries and in a variety of markets over a fairly long period, I think that comparing his returns to funds that rode technology up and down is a little misplaced...

Ajw

Because it happened to WOGSX doesn't mean its got to happen to any fund that's led the pack.  Heebners fund has a lot more latitude, so the comparison doesn't exactly seem apples to apples. 

Its not like an outperforming fund has an "expiration" date on it.  Especially one that's not pigeon-holed to investing in one particular asset class. 

The premature demise of CGMFX comes across as sounding more like sour grapes than playing devils advocate. 

-Joe

Oildog, didnt those other funds you mention make their outsize returns from tech and tech only?  If you look at how many times that Heebner has been right on both the long and short sides in a variety of industries and in a variety of markets over a fairly long period, I think that comparing his returns to funds that rode technology up and down is a little misplaced...

[/quote]

Yep, just goggled WOGSX and it was 77% tech in 2001. 

Not exactly fair to compare the tech bubble with the secular bull, global growth market.

CGMFX's holdings may crash and burn eventually, but not because the earnings are built on vapor.  They are not.  

But I agree with OD that caution is needed with funds like CGMFX.  It's best for experienced investors who understand  there may be huge volatility, not for newbies who'll run off scared the first time there's a 5% down day. 

didnt those other funds you mention make their outsize returns from tech and tech only?  If you look at how many times that Heebner has been right on both the long and short sides in a variety of industries and in a variety of markets over a fairly long period, I think that comparing his returns to funds that rode technology up and down is a little misplaced...

Can you provide some evidence that Heebner has been "right on both the long and short sides in a variety of industries and a variety of markets over a fairly long period?"  I'm having trouble finding good information about Heebner's historical sector allocations except in little snippets. 

Best,
Oildog

WOGSX is not a tech fund.  It's a sector-oriented focused fund.  Obviously, it did well in the late 1990s because it made a big bet on tech, just as Heebner is doing well through his big bets on agriculture and materials.  Both funds have flexible mandates to do pretty much whatever they want. 

Here's the fund description for WOGSX:

White Oak is a concentrated mutual fund and usually invests in 25 or fewer stocks. The Fund invests primarily in common stocks of established U.S. companies with large market capitalization (usually defined as companies larger than $5 billion). We choose stocks of companies that we believe to have above-average growth potential at attractive prices.

Although the Fund is diversified, its investment strategy often involves overweighting the Fund's position in the industry sectors which we believe hold the most growth potential. The three sectors White Oak focuses on today are technology, health care, and financials.

Somebody want to tell me how this is different from CGMFX again?  

Best,
Oildog

The premature demise of CGMFX comes across as sounding more like sour grapes than playing devils advocate.

It's neither.  Playing devil's advocate implies I actually believe the fund has merit.  I don't.  Sour grapes implies I'm sorry for not having invested in the fund.  I'm not.

Pointing out the demise of funds "prematurely" on the other hand, I can agree with.  I'd rather warn investors about the perils of a fund like this before they lose half of their money than after the perils are obvious to everyone. 
 

Best,
Oildog 

So you aren't sorry you missed an 80% return last year? C'mon, oildog.

And what if you are wrong?  Yes, this fund is highly volatile, but you make it sound like its doomed.

So you aren't sorry you missed an 80% return last year? C'mon, oildog.

I'm not.  I could have gotten a 202% return if I had just invested in POT instead.  Are you sorry you got your measly return in CGFMX instead of the 202% return? 

I don't think it's doomed.  I'd say it's a fund with extremely high volatility and perhaps somewhat higher expected returns versus the market before taxes.  It's a reasonable choice for people who can ride out 50-70% declines on occasion or decade-long streaks of underperformance.  IMO, the number of people who fit that description is pretty close to zero. 

Best,
Oildog

Somebody want to tell me how this is different from CGMFX again?  

[/quote]

I read somewhere that Heebner's background is in energy, so that's where he's most comfortable.  Obviously, that's expanded to the whole global basic materials sector.  If he always focuses on that sector that would make him different. He'd be a "basic materials guy" and as long as basic materials are in, he's your man.   If he branches out, then his funds would be like the others...going with whatever sector is hot.

Kind of hard to argue the case without knowing details about past holdings of his funds.

I'm not.  I could have gotten a 202% return if I had just invested in POT instead.  Are you sorry you got your measly return in CGFMX instead of the 202% return? 

