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Pzena's stock picks for 2009 and beyond
Posted by: abeck (IP Logged)
Date: February 5, 2009 09:03PM

Markets and their stocks may rise and fall, but gurus that advocate multiple stocks that become permanently impaired or worth even less should have their guru status re-considered.

Many investors were hurt during this recession, but few as badly as those (outside the realm of Bernie Madoff and other crooks) who actually listened to or invested along with Richard Pzena.

Maybe gurufocus could publish the guru's 36 month returns, say from January 1, 2006 to December 31. 2008, so we could better understand whose portfolio we are considering.

I remember reading the article below and wondering how could Pzena could be so bullish on Fannie (FNM) and Freddie (FRE) when Warren Buffet and Charlie Munger had become so sour several years back.

I am not sure exactly what it is that has my attention about Pzena more than, say, Bill Miller or Arnold Schneider or Bill Nygren or even Ken Heebner with his recent long calls on everything financial, but I find Pzena particularly dangerous.

Maybe it is that on November 21, 1997, Pzena went into great detail on his website and in publications such as Barons about the value and limited risk of these financial behemoths - - FRE, FNM and C in particular. I can only assume he never read Klarman's or Graham's book on value investing. I note, by the way, that Pzena's detailed analysis is now missing from his website, and in its stead, there is something about "surviving market cycles".

Either by great accident or small fortune, I didn't pay attention to Pzena's advice, but I kept the articles for future reference.

[online.barrons.com]

[online.barrons.com]

At the time, Pzena was pumping these and other articles to promote his newly public stock, PZN.


Stocks Discussed: FNM, FRE, C, BAC, LEH, CC, PZN,
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Rating: 4.0/5 (16 votes)



Re: Pzena's stock picks for 2009 and beyond
Posted by: Poleshuk (IP Logged)
Date: February 6, 2009 05:59AM

Wow abeck, thanks for that post. It clearly shows what a complete fool Richard Pzena is. He has to be one of the worst "investor's" in history! He doesn't know anything about value investing. It's so funny that he said that FNM and FRE "never change their credit standards." Did this idiot ever read one of their annual reports? They constantly lowered their credit standards every year from 1998 onward because they were being pressured by Liberal politicians and the NAACP to "promote home ownership for all". That was code for "give blacks and other minorities with poor credit mortgages they don't qualify for". The politicians told Freddie that they had a government mandate to promote home ownership to low-income borrowers, and if they didn't comply they would lose their ease of financing. And that's exactly what FRE and FNM started doing. I watched the sub-prime credit grow every year as a percentage of their loan portfolio. Also, they had massive derivatives exposure. On top of this, their total debt was far larger than all of the earnings that the company could ever generate even using the most aggresive estimates. So it was ridiculously overlevered. Plus, they engaged in "earnings management" (We're too polite to accuse them of fraud. Nudge,nudge.Wink,wink.) Bottom line, these companies were ticking time bombs waiting to go off. As I uncovered these facts back in 2005, I sold out at $67 a share and never looked back. Pzena is an idiot to think these stocks were only "moderate risk". What a moron!

His other picks were all disasters as well. BAC,COF, ALU. The "earning power" he based his estimates on were all wrong. What this amateur didn't understand, is that the "normalized earnings" he was using all came from the last 5 or 10 years and these earnings were all grossly inflated with excessive leverage. Historically, financial institutions can't carry this much leverage to equity and this anomaly only occurred due to a credit bubble. IF these companies survive, their true normalized earnings will only be about 1/3 to 1/4 of his estimates (using manageable leverage) and therefore his "bargains" turn out to be grossly overpriced. Consequently, his risk/reward estimates were all wrong. Furthermore, he never adequately anticipated the possibility of insolvency. No amount of upside potential is worth buying a company that has a legitimate chance of going bust. That would be like buying junks bonds during the 80's. You never see the promised high returns because you go broke first.

What I can't understand is how this fool got his hands on 3 billion to start his fund in the first place. He has more money under management than me and he is completely incompetent. The best thing he could do is give me all of his funds to manage and I'll pay him a cut. It is the great irony of capital, that true experts plug away in obscurity with almost no funds under management, while guys like him piss away billions.


Stocks Discussed: FNM, FRE, C, BAC, LEH, CC, PZN,
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Rating: 4.1/5 (16 votes)



Re: Pzena's stock picks for 2009 and beyond
Posted by: Amit Chokshi (IP Logged)
Date: February 6, 2009 09:15AM

What most people need to come to grips with is that the MAJORITY of investment managers that we deem as geniuses came of age during the largest and most significant bull market in history. In 1982 treasuries were at 14% due to rampant inflation + nasty recession. Inflation was basically tamed by volcker, so with a lower cost of capital, valuations were bound to rise so many of these buffoons just rode the gravy train. The 1982-2000 resulted in a lot of flaw investment strategies such as buy and hold without ever thinking abou the consequences or putting that into context in markets with secular bear markets like from 1965-82 where the S&P returned 0% over that period nominally, so inflation adjusted you'd have been down huge.


Stocks Discussed: FNM, FRE, C, BAC, LEH, CC, PZN,
Rate this post:

Rating: 3.6/5 (8 votes)



Re: Pzena's stock picks for 2009 and beyond
Posted by: traderashish (IP Logged)
Date: February 6, 2009 10:16AM

They may not be great or even good investors but they are no fools. They are making good money regardless of investment results. And they are most likely making more money than most people in this forum.


Stocks Discussed: FNM, FRE, C, BAC, LEH, CC, PZN,
Rate this post:

Rating: 3.7/5 (6 votes)



Re: Pzena's stock picks for 2009 and beyond
Posted by: Callaquin (IP Logged)
Date: February 7, 2009 10:57AM

wow!!! he really picked those stocks????? OMG... Maybe he isn't dumb, but he is
definitively lazy.


Stocks Discussed: FNM, FRE, C, BAC, LEH, CC, PZN,
Rate this post:

Rating: 3.5/5 (2 votes)





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