Smarter Money: The Landis Backlash Part 2

"Now whether or not that part of the market is a worthwhile investment sector is up to the individual who elects to put money into a sector-specific fund." The manager has already told you that he thinks it's a great area and the investor believes the hype.

"And I think most intelligent investors use funds like Firsthand for the part of their portfolio that they want invested in technology only." Again, investors give money to funds to make money, not to lose money. If you are saying that losses can't be avoided, then don't offer the fund. If you are saying that people understand the risks, so therefore everything is fine, I would tell you that it is impossible to understand losses of this magnitude, period, because we presume that professionals will avoid such losses. That's what professionals do. Amateurs send money to professionals because if they want those losses, they can do that themselves -- they don't need to pay others to rack them up.

"Not all investors are intelligent, so there are probably quite a few people who had far more money than they should have had in funds like Firsthand or Janus or any other aggressive U.S. growth manager and got toasted for it. That is the fault of not properly diversifying, not a fault of the fund manager." First, we say that the individuals accept Landis' pasting because they earmarked Landis for the portion of their portfolio that is tech. Then we blame them for not diversifying properly? More money than they should have? Did it say somewhere, "Don't send me a lot of your money?" Was there something that told people that this was a really bad investment and they shouldn't send a lot of money into it?

"I think your insinuation that a smart fund manager should have been able to see this tech crash coming and protect his investors by going to cash or shorting or sending people back their money is ridiculous! That is not their job. That was once your job. But you ran a hedge fund, not a mutual fund." My insinuation? My insinuation? I wasn't the one who claimed to have firsthand knowledge of what was going on in Silicon Valley. I wasn't the one who said I would see the decline coming and sidestep it, or that my sources were closer to the companies than anyone else's. I wasn't the one saying I was up close and personal with the people running these companies and their products.

You think I picked Kevin Landis' name out of the mutual fund phonebook? Landis, more than any fund manager in the world, held himself out as the guy who would see the downturn coming. He was the one who reassured people, not me. He was the one who lulled you into thinking that if there were a downturn, he would spot it first. That's why I'm on his fund's case. That and the simple truth that you could see this downturn coming. And I did see it coming, as did Herb Greenberg, as did many people. These companies were telling you.

Landis had the same information I had, probably better. But he took no action. He either took no action because everything is supposed to work out in the long run or because he didn't know to take action. Frankly, I don't care what his reasons were. I care only that he told us he would see it and take action, and he didn't. That's all I care about. He did no loss avoidance whatsoever. What was the point of saying you were close to the Valley, close to the sources, if it wasn't to avoid the carnage? We were, by the way, both fiduciaries any way you cut it, hedge fund or mutual fund.

"Now, if you have an issue with the way mutual funds operate by their nature, or if you really are trying to make investors feel better by placing the blame for their losses on Landis, you should just come out and say that. But to criticize Landis for trying to manage a tech fund that must be invested to a large degree in a terrible market is just foolish."

Well, excuse me. I don't do anything to make investors feel better -- never have, never will. I am motivated by a desire to have capital appreciate and be preserved, not to lose it. I don't care who does the losing. I don't like it. To me, these numbers are so bad that, objectively, I question whether Landis understands what you are supposed to do when you discover that the fundamentals have turned down. That's my beef. Most mutual fund managers would sell. That's why you don't see Fidelity Funds down like these ones. They at least know how to sell. Landis let his investors down. The investors did not let Landis down.

I can't believe we've all become so brainwashed that we actually want to blame the individual investor for being crushed by a manager!

Imagine that.

Click here to return to Part 1.