[/quote]

I am sorry I didn't get a 202% return by investing in POT.

A couple points here. Oildog likes to point out Heebner's performance since 1982 or whatever. He assumes an investor in 1982 would learn nothing over 25 years and still be the same investor in 2008. One thing for sure, I'm definitely a better investor than I was 10 years ago having learned from past mistakes. Heebner pointed out the mistakes he made when he first started out.

 2nd of all, the other fund he mentions did real well leading up to the internet bubble and collapsed during the 2000-2002 bear market. Quite frankly, any knucklehead could've done well during the mania years. I know because I did. And then the fund proceeded to collapse during the bear market. There's no skill involved in making money during a mania. What Heebner has done during both bull and bear markets requires skill. He shorted tech stocks in 2000. And he's been short financials since last year. Making 80% when the Nasdaq is going up 50% and internet stocks are going up 200% doesn't mean anything. Going up 80% while the S&P500 is only up 5%, requires some skill. Hell, Heebner has a number of 40+ percent years, even during years when the market dropped. The other funds can only manage massive gains if the market is also on fire.
 

A couple points here. Oildog likes to point out Heebner's performance since 1982 or whatever. He assumes an investor in 1982 would learn nothing over 25 years and still be the same investor in 2008. One thing for sure, I'm definitely a better investor than I was 10 years ago having learned from past mistakes. Heebner pointed out the mistakes he made when he first started out.

That's a possibility, but I don't think it's consistent with the facts.  Heebner's worst returns came in the 1990s, not the 1980s.  If this is a learning story, he first got stupid before he got smart. 

2nd of all, the other fund he mentions did real well leading up to the internet bubble and collapsed during the 2000-2002 bear market. Quite frankly, any knucklehead could've done well during the mania years.

Not really.  In fact, the late 1990s was one of the most difficult times for active funds to beat the S&P 500.  Case in point - CGMFX didn't look like much of a winner back then!  Let's see here... according to your logic, Heebner is worse than a knucklehead.  Tell my why you like this fund again?

Best,
Oildog

As far as Heebner being right on a number of calls on the long and short sides, of course he was one of the few mutual fund managers who was shorting tech before the bubble burst... and he was one of the few shorting subprime before it blew a hole in most everyones' world... and his calls on materials and energy are well known... and he has ridden the homebuilders up and down several times from my recollection... he has owned up to being late on a few themes, but most of his big calls have been right..

Which themes have you particularly noted that he was wrong about, Oildog?  Certainly the commodities bubble seems ready to burst at any moment, but we dont really know how much of those stocks he is still holding...

Ajw 

Certainly the commodities bubble seems ready to burst at any moment,

[/quote]

The gold bubble has already burst.  Oil is on its way down (at least for the short term).

Oildog,

Most of the great investors including people like Eveillard and Buffet, underperformed during the late 90's because they refused to participate in the tech mania. Knuckleheads and gamblers were the ones who made alot of money and then got burned. Incidentally, most of the underperformers including Heebner still made money even if they underperformed during the 90's.

I agree 100% with OIldog on this one. There are three things I particularly dislike about CGMFX. 

The first is its almost unbelievable turnover ratio.

The second thing I dislike about CGMFX is related to the first; if Heebner is churning his $7 billion portfolio every three to four months, the commissions he is paying must be colossal 

The third thing I dislike about CGMFX is its lousy website. 

[/quote]

Building on this post, I also found many things to hate about CGMFX and CGMRX:

• Failure to stick to mandate in CGMRX!  Potash and Mosaic are fertilizer companies!  OK, these guys own a lot of land, but they are NOT in the real estate business.  Instead of maintaining discipline, Heebner insists on making money for his shareholders during a period when all other real estate funds have lost money. 
  

• The turnover rate is totally out of control.  Heebner needs to have a good talk with the Vanguard Diehards to understand the value of keeping expenses low!  This is one more argument in favor of indexing.
  

• Poor web site.  Instead of spending so much time focused on managing his portfolio, why doesn't the man invest in his web site?  It's insulting to shareholders who pay good money to hold his funds. 
  

Heebner could learn something from HSGFX's John Hussman, who been personally writing a lengthy letter to his shareholders each and every week starting in 2003 in order to explain why the markets are overpriced and dangerous.

• Use of shorting.  This is a high-risk technique.  Markets go up over time and this is market timing at its worst.

