WSJ: Best Stock Fund of the Decade: CGM Focus

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Dec 31, 2009
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One of the funds managed by Investment Guru Ken Heebner - CGM Focus Fund – is ranked as the “Best Stock Fund of the Decade” by Wall Street Journal today. The Fund rose more than 18% annually through December 29, 2009 for the past 10 years.

That is if you put your money into the Fund at the beginning of the 10 years and have never moved in or out. If you do the same as the average investors have done, namely taking money out when the Fund suffered a terrible loss, and putting money in when the Fund had a terrific run, you would have lost 11% annually. That is according to Morningstar, Inc, who calculates this sort of things.

GuruFocus tallied the annual return of the CGM Focus Fund since 1999. The table offers some hint on why thing turned so ugly for the average investors: between Year 2000 and 2007, Heebner routinely beat the index by a huge margin by in some years raking in gains over 50%. In 2007, his fund returned 80%. By that time every investor heard about Ken Heebner and wanted him to manage their money. New money poured in and then he lost a total of 48.2% in 2008. According to WSJ article, that is exactly what happened:
Investors poured $2.6 billion into CGM Focus the following year, only to see the fund sink 48%. Investors then yanked more than $750 million from the fund
CGM Focus Fund only had two down years in the past decade (2002 and 2008). Unless far more money was bestowed to him right before he had those down years, it is hard to understand how can one loses 11% in a fund that on average gained 18% during the past 10 years.

YearReturn (%)S&P500 (%)Excess Gain (%)

Investors, trying to beat both the index and CGM Focus Fund performance, ended in losing both battles.

The top rank and publicity must be mixed bag news for Heebner as he remarked: "A huge amount of money came in right when the performance of the fund was at a peak," and he went on "I don't know what to say about that. We don't have any control over what investors do."

I do not know what to say neither: on one hand, no one has done better in achieving the highest average return than Heebner; on the other hand, couldn’t he have done differently when his success brought in so much more new money?

The print version of the paper actually listed Bruce Berkowitz ’s Fairholme Fund as the No. 5 best fund for the past decade, returning 13.6% per year for the past 10 years. Of course, we all know, Bruce Berkowitz is elected as the “Investment Guru of Year 2009” by GuruFocus users.

Heebner, on the other hand, was elected by GuruFocus users as the "Investment Guru for Year 2007". So collectively, we may all contributed to the negative average investor return of the fund.

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