Long-Haul Investing

It helps when fund managers are given freedom to follow their intellect. That includes the ability to hold lots of cash when they can't find enough bargains. Too many funds hamstring their managers with benchmarks and quarterly figures. They make them invest fully in the market, even if they can't find anything good to buy.

That makes business sense for the fund managers' employer, because it cuts down on the wave of redemptions they would get after one or two quarters of "underperforming" the market.

But it makes bad sense for long-term investors. Buffett has frequently remarked that such quarterly reviews would have prevented him from achieving what he has. Some good fund managers, like Danoff at Fidelity, also get burdened with too much money to handle. Again, it makes sense for the fund management company but not for you.

I also have a soft spot for fund managers who "underperformed" during the mania of 1999. If I want to gamble my savings at the track, I'll go to the track.

Guarantees do not come with the stock market. All you can do is make your best estimate of the balance of probabilities. I personally have money invested in Legg Mason Value, Quaker Strategic Growth, Muhlenkamp and Oakmark Select.

As I wrote in December, most of these fund managers underperformed the average, as measured by the stock market indices, in 2006. I don't take that as a sign that they have "lost their touch," though of course that is always possible. I take it as a sign to be wary of what the average investor is willing to pony up for stocks right now.