Is Jim Schmidt, my idol because his 10-year performance was once the best in the business, now a bum? After a flat year last year, this manager of the
John Hancock Regional Bank fund, who was interviewed this morning on
, is now down 11% for the year! That puts him well out of reach of the top ranks of money managers, a list he dominated for longer than any other manager.
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Message Boards. Does that mean that Schmidt doesn't know what he is doing? Hardly. He's still kicking the tires of the nation's best savings and loans, and I am sure he still knows the managers of these banks like the back of his hand.
No, he's just in style prison. That's the prison that all sector managers find themselves in at one time or another. It is a terrible place to be because it causes you to be locked into a method of investing that, at times, is a sure loser. But what's Schmidt to do? Take up fibre channel stocks as an aside? Brush up on Web infrastructure? He can't. He is the go-to bank guy in this country.
But Schmidt's fall reminds us that as much as we want to be consistent long-term investors, we can't ignore large secular trends. Schmidt's big home runs came from the savings and loan conversions and the takeover game. But the neighborhood bank has become a less valued commodity in the new world. Bricks-and-mortar savings and loans are as unloved as any time that I have ever seen them except in 1990, when many of them went under. Very few S&L start-ups now succeed.
I am thinking about this fund because for the longest time I used to do the same thing Schmidt did, but last year switched stripes when I saw that the S&Ls had simply ceased to rally. Also, I had recommended this fund to just about everybody who ever asked me for a mutual fund because of Schmidt's superior returns.
I run a hedge fund. I can and must switch stripes if I am going to survive. (I wrote about this phenomenon earlier this year and how my investors didn't want me to switch, but I saw that this financial services group was finished at least for 1999.)
But for Schmidt's shareholders, I don't know if it is now too late to get out. At first I tried patiently to explain to people that you have to hold out for the long term. Lately, I have been hearing back, "Hey, I have had it for the long term. Now I want to start making money again."
I truly don't know what I would do if I were in this fund. From now to year-end, barring a major bond rally I would think it gets hit as people seek hotter places to go with their money. But I keep thinking that once the Y2K problem has passed, there might be a huge play in the consolidation of S&Ls now that they have gotten so cheap.
If I had my druthers, I would be a buyer of this fund at year-end. You could have a whopping rally in these little banks and thrifts that are Schmidt's stock in trade. At year-end the redemptions should have run their course and the selling that redemptions breed should be finished, creating excellent values for those getting in at the bottom. (Not to mention some great opportunities among individual savings and loans that might end up selling below book value.)
Nah, he's no bum. He's just gone out of style.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in any stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at