Baron Buys, Grantham Spots `Once in Lifetime' Chance (Update1)
By Sree Vidya Bhaktavatsalam
Oct. 27 (Bloomberg) -- Investors Ron Baron, Jeremy Grantham and BlackRock Inc.'s Robert Doll said the global selloff that has wiped out more than $30 trillion from stock markets has created buying opportunities.
``The stock market now reflects a lot of fear,'' Baron, who oversees more than $16 billion at Baron Capital Management LLC in New York, said in an interview. ``We're buying companies at great prices.''
Grantham, who oversees $126 billion as chairman of Boston- based Grantham, Mayo, Van Otterloo & Co., said U.S. stocks are cheap in his view for the first time in 20 years, and non-U.S. shares are even less costly. Known for a typically dour view on American equities, Grantham correctly predicted in July 2007 that a top investment bank would collapse because of losses linked to subprime mortgages.
Stocks are likely ``to set up a once-in-a-lifetime investing opportunity,'' Grantham, 70, wrote in a quarterly letter to investors. ``If stocks are attractive and you don't buy, you don't just look like an idiot, you are an idiot.''
Doll, the chief investment officer of global equities at New York-based BlackRock, said steps by the Federal Reserve and the U.S. Treasury Department to pump money into banks gives him confidence that the ``healing has begun.''
Thawing Out
``The system is beginning to unfreeze,'' Doll, who oversees more than $45 billion in large-company stock strategies, said in a phone interview. ``We're putting our cash to work.''
The global credit crisis has sent the Standard & Poor's 500 Index down about 40 percent this year, its worst annual retreat since 1931. MSCI's index of developed and emerging stock markets has plunged 48 percent in 2008.
Securities firms Bear Stearns Cos. and Lehman Brothers Holdings Inc. declared bankruptcy this year after collapsing under the weight of subprime-related investments.
The Treasury has deployed a portion of the $700 billion allocated in a financial-rescue plan enacted last month to buy equity stakes in banks.
``The system is getting fixed,'' Baron said. ``The banks are in better condition than they were in before.''
The $2.4 billion Baron Partners Fund has climbed an average of 4 percent over the past five years to beat 83 percent of rival funds, data compiled by Bloomberg show. The fund has declined 50 percent this year to lag behind all but 6 percent of its peers. Baron converted the portfolio from a hedge fund to a mutual fund in 2003.
Financial Stocks
Performance this year has been hurt by purchases of financial companies, which account for a fifth of assets, and consumer stocks. Baron increased his stakes in brokerage Charles Schwab Corp. and Bermuda-based reinsurer Arch Capital Group Ltd. in the third quarter. Schwab has dropped 21 percent and Arch Capital 16 percent since July 1.
Baron, 65, has a personal fortune estimated at $1.4 billion, according to Forbes magazine's survey of the 400 richest Americans. He is known for hosting investor conferences featuring mystery entertainers. The company's 17th annual conference on Oct. 24 drew 4,000 people and an appearance by comedian Jerry Seinfeld.
Doll, 54, oversees funds including the $2.5 billion BlackRock Large Cap Core, which has declined 42 percent this year, trailing 71 percent of similarly managed funds, Bloomberg data show. The fund has added to stakes in technology and consumer stocks.
``We are in a bottoming process,'' Doll said. ``On the big down days in the bottoming process, those are the days we want to be adding.''
`Wonderful Bargains'
Robert Arnott, the founder of Research Affiliates LLC who in 2006 predicted that global stocks were poised for a decline, said investors are reaching the capitulation phase that typically marks the end of a bear market, when most investors give up on a comeback.
Investors pulled a record $52.1 billion from stock and bond mutual funds in the week ending Oct. 9, according to TrimTabs Investment Research in Sausalito, California. Since then, outflows have decreased, with investors pulling $28.9 billion combined in the two weeks ended Oct. 22, TrimTabs data show.
``I find the current markets a fascinating source of some wonderful bargains,'' said Arnott, 54, whose Pasadena, California-based firm manages $40 billion.
Some financial stocks present good opportunities after losing more than half their value this year, Arnott said. Financial stocks in the S&P 500 have declined 52 percent this year.
Outside the stock market, Arnott said emerging-market bonds, inflation-protected Treasury securities and convertible bonds offer the best opportunities.
Arnott is best known for developing a ``fundamental index'' that includes stocks based on metrics such as sales and cash flow rather than market value.
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