The release of the new movie adaptation of the
Cat in the Hat
led me to the following epiphany: Dr. Seuss was a bear.
Not the kind of bear he created in his classic
Hop On Pop
, but the kind that sells high and buys low. The kind that wishes ill will on the market, and finds salvation -- and profits -- when his wish comes true. The kind of Grinch that steals Christmas to achieve his own personal growth. The kind that pesters a health-conscious individual like Sam-I-Am until he reluctantly sucks down a plate of artery-clogging green eggs and ham.
Just consider the bearish philosophies coming to a theater near you: Kids are safe and peaceful at home, Cat arrives, trashes the place, scares the kids to death, Cat cleans up his mess and leaves with a smile. How could research analysts have missed this while studying for their CFAs?
So in honor of Dr. Seuss, the Cat in The Hat, and short-sellers of all ages, I polled the three active bear fund managers (there's only three out there) to answer the question: Is 2003 just a year to forget for bear funds, or if there is hope for a Dr. Seussian ending?
Chuck Zender, co-portfolio manager of the $25 million Grizzly Short Fund (-22.63% YTD):
"We are not terribly dissatisfied. We have just been through a three-year secular bear market which was very ugly on the downside, and we've had a significant bounce in 2003. You are certainly not going to make money all years in a short fund. But it should be easier to make money on the short side going forward."
On hopes for a year-end pickup for the bears, Zender does not see a catalyst between now and year end.
"People are doing all kinds of things with their money for other than investment reasons."
Charles Minter, portfolio manager of the $8 million Comstock Capital Value Fund (-26.85% YTD) and $21 million Comstock Strategy Fund (-17.01% YTD):
"There's a high probability that the market would fall in the last two months of this year, but overall 2003 was a year to forget for the bears. We think 2004 will be a much better year."
Minter backs off from making real short-term market predictions, but feels a lot of good news about job and earnings growth is already baked in the market.
"My partner Marty Weiner and I think the economy is going to be weaker starting around the second quarter of 2004, and markets will discount this."
David Tice, portfolio manager of the $540 million Prudent Bear Fund (-4.09% YTD):
Tice's Prudent Bear Fund has not been hurt as badly as other bear funds, because unlike Zender's Grizzly Fund which is 100% short, 100% of the time, the Prudent Bear Fund allows for defensive hedging and has also benefited from its exposure to gold. So Tice still has hope that he "can crawl back into the black by year end" by betting against a rally he calls "long in the tooth".
However, Tice still sees economic weakness as the pitfall for bulls, and the best help for bears going forward.
"Just because the economy is strong doesn't mean people should become complacent. We last had 7%-plus GDP growth right before the crash of 1987 and fourth quarter 1999 before the market peaked. So we aren't cheering for a crash, we're just managing our portfolio to hedge against financial exposure."