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Panic dominates

October 28, 2008

Richard Pzena had a few victims lately This is his third quarter commentary. "Panic dominates, so the choices are set: run and hide, or seek to exploit the opportunity. Our DNA makes the decision clear, and history provides some long-term comfort."

"From Wall Street to Main Street, from the City to the Bourse, investors are panicked. This crisis of confidence has claimed victims that one year ago would have seemed laughable. Bear Stearns, Lehman, Merrill Lynch, Fortis, Bradford & Bingley, AIG, Wachovia, Fannie Mae, Freddie Mac, just to name a few. Unfortunately, we have been caught with some of these positions in our portfolios as we sought to exploit the fears, rather than hide from them."

"Our approach of exposing the portfolio to the cheapest stocks has often protected our investors from the downside risks to the market, although that has not been the case for much of this cycle. Nevertheless, some interesting changes to market leadership are afoot. The value/momentum cycle appears to have begun to turn. While the current volatile market has been driven by emotion, the turn may actually be justified by the fundamentals for the two sectors at the heart of the cycle - commodities and financials. Historically, these turns come before the data is completely clear or consistent. But once the data is available to the market, the investment opportunity will have passed."

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Read the complete commentary



Rating: 3.3/5 (15 votes)

Comments

traderashish
Traderashish - 5 years ago
Pzena's fund PZFVX has 5 year return of -5.70% per morningstar.
PHILCIR
PHILCIR - 5 years ago
this guy should be ignored - he might be worse than nygren and that's saying a lot.
cm1750
Cm1750 premium member - 5 years ago
I really think Pzena should be eliminated as a guru. In the past 10 years (using Morningstar), PZFVX has only really outperformed for the four years starting March 2000 when value stocks were so insanely cheap given investors only bought tech. Once these beaten down stocks returned to fair value in early 2004, his outperformance was over.

Pzena basically had a good 4-year period of outperformance in 2000-2004, like the tech momentum guys did from 1996-2000. And similar to the tech guys, his overinflated ego likely made him think he actually knew how to invest, with subsequent big investments in CFC, FRE, C, MS, LEA etc.

"This crisis of confidence has claimed victims that one year ago would have seemed laughable. Bear Stearns, Lehman, Merrill Lynch, Fortis, Bradford & Bingley, AIG, Wachovia, Fannie Mae, Freddie Mac, just to name a few."

Laughable? Gee, what did you think would happen when companies lever up 10x-40x to invest in mortgages that could decline 20%+? Its not like the housing bubble or existence of ARMs was a secret even in 2005. Had he thought of doing some basic scenario analysis for his biggest holdings?


AlbertaSunwapta
AlbertaSunwapta - 5 years ago
Interesting - I'd imagine this has been thoroughly discussed in the past but over what arbitrary period should Guru's be required to beat a benchmark to maintain their "guru" status? Monthly, yearly, every 5 yrs, 10 yrs... ? (i.e. some astronomical basis)

Or should it be based on performance through a recession - expansion cycle?

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