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Paul Merriman: Top Fund's Shareholders Missed The Party: CGM Focus Fund
"CGM Focus Fund is for investors who believe that a smart manager can beat the market by picking stocks"
"I've never found a manager or a fund that consistently beats the market, although many certainly try."
"Back in 2009, Morningstar's Christine Benz looked at the reported returns and investor returns for CGM Focus, which had produced off-the-charts performance for years. She calculated that in the 10 years ended July 31, 2009, an investment of $10,000 would have grown to $51,633.
But when she studied the fund's investor returns, she found that an initial $10,000 investment would have shriveled to $1,585.
The fund could legally report a 10-year gain (not annualized) of more than 400%. Actual investors, on the other hand, lost more than 84% of their money in that same 10 years.
This discrepancy, while it is extreme, isn't limited to this fund. It's typical of investor behavior in general, as a research company named DALBAR has reported over and over.
Over 10 years, this difference between $51,633 and $1,585 was all due to investors' performance chasing while they repeatedly mistimed their purchases and sales, Benz wrote.
As this shows, impatient investors who are intent on beating the market can turn a mutual fund manager's superb 10-year performance (17.8% annualized) into awful returns for themselves (annualized losses of 16.8% over 10 years!)."
Avert your eyes. That's how (the only way) I turned $5k with this fund manager into >$65k over two decades. And I bailed a couple years ago only cuz I was (forcibly) entering retirement. Would it had been $50k waay back when. But then I would have been totally unable to avert my eyes. At least I have one my children in FLVCX.
Avert your eyes. That's how (the only way) I turned $5k in this fund into $165k over the decades. And I bailed a couple years ago only cuz I was (forcibly) entering retirement.
Congratulations. Also, you had to have added new monies to that original $5k, not just reinvested distributions, to turn $5k into $165k
No, no additional moneys, but I was wondering last night if I had my damn math memory right. I have to check when I went in, because it may have been before CGM was founded (Loomis prior), in case you are looking at the M* graph. And I was in LOMMX prior also. So I will see if I can puzzle the history out, just for the heck of it. I don't think I kept all my source paperwork because I also converted it to a Roth when I could. And I think lucky timing was involved as well, a bit.
davidmoran, M* lists the 15-year return of CGMFX as 14.52%. The fund inception date was Sept. 3, 1997. You "bailed a couple years ago", so if you got in at inception, you were in very roughly 15 years. An initial investment of $5,000 compounds to $38,211 over 15 years at a 14.52% return, with all distributions reinvested.
Anyone who got into this fund in time for the 2000 and 2001 performance hit a grand slam, and I'm sure you were one of them.
I think his 2000 and 2001 performance will go down in investing history as truly without equal. Same goes for his 2007 performance.
Perhaps just as surprising is how poorly he did in 2008, 2009 and 2011. In 2011, he underperformed the market by over 28 percentage points! In 2009 he underperformed the market by over 16 percentage points.
What a party in 2007, but then the hangover in 2008 and 2009.
Of course. As I said, am trying to trace the exact history. I did not initially invest with CGM/Heebner in 1997; I said 'decades.' May have proper history presently, not sure.
More errors on my part: but what happened was in spring of 1992 I put 5k in CGM Mutual Fund, averted my eyes, and just after Labor Day 1997 moved it all (it had more than doubled) to CGMFX, averting my eyes further until early spring 2011, when fearing downsizing and earlier-than-desired retirement, I rolled half of it over into something more prudent (of course anything would be more prudent) but left half w Heebner, except moved into CGMRX, which, having still averted my eyes, I finally bailed out of spring of last year. So the total rollover came to >65k, not 165k, my bad. From 5k, with no additions. My point naturally was that the only way to have even been able to have exposure to some lucky timing with the guy in all of those ~21y, achieving >3.5 doublings, was almost never to watch. He's a one-man shop, famously nerdy and studious. Amazingly (to me), he lives like a block or three from Tillinghast. And now yet again he is pronounced fallen.
You made a great move in moving it all to CGMFX in 1997. Yeah, he is famously nerdy and studious. Probably one of the most studious managers out there. Fully committed to investing. He has few other interests in life, and rarely takes a vacation. Probably works very long hours. IIRC, I think his wife may also be a mutual fund manager, at least that's what I read several years ago.
I remember the days when his CGMRX trounced everything in sight. No other real estate fund could even come close. I notice from his calendar year performances there too, that he is very often either in the top 10% or bottom 10%. Amazing. Somebody should undertake a serious study of his investing methodology. Unfortunately, he doesn't say enough in his annual and semiannual reports to really divulge.
Even now, he has a huge short position in Treasuries in CGMFX. Quite an investor.
