Updated: May 3, 2013 12:14PM
Originally published: July 26, 2001
Two fund managers discuss current market
Who ever said the stock market is “easy’’? Maybe two years ago you could throw darts at tech stocks and make money. But there’s no investment style that seems to be working consistently these days. And that’s tough not only on investors but on mutual fund portfolio managers.
Here’s how two successful long-term money managers, with differing styles, view today’s market:
The growth manager
Art Bonnel has been managing the Bonnel Growth Fund since its inception in October 1994, and he turned in a series of staggering double-digit annual gains, culminating in an 81 percent increase in 1999. But since the start of 2001, his fund is down 29 percent, following a 17 percent setback last year.
Bonnel takes it in stride.
‘’This is a typical bear market,’’ he says. ‘’It’s not tougher or easier than any other. In bear markets most stocks go down.’’
Bonnel says the key ingredient necessary for investment success is having the discipline to stick to your style. Bonnel’s style is buying stocks with increasing earnings.
‘’I always sell when companies announce lower earnings, or forecast that earnings will turn down,’’ he says. ‘’I sell even if it means I get out at a huge loss. That happened with Cisco, Sun, and Intel.’’
By the end of March, his fund was 70 percent in cash. Then he started buying--but only companies that were reporting higher earnings, even in an economic slowdown. Today his fund is down to only 2 percent in cash.
Bonnel says he’s a long-term investor, not a trader. Still, his fund sports a 200 percent annual turnover, and he acknowledges that he owns very few of the stocks he held last year at this time.
‘’What you have to do is focus on the long term and not the day-to-day fluctuations. Patience is a virtue in bear markets, in particular. In bull markets you can trade, but in a bear market you have to pick quality stocks, and let the company work its way through the system. And eventually you’ll look back and say, ‘Wow, I’m glad I was buying.’
‘’What we’re having now is a wonderful opportunity for Gen Xers and Gen Y, who have a 20-year time horizon. It’s tougher on boomers, because they have a shorter horizon. But if people put money in the market today, 20 years from now, it will be much, much higher.’’
Will Bonnel hazard a forecast?
‘’In 20 years,’’ he says, ‘’there’s a very good chance that the Dow could be at 30-40,000.’’
I’d dismiss that with a laugh--until I remember that Art Bonnel made another outrageous forecast in 1994 with the Dow under 4,000. Back then he predicted that the Dow would reach 10,000 by 2000.
The value manager
Charlie Mayer, manager of the $4 billion Invesco Equity-Income Fund and director of Value and Fixed Income investments for Invesco, is a value investor--and values don’t change overnight.
Two years ago, he was publicly skeptical of the premiums and prices given to technology stocks. Back then, value investing was out of style. Even so, his fund produced double-digit gains each year in the late 1990s. In spite of of last year’s market decline, Invesco Equity Income Fund gained 4 percent, but is down about 10 percent to date.
Mayer is optimistic about the second half--for both the economy and the stocks he owns.
‘’We’re bouncing along the bottom now as far as manufacturing and industrial activity, and I think we’ll see signs later this year that things are getting better, not worse,’’ he says. ‘’The consumer is a lot more resilient than people think. And in the second half, interest rates will continue to come down, tax refund checks will be spent, and the biggest tax cut of all will come at the gasoline pump.’’
So what stocks does he own? Mayer recites a list that includes old economy names such as Alcoa, Dow Chemical and 3M, as well as Citigroup and Texas Instruments.
Mayer is long-term bullish: ‘’I believe we’re in the contraction period of a normal economic cycle. We just haven’t had one [a down cycle] for a while and people forget about that. The economy and the stock market will rebound. The bullish story must be told. There’s just too much negativity in the media.’’
Not here. And that’s the Savage Truth.
Terry Savage is a registered investment adviser for stocks and commodities and is on the board of directors of Mc Donald’s Corp. and Pennzoil-Quaker State Co. Send questions via e-mail at firstname.lastname@example.org.