• Portfolio rebalancing impact!  Heebner's funds sometimes make money so fast that investors' carefully-designed allocation plans are rapidly destroyed.  Therefore investors can find themselves taking on unplanned risk.

• Tax impact!  Combining high turnover with high returns can make for some very nasty surprises on April 15! 
  

Most of the great investors including people like Eveillard and Buffet, underperformed during the late 90's because they refused to participate in the tech mania. Knuckleheads and gamblers were the ones who made alot of money and then got burned.

These are guys who are way out of Heebner's league.  Indeed, value investors like Eveillard or Buffett did not buy into tech mania.  They are also avoiding the Heebner stocks of today.  Let me know the next time Buffett buys a 70 P/E agriculture stock.  Then we'll talk.

Incidentally, most of the underperformers including Heebner still made money even if they underperformed during the 90's.

For the second time, here's the performance of CGMFX in the 1990s: link.  The fund lost 30% at one point in 1998 and ended the 1990s in the red.  Apparently, inconvenient facts won't get in the way of DonTib. 

Best,
Oildog

I am sorry that valunvstr in his post above does not consider brokerage commissions to be a serious probelm for investors in mutual funds like CGMFX whose managers churn their fund portfolios at almost 400% per year.

Both John Bogle and John Hussman have addressed this problem,  Hussman in an article originally posted on his website on Ocrtober 1, 2003, and updated on June 30, 2007.

Hussman writes:

"How much do mutual funds pay in commissions and trading costs? This is a question that the mutual fund industry seems reluctant to answer. In an industry already complicated by fees - sales loads, soft dollars, trailing fees, 12b-1 marketing fees - asking mutual funds to prominently disclose trading costs is unpopular among fund companies...

"According to data from Greenwich Associates presented in testimony to the House Committee on Financial Services (Harold Bradley of American Century Management, March 12, 2003), mutual funds pay an average of between 5.1 and 5.5 cents per share in commissions to make securities transactions - a rate that has not changed significantly in the past decade."

Hussman also includes a table showing the brokerage costs of the Hussman Strategic Growth Fund from its inception on July 24, 2000 through June 30, 2007.

URL: http://hussmanfunds.com/html/trancost.htm

So with the data from Greenwich Associates, we can now do the math for ourselves and calculate at least a rough estimate of how much of his customers' money Heebner---or any other fund manager, for that matter--is spending on brokerage commissions and trading costs.

Jagor 

These are guys who are way out of Heebner's league.  Indeed, value investors like Eveillard or Buffett did not buy into tech mania.  They are also avoiding the Heebner stocks of today.  Let me know the next time Buffett buys a 70 P/E agriculture stock.  Then we'll talk.

For the second time, here's the performance of CGMFX in the 1990s: link.  The fund lost 30% at one point in 1998 and ended the 1990s in the red.  Apparently, inconvenient facts won't get in the way of DonTib. 

[/quote]

The lady doth protest too much, methinks.  Heebner's CGMFX is n° 1 in its category over a 10 year period.  The guy's doing something right.

CGMFX holds high growth stocks.  Therefore you'd expect many to have both high PEs and high growth.  For example, Potash and Mosaic certainly have high PEs, but M* puts fair value well above the current price for both of these companies. FWIW.  That's for the simple reason that fertilizer profits are soaring on high demand and limited supply.

This ain't no tech bubble with its speculative profits.  Heeber knows the difference. He completely avoided the tech bubble.  Looking at your link, CGMFX made money in 1998 and 1999 - before going on to shoot out the lights during the 2000 - 2002 bear market.  He did not end the 1990s in the red.

However, there is no doubt that CGMFX is volatile.  It didn't just lose 30% at one point in 1998, he was down about 44% at one point in 2002.  But, he bounced back very rapidly.  Yes, it's a wild ride.   So, I only have about 5% with Heebner and 15% with McGregor.

Your completely negative take on Heebner seems a bit excessive to me. He's running the most successful growth fund on the planet. Give the man some credit.

---

Aside to Jagor: 

I would not care if Heebner's turnover rate were 2000%.  I care about one thing only: the big picture - net earnings. How he reaches his goals is his business.  To criticize this would be like criticizing Roger Federer because he changes his racket every few games ($20 restringing charge).  Who cares?

