a gentle word from Mr. Gintel in the current IBD.
Mutual Funds & Personal Finance
Monday, March 12, 2001
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Managers Urge Long-Term View Of Tech
Rap ‘Unbridled’ Tech Spending In Past; Say Strong Will Survive
By Peter McKenna
Investor's Business Daily
If your tech-heavy fund is worth a fraction of its value a year ago, should you point a finger at your fund manager?
Some experienced fund managers say the answer is yes. They question the judgment of managers who bought weak tech stocks and were sucked into believing they would go up forever.
"You have to wonder what was going through the minds of the managers who bought stocks with no earnings at ridiculously high prices at the height of the tech frenzy," said Robert Gintel, manager of $130 million Gintel Fund.
Gintel, whose $124 million, C- rated fund is up 7.7% this year, said savvy fund managers would have refused to participate in the "unbridled, irresponsible trading" that took place in 1999 and early 2000.
"It was clear from history that this type of mania would eventually burst," he said. "But younger, less experienced managers didn’t realize what was going on."
Gintel, 72, believes these managers succumbed to the buying frenzy that dominated the market in 1999.
"They were afraid to sell a stock, fearing it would go up after the sale," he said, "and they paid no attention to valuations because they thought techs would go up forever."
Gintel saved his harshest criticism for managers who believed that tech was immune from economic slowdowns.
"The price of weak stocks can stay up when the economy is humming," he said, "but they crash when it slows down. I have been in the investment business for 40 years, and I’ve run this fund for 20 years, and this is the most irresponsible thing I have seen."
Inexperienced managers did not understand that every industry and every company is subject to cyclical forces, Gintel says, even companies with the most stable products and sales.
"There are even times when Coke won’t be able to get people to drink more Coke," he said.
Gintel said he sold the few tech stocks he owned in 1999 and 2000 when they were high.
His fund, which fell 34% last year, has risen an average annual 13% the past five years and 11% the past 10 years, according to Morningstar Inc.
Gintel and other seasoned managers limited their criticism to managers who did not follow time-honored rules of investing.
Said Bob Zuccaro, manager of $168 million Grand Prix Fund, "If a manager bought companies with no earnings prospects and poor relative strength, like the dot-coms, and if they failed to diversify their portfolio holdings, that is a failing."
Zuccaro has been in the investment business for 33 years. His A+ rated fund fell 37% last year and is down 36% this year, but it is one of just six funds to post back-to-back years of triple-digit returns in 1998 and 1999.
"There is no such thing as a totally safe stock," he said. "The safest way to invest is to buy only those stocks with strong earnings and relative strength rankings."
Zuccaro, like other senior managers who spoke with IBD, was not critical of managers who bought stocks with these strengths and held on to them, even though the economy has slowed considerably.
"These managers never thought that tech was immune to economic cycles," he said. "They understood that all stocks are cyclical, even tech, but that once you find good stocks, you have to hold them for the long term."
Zuccaro said it would be foolish for investors to dump a good fund because it is having a bad year.
"Every good fund will have its day in the sun and its day in the rain," he said, "but they can make you rich if you just hold on."
Bob Turner, who runs $147 million Turner Top 20 Fund, down 28.56% for the year, agrees with Zuccaro.
"An aggressive growth fund with a heavy tech weighting might be down now," he said. "But if the manager bought stocks with earnings strength, he will ride out the economic cycles and prosper in the future. Unlike inexperienced managers who bought the dot-coms, these managers were not fooled by the cyclicality of tech; they were setting themselves up for the future."
Matthew Fitzmaurice, chief investment officer for $5 billion Amerindo Investment Advisors, believes that investors should separate experienced managers who bought for the future from those who rushed headlong into every dot-com they could find.
"Yes, tech is cyclical, but so what. Everything is cyclical," he said. "If you have a five- to seven-year outlook, it doesn’t matter that techs are being hurt by cyclical forces right now. In the long scheme of things, cyclicality will not be relevant for most of the really strong tech stocks."
Fitzmaurice advises investors who believe in their manager’s stock-picking ability not to sell their funds amid this downturn.
"The problem is that you don’t know when the market has reached a top or a bottom," he said. "The hardest thing in the world is to sell and then time your re-entry into the market. It’s best to be patient." |
