Asbury Park Press – Nothing chills congenial feelings between a money manager and his investors faster than a cold streak.
Years of admiration and satisfaction can fade in an amazingly short time when the manager’s performance falters … even if the reason is nothing more substantial than a temporary shift in market conditions.
Witness the recent tale of Ross Margolies, acclaimed manager of both mutual funds and hedge funds, who piloted the Salomon Brothers Capital Fund to a dazzling annual gain of about 18 percent from the end of 1994 until April 2004.
Only 1 1/2 years after he set up his own hedge-fund firm, Saranac Capital Management LP, defections by clients impatient with the firm’s performance pushed him into closing it down.
Less than halfway through 2006, a what-have-you-done-for-me-lately cloud has also gathered around Bill Miller, the manager famed for having beaten the Standard & Poor’s 500 Index 15 straight years with the $20 billion Legg Mason Value Trust.
Both on cable TV and in print, we’ve seen news stories lately saying Miller’s fabled streak appears in jeopardy. In early 2006 through the middle of last week, the fund has lost 6.3 percent while the index is up 1.6 percent.
All this puts a new frame around one of the oldest questions in investing: how long to stick around when a leading money manager starts to lag.
The situation opens the door to “one of the biggest mistakes investors make … selling a good investment while it’s in a slump, then missing the eventual recovery” says the newsletter No-Load Fund Analyst in a current look at the subject. “Every manager goes through slumps.”