Cheers,

Norbert 

Why do all you folks who invest in this fund feel the need to defend it with so much enthusiasm? If your completely happy with it and believe Heebner is the investing God so many want to make him out to be, then why should anything oildog or anyone else says about it even matter to you? It almost seem like everyone is trying to convince everyone else to follow the heard. That's a sign to me that this winning streak his on isn't going to last forever and when it does start going south it's gonna really go....especially when evreryone else starts dumping it.

This is pretty typical of oildog, to manipulate the numbers in his favor.. Sure if you sold at the bottom, you lost as is always the case with any fund that goes down. Anyone who simply buys and holds, made money.

Notice the pattern.

If CGMFX went up in 98-99, proving oildog wrong, simply point out that CGMFX went down big during one quarter.

Or if CGMFX went up during the 2000-2002 bear market, simply point out how LOMMX went down big during 2000-2002. You see the pattern here?

Guess what? Had I sold CGMFX at the bottom like oildog suggested a few months ago, I would've lost money. But because I held, I'm making money and easily outperforming the market this year.

Hi Clem,

As I said before, I welcome skepticism.  It makes me take a second look at what I'm doing.   That what these forums do - they encourage debate.   It's a healthy thing.

Oildog is a good poster.  He has a certain bias (like we all do), but I think about what he says. 

I don't know if Heebner is God, but I think he might have God's cell phone number. 

Cheers,

Norbert 

Why do all you folks who invest in this fund feel the need to defend it with so much enthusiasm? If your completely happy with it and believe Heebner is the investing God so many want to make him out to be, then why should anything oildog or anyone else says about it even matter to you? 

[/quote]

You could also reasonably ask why Oildog is on such a crusade to trash a good fund.  Sure, it's volatile, and now may not be a bad time to get in, but a simple warning that the fund is not for inexperienced investors is good enough.  Maybe he owned the fund and got burned because he didn't manage his position adequately and now is on a crusade to "save" other investors.  While that motive may be noble, it is not neccessary.  

No need to get personal here, guys!  This is a risk/reward issue; you don't get rewarded unless you're willing to take risks.  CGMFX has handsomely rewarded its investors - so far.  Will that continue in the near term?  Who knows?  Will it continue forever?  Not bloody likely!  Oildog feels that the potential reward is overshadowed by the risk.  He may be right.  But he could also be wrong.  If any of us actually KNEW what was going to happen ahead of time, we wouldn't need a fund manager to figure things out for us.

At the end of the day, you lay your bets and hope the wheel stops at a good spot.  If you bet red you have a better chance of winning something than if you bet red 5, but if you hit red 5, the payout is a lot bigger.  Fortunately, investing isn't quite as random as a roulet wheel, but the principle is the same - You decide how much you're willing to lose, you do your best to maximize your chances of success, and you act accordingly.  Where things go south is when an investor DOESN'T consider the potential for losses, set a limit, analyze the risks, or minimize them as much as possible.  Then, when things go wrong (note: not IF), the investor overreacts.  Plan for the worst, hope for the best.

Norbert,

I wasn't trying to single anybody out, I was just saying there seems to be an awful lot of people who find themselves having to defend thier investment in Heebner. If a person is happy with it and made lots of money well that's great, that's all that should matter. I know for a fact that if I would have been around here back in 1999-2000 and I would have understood value investing the way Oildog does and practiced it I'd have a lot more money then I do now. All I did was chase hot funds and then sold them all for hot stocks and lost practically all my money (no joke). When people recommend CMGFX to new investors and those new investors chase the fund like I did those stocks, they may very easily get burned like I did. I'm a much smarter more realistic investor now. I consider myself a value investor, but I only invest in a few funds. Back then everybody was making money and I kinda lost touch with reality and thought I knew what I was doing. Reality soon set in and I had no freaking clue what I was doing. Luckily I can say I learned a very important lesson that will stick with me the rest of my life. I think Oildog is trying explain to people why they should be cautious with this fund so they don't end up like I did.

If CGMFX went up in 98-99, proving oildog wrong, simply point out that CGMFX went down big during one quarter.

From inception in September 1997 through December 1999, the fund lost money.  This contradicts your claim that the fund made money in the 1990s.  It did not.  Now that you've been shown to be incorrect, you change the criteria to "1998-1999."  Really brilliant. 

Or if CGMFX went up during the 2000-2002 bear market, simply point out how LOMMX went down big during 2000-2002. You see the pattern here?