The only thing one needs to understand about CGMFX right now is manager age which is well into his 70s. Might be nearing 80s. If you own it is one thing. If you are buying new position, you are crazy.
If there was ever a fund that's the manager, this is it. When he goes, it cannot be the same fund.
Yes, he is the fund, and it has never been otherwise.
rjb, half my moves are great in hindsight. I thought in those gogo years that I did not want to be in a balanced vehicle even run by him. Recall that the '80s were almost invariably gogo years too; it was an amazing time for anyone who suffered through the 1970s. Anyway, as soon as a focused variant was announced, I was in bigtime. And after the r-e slump, or the start of it, I wanted to dive into CGMRX. I am out of all Heebner now and will stay out.
If I had spare moneys I would put some again into CGMFX, hoping for regression to some mean or other .
That is not a bad idea at all. Heebner is super smart. It would not surprise me if he had a regression to the mean. I would not count him out. He is one of the most knowledgeable investors out there.
When you are retired and watching things like a hawk (an ignorant hawk, not the same as an owl), you try to be only tempted by such things, no more. As I said earlier, I have one of my children in FLVCX significantly (for her), and at the moment she does no watching of its behaviors. I actually misdescribed her monitoring above, as she does not need to avert her eyes; she does not pay attention.
I hope your own investing goes quite as you need more or less. It would not hurt to put a few *spare* thou in CGMFX and FLVCX if you could afford to lose half of it (he said blithely).
Comments
"I've never found a manager or a fund that consistently beats the market, although many certainly try."
"Back in 2009, Morningstar's Christine Benz looked at the reported returns and investor returns for CGM Focus, which had produced off-the-charts performance for years. She calculated that in the 10 years ended July 31, 2009, an investment of $10,000 would have grown to $51,633.
But when she studied the fund's investor returns, she found that an initial $10,000 investment would have shriveled to $1,585.
The fund could legally report a 10-year gain (not annualized) of more than 400%. Actual investors, on the other hand, lost more than 84% of their money in that same 10 years.
This discrepancy, while it is extreme, isn't limited to this fund. It's typical of investor behavior in general, as a research company named DALBAR has reported over and over.
Over 10 years, this difference between $51,633 and $1,585 was all due to investors' performance chasing while they repeatedly mistimed their purchases and sales, Benz wrote.
As this shows, impatient investors who are intent on beating the market can turn a mutual fund manager's superb 10-year performance (17.8% annualized) into awful returns for themselves (annualized losses of 16.8% over 10 years!)."
Anyone who got into this fund in time for the 2000 and 2001 performance hit a grand slam, and I'm sure you were one of them.
I think his 2000 and 2001 performance will go down in investing history as truly without equal. Same goes for his 2007 performance.
Perhaps just as surprising is how poorly he did in 2008, 2009 and 2011.
In 2011, he underperformed the market by over 28 percentage points!
In 2009 he underperformed the market by over 16 percentage points.
What a party in 2007, but then the hangover in 2008 and 2009.
http://www.secinfo.com/dsphz.xa.htm
Yeah, he is famously nerdy and studious. Probably one of the most studious managers out there. Fully committed to investing. He has few other interests in life, and rarely takes a vacation. Probably works very long hours. IIRC, I think his wife may also be a mutual fund manager, at least that's what I read several years ago.
I remember the days when his CGMRX trounced everything in sight. No other real estate fund could even come close. I notice from his calendar year performances there too, that he is very often either in the top 10% or bottom 10%. Amazing. Somebody should undertake a serious study of his investing methodology. Unfortunately, he doesn't say enough in his annual and semiannual reports to really divulge.
Even now, he has a huge short position in Treasuries in CGMFX. Quite an investor.
If there was ever a fund that's the manager, this is it. When he goes, it cannot be the same fund.
If I had spare moneys I would put some again into CGMFX, hoping for regression to some mean or other
As for methodology and studiability thereof, see:
http://www.hedgefundletters.com/cgm/
Yes, he is the fund, and it has never been otherwise.
rjb, half my moves are great in hindsight. I thought in those gogo years that I did not want to be in a balanced vehicle even run by him. Recall that the '80s were almost invariably gogo years too; it was an amazing time for anyone who suffered through the 1970s. Anyway, as soon as a focused variant was announced, I was in bigtime. And after the r-e slump, or the start of it, I wanted to dive into CGMRX. I am out of all Heebner now and will stay out.
Heebner is super smart. It would not surprise me if he had a regression to the mean. I would not count him out. He is one of the most knowledgeable investors out there.
I hope your own investing goes quite as you need more or less. It would not hurt to put a few *spare* thou in CGMFX and FLVCX if you could afford to lose half of it (he said blithely).