hey badon518. Mutual funds have to be concerned about liquidity because they want to have the ability to get in and out of stocks quickly and also to have those stocks positively affect performance. When a fund gets too big, it's handicapped on those two points, which is why the only 2 mutual funds I own, JAGTX and TIFQX, recently closed.
WWWFX was getting pretty big (at the time, I think it was $600-$650 mill) considering the fact that manager Ryan Jacob bought highly concentrated stakes in thinly-capitalized stocks (which are harder to trade, because there are so few shares floating around, that it would take weeks to build up or shed a full position).
Ryan Jacob, on at least 3 separate occasions, said he would not consider buying a foreign stock unless it was available as an ADR (American depositary receipt, which I know nothing about). Apparently this has something to do with liquidity. Although I have a very hard time believing that a stock with a market capitalization of around $50 billion at that time was not liquid enough without the ADR.
In my opinion, the liquidity issue (anyone who actually knows a lot about ADRs can chime in to debunk me here) is a red herring. If Ryan Jacob truly cared about liquidity, he wouldn't have been, by *far*, the largest mutual fund shareholder in theglobe.com (TGLO), a stock I've always despised. It had one of the thinnest floats out there (not to mention that it was a wildly overpriced me-too second-tier community site) and Jacob went so hog wild that when, after he left, the stock crashed, WWWFX was unable to divest its position for months. The new portfolio managers of WWWFX were pretty upset about that situation.
Most importantly, I still don't understand why *no Internet funds* ever bought Softbank. How can they defend that behavior? How could you ignore the largest diversified net stock in the world? All these funds were paying a ton for Yahoo! and E*Trade, so why didn't they buy the same stocks at a tremendous discount through Softbank? Instead, they stuck to other foreign stocks like Gilat Satellite (GILTF), which are only moderately related to the Internet sector. Munder NetNet also thought Racing Champions (RACN) and theglobe.com were better buys than Softbank, go figure. Fortunately, other mutual funds (Warburg Pincus, Acorn, Gabelli) liked grossly undervalued Internet stock more than Internet fund managers. Maybe someday when I'm overlooking my Italian villa, I'll have a drink with friends edwin fujinaka, jay chen, and malcolm b., and we'll have a nice laugh over this. ha ha. :)
- Netconductor.com
>>badon518 wrote:
net, i can think of many reasons, both last fall, and now, why one wouldn't want to invest in sftbf (i didn't say i
agreed with them, but i am aware of them), but i don't understand the liquidity thing. i'm not a finance guy, so i was
wondering if you could explain the reasoning behind jacob's problem with liquidity, even if it has proved not to be
the case. thanks in advance. |
