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Industry Critic Offers a 'Bottom-Up' Strategy

October 06, 2006

Louis Lowenstein, a button-down 81-year-old emeritus finance and law professor, is positioning himself to become the mutual fund industry's most urbane critic. Listening to him talk about his book in progress, which he promises will uncover the "shame" of the fund industry, is like watching a man sharpen his sword to do battle with a tank. One can't help but wish him well.

Over the past two years, Lowenstein has given speeches and written articles that parsed the performance of the industry's largest funds and found them lacking. He discovered that a group of value funds run by buy-and-hold investors repeatedly beat the largest funds from household-name fund companies. The value investors he studied also avoided buying almost all the bubble-year debacle stocks. (Although one bought Nokia Corp. and sold it for a 1,900 percent profit.)

In a January paper he wrote for the Center for Law and Economic Studies at Columbia Law School, which later became an article for Barron's, he compared 15 large-cap growth funds with 10 value funds.

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