Believing that the financial oracles may have lost their gifts, many advisers appear unwilling to tie their fortunes to the investment acumen of such big-name investors as Warren E. Buffett and Bill Miller.
Believing that the financial oracles may have lost their gifts, many advisers appear unwilling to tie their fortunes to the investment acumen of such big-name investors as Warren E. Buffett and Bill Miller.
"I appreciate an articulate spokesman as much as the next guy," said J. Michael Martin, president of Financial Advantage Inc., a Columbia, Md.-based firm with $260 million in assets. But just because someone has carved out a niche for themselves as a leading light doesn't mean that what they have to say is correct — especially these days, he said.
"They all have different philosophies and strategies," said Nicholas Spagnoletti, a partner at Macro Consulting Group LLC, a Parsippany, N.J., firm that oversees $300 million in assets.
An adviser needs to take what the gurus say with a grain of salt during these volatile times, he said.
Increased market volatility means that long-only management practiced by the likes of Mr. Buffett, chairman and chief executive of Berkshire Hathaway Inc. of Omaha, Neb., Mr. Miller, manager of Legg Mason Value Trust (LMVTX) at Legg Mason Inc. of Baltimore, and even Bill Gross, chief investment officer of Pacific Investment Management Co. LLC of Newport Beach, Calif., no longer fit the needs of clients, Mr. Martin said.
Pimco and Mr. Gross have been relatively successful during the market's recent volatility, but the legendary fixed-income manager was too early to raise the alarm about inflation.
For example, in his June investment outlook, he said that U.S. inflation wasn't under control, an observation that proved to be incorrect.
'BAD CALLS'
"He made bad calls," said Richard Schroeder, executive vice president of Schroeder Braxton & Vogt Inc., an Amherst, N.Y., financial advisory firm with $220 million in assets under management. However, he said, "I still respect Bill Gross."
Of course, Mr. Gross hasn't disappointed investors with poor performance to the extent that other market gurus have.
Class A shares of his $138.35 billion Pimco Total Return Fund (PTTAK) were down 0.94% year-to-date as of March 11, up 1.49% for the one-year period, up 5.29% for the annualized three-year period and up 3.97% for the annualized five-year period.
The Barclays Capital U.S. Aggregate Index was down 1.15%, up 3.49%, up 5.28% and up 3.82% for those respective periods.
Meanwhile, Class C shares of Mr. Miller's $3.28 billion Legg Mason Value Trust (LMVTX) were down 21.77%, down 56.56%, down 29.35% and down 15.67%.
Because the Legg Mason fund invests in equities, its visit to negative territory isn't surprising, but it has done much worse than the broad equity market.
The Standard & Poor's 500 stock index was down 19.61% year-to-date, down 43.98% for the one-year period, down 15.64% for the annualized three-year period and down 6.35% for the annualized five-year period.
Mr. Buffett doesn't run a mutual fund, but Class A and Class B shares of Berkshire Hathaway (BRK.A and BRK.B) have disappointed investors. The holding company owns more than 70 businesses.
Created in 1996 to thwart the creation of unit trusts that would have marketed themselves as Berkshire lookalikes, Class B shares represent 1/30th of the value of the Class A shares and have 1/200th of the per-share voting rights.
On March 11, Class A shares were still among the most expensive in the United States, closing at $83,700 a share, but were down 13.4% year-to-date, down 26.6% for the one-year period, down 2.4% for the annualized three-year period and down 1.9% for the annualized five-year period.
The company's Class B shares followed the same pattern.
That isn't the kind of performances that inspires awe.
Mr. Buffett, however, has taken the situation as an opportunity to raise his profile.
He appeared on CNBC on March 9, where he said that the nation likely will face higher unemployment and eventually inflation be-cause of the economic crisis.
Although Mr. Buffett may well be right, Mr. Schroder said he doesn't think that now is the time for the Oracle of Omaha to be taking to the airwaves.
"Forecasting is a loser's game," Mr. Schroder said. "I think it might detract a bit from his credibility."
It certainly doesn't help Mr. Buffett's credibility that a particularly well-respected mutual fund has been selling his stock.
Bruce Berkowitz, founder of Fairholme Capital Management LLC of Miami, adviser to the $5.86 Fairholme Fund (FAIRX), had sold all its shares of Berkshire Hathaway by the end of last year, said Michael Breen, a senior analyst with Morningstar Inc. of Chicago.
TROUBLING SIGNAL
After getting out of Berkshire Hathaway, Fairholme made a point of telling investors that it wasn't because the behemoth was a bad company, Mr. Breen said. Instead, Fairholme said that there were better options available, he said.
Mr. Berkowitz didn't respond to requests for comment.
His dumping of Berkshire Hathaway, however, is a particularly troubling signal since his investing acumen is so well-respected that he is mentioned by some industry experts as a possible successor to Mr. Buffett.
The problems faced by the likes of Mr. Buffett, Mr. Miller, Mr. Gross and other investment luminaries, however, are nothing new.
Mr. Buffett had been counted out by many investors in the late 1990s when he refused to get involved in the Internet companies that fueled the technology bubble. A few years later, the consensus was that he looked like a genius for staying away.
But this time feels different, Mr. Martin said.
"I think there are great opportunities for new star managers, be-cause a lot of stellar track records were made by just recognizing what the big picture was and piling on," he said.
Now managers need to be more tactical and embrace alternative investments, Mr. Martin said.
E-mail David Hoffman at dhoffman@investmentnews.com.