At what point in this conversation did I point out that LOMMX went down during 2000-2002?  Apparently your disregard for facts extends to what other people are saying.  

Guess what? Had I sold CGMFX at the bottom like oildog suggested a few months ago, I would've lost money. But because I held, I'm making money and easily outperforming the market this year.

I've been consistently critical of this fund regardless of what the fund NAV is doing.  Whether or not to sell is obviously your decision.  I'm critical of lotto tickets as well, and I'm sure there are some who've won big during the past couple of months.  That doesn't make my criticism invalid. 

Best,
Oildog

The lady doth protest too much, methinks.  Heebner's CGMFX is n° 1 in its category over a 10 year period.  The guy's doing something right.

The returns for a fund like this don't tell us very much.  The fund is inherently high volatility, and the guy is making broad sector bets.  During the past 10 years, it looks to me he made about four or five leveraged sector bets.  10 years sounds like a long time, but you could get four or five bets consecutively right out of pure luck.  It's certainly possible the guy has skill (a possibility that I've noted repeatedly), but the returns evidence doesn't allow us to draw strong conclusions either way.  That's why I'm drawing comparisons to funds like White Oak - you can shoot the lights out with this kind of strategy even if your long-run expected returns are quite low. 

For example, Potash and Mosaic certainly have high PEs, but M* puts fair value well above the current price for both of these companies. FWIW.  That's for the simple reason that fertilizer profits are soaring on high demand and limited supply.

I wouldn't put too much credence in M* fair value estimates.  They were pretty liberal about tech stock fair values during the bubble too.   

 
Your completely negative take on Heebner seems a bit excessive to me. He's running the most successful growth fund on the planet. Give the man some credit.

I think I'm giving him plenty of credit.  I've said repeatedly that he's likely to produce outperformance over the long-run, albeit with extreme volatility.  That's not something any ordinary joe can pull off.  
 

You could also reasonably ask why Oildog is on such a crusade to trash a good fund.  Sure, it's volatile, and now may not be a bad time to get in, but a simple warning that the fund is not for inexperienced investors is good enough. 

Hi MasterPlan, I'm doing this because I've been around long enough to have a certain sense of history.  The standard warning that the fund isn't for inexperienced investors hasn't been enough.  We're seeing a large number of posters touting this fund unconditionally & the fund is showing up in many first-time portfolios of novice investors.  We saw the same thing a few years ago with focused value funds, but at least there the downside was fairly limited.  This one is a lot more like the tech funds - people are likely to get burned very badly.  Most investors can't tolerate 50%+ drops or decade-long underperformance.  They're likely to sell after heavy losses.  That's a guaranteed way to lose money.  If a few beginning investors avoid this trap after reading what I'm writing, my task will have been accomplished. 

Incidentally, I don't expect many to listen.  I started warning people about REITs and housing in late 2005, and 95% of responses were basically along the lines of "you have got to be crazy, look at the performance numbers!"  You're always going to be a lonely voice when you're going against the tide. 

 
Maybe he owned the fund and got burned because he didn't manage his position adequately and now is on a crusade to "save" other investors.  While that motive may be noble, it is not neccessary. 

I've never owned CGMFX or any Heebner funds, and I never will.   

Best,
Oildog

You are absolutely right, Oildog! 

As we all know, most investors are motivated by the two emotions of fear and greed.

It has been my experience that the "aggressive investors" [i.e. the greedy ones] quickly turn into "scairdy cats" [i.e. the fearful ones] as soon as their fantastic funds drop 20 or 30% and, of course, they bail out at a loss.  All one need do to verify this is check the statistics for the 2000-2002 crash.

We would all be better off in the long run by adopting Aristotle's ethic and exercising "Moderation in all things."

Jagor 

I love Oildog ripping into funds I own or am considering... he is absolutely right with many of his points and a contrarian view is always appreciated... I agree with most of what he says about CGMFX but will continue to hold a position until it gets way beyond 10% of my mix or Heebner retires or otherwise leaves the fund... and if we have enough days like today where the market is flat and the fund is up 4% it might be time to rebalance sooner than I had imagined

Ajw 

If a few beginning investors avoid this trap after reading what I'm writing, my task will have been accomplished. 

I don't consider myself a beginning investor but as mentioned above I messed up really really bad during the tech bubble and learned some valuable lessons. I for one appreciate what your saying and are  trying to accomplish. Clem