Some great disasters make you want to avert your eyes. The Hindenburg.
. Janus. If you lost money in a Janus fund, you won't get it back anytime soon. But you can make sure you won't get killed again.
Before the market cratered, there were signs that Janus was starting to stumble. Of course, few people saw them back then. But a look back at what happened to this firm and its once-mighty funds produces a handy checklist of signals that should help you avoid a Janus-like catastrophe in the future.
Too Much Money
Those hot Janus returns during the '90s were the ultimate come-on for investors. Year after year, money poured into funds, sending the firm's assets from about $1 billion at the start of the decade to over $300 billion by 2000.
But too much money in a fund can wreck its performance. A manager who is running a fund that's taken in a lot of cash might be forced to buy more stocks and larger stocks just to put the money work. That can quickly change the style and makeup of a fund. Or the fund takes bigger positions in the stocks it already owns, and that can ratchet up the risk.
How big is too big? Well, a good tip-off that a fund has taken in way too much money is when it closes to new investors. That's almost always too late. A fund will rarely shut off the flow of money too early.
By the middle of 2000 -- right about the time the market started to turn -- seven of the 15 Janus retail stock funds were closed to new investors. Warning.
All The Funds Started to Look Alike
The Janus funds got so big so quickly, the managers kept betting on the same ideas and funneling all that new money into the same stocks. When a fund company owns billions of dollars of a single stock, that position can be hard to get out of when and if the stock starts to fall. Any selling will send the stock even lower, driving it down further and further.
And with the kind of groupthink that was reigning at the company, its funds all started to look alike.
By the late '90s, you'd find
, the former
and the former
in many Janus funds. If you owned a few of these funds and nothing else, your money was concentrated in a relatively short list of stocks.
That meant almost no diversification.
All the Same Style
Plus, those funds that were concentrated in a handful of super-giant stocks were all following the exact same style. And if you're trying to spread your bets around the stock market, you also should keep some money with a value manager who is looking for cheap stocks. For the most part, the Janus managers were only going for growth.
Janus didn't launch its Strategic Value fund until early 2000. And even then, this fund was not following the Warren Buffett way of value investing.
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When a manager leaves a fund, you might want to think about selling. And that thinking certainly applies if the fund company's leader decides to hit the road.
Granted, life happens, even at mutual fund companies. But you should start sniffing around a bit when a top dog takes off.
Janus' chief investment officer Jim Craig resigned from the firm in August 2000. He was also the former manager of the flagship Janus fund and was one of the key players behind the fund company's success.
Craig got out just in time. Too bad more shareholders didn't follow him out of the door. (Craig is, however, coming back to take a seat on the company's board -- that may be interpreted as a mildly bullish signal.)
Too Good to Talk to the Little Guys
On a more personal note, one Janus sign struck me as hubris at the time.
When Janus was pulling in plenty of money, the fund company didn't have to talk to the press. And for the most part, it didn't. At one point the firm had a policy that it simply didn't deal with online journalists.
The excuses were that the managers were too busy or they didn't want to share their ideas with the public.
A cynic would call it pure arrogance. And pride -- like some of the other signs listed above -- often goeth before the fall.
I plan to follow up with some names of fund firms that might be displaying some of these same signs within the next week. Have any nominations? Pass along an