"Hey Vern, why don't you computerize that stuff?"
That's the reaction I get when I show people my accounting book, in which I make handwritten entries every week on 421 mutual funds. That's right -- entries by hand!
I actually write down what each fund has done year to date each Friday of the year. This is the ninth year I've done so, and I still don't have writer's cramp.
Why do I do it that way, you might ask politely, trying to hide your cynical smirk.
Maybe it's just a subconscious hangover from the trauma I suffered in sixth grade when my teacher made me write 50 times on the blackboard, "I will not bring my cap pistol to school anymore." Somehow, I had accidentally fired the cap pistol during a quiet study hall hour, and a few people got their nerves rattled. In those days, an incident like that was almost a preamble to reform school. Writing down the punishment made an indelible impression. If I had read the statement or just said it, I wouldn't have been as affected.
Of course, making entries by hand is not the only thing I do every week to stay on top of funds. First, I read everything about mutual funds on
, of course. Then I surf other Web sites for fund headlines and print out a lot of stuff. Then I go to the tabernacle of fund information,
. Not only to the
Web site, but to four subscription services, as well. I have attended every fund conference Morningstar has held for the past nine years.
When I feel it is absolutely necessary, I talk with a fund manager and maybe an analyst or two. I also talk with the marketing people, knowing I'll primarily get the positives. But they're often unequalled in their ability to effectively communicate the characteristics of funds and managers.
So, each week when I make my handwritten entries, I am processing and distilling information. This self-imposed discipline force-feeds me subjective and objective information, and it tells me a lot about what is happening with funds I use as well as those I don't. Here are some examples of the way the process works for me:
It almost always gives me a heads-up on a manager or fund company whose performance is starting to suffer. It's when the performance is out of alignment with the manager or fund's history that is most disturbing. A red flag unfurls when they are significantly out of sync with other managers in their general category. For example, if I am making an entry on a large-cap fund of minus 5% and the others are up 15% to 20%, I know something is wrong. This year, if a health-fund manager is only up 10%, there is something wrong. When Bill Sams of
FPA Paramount made his drastic portfolio shifts I gave him six months before pulling out. Now, Bill -- who was one of my stars -- is gone. When Foster Fries made his drastic shifts in the
Brandywine fund a few years ago, I was gone within six months. Now he's back and doing very well, thank you! If one more significant person leaves the
family, I'm pulling out. I've already cut back some positions. It's no secret that disruptive company politics and stubborn, autocratic, ego-driven parents can screw up performance -- if that's what is happening at Janus.
My weekly exercise also acts as an early detection system on which segments of the market are starting to move up or down. I don't have to pick up on everything, just enough right things to do my job. Moving into this year, I moved more money into mid-cap and health care funds. I also pulled back my allocations to foreign funds.
Generally, the best managers continue to be the best managers. You do not determine this by looking at the top 10 or 15 funds for the week, month or even year. It is consistent performance over time that adds up.
The best managers with the most consistent performance through all kinds of markets tend to defy categorization. At best, a snapshot can be taken of their portfolios, and at that point, they fit a particular category. They may buy value stocks and then hang on when they become growth stocks. To a great extent, though, a manager who is great at one particular style suffers when that style slips. When I pick core funds for a portfolio, I want flexible, all-weather managers who can't be freeze-framed.
As a result of my weekly exercise, I decided a long time ago to reject classic asset-allocation theories as well as strict-timing theories. Instead, I think putting together a successful portfolio that meets a client's objectives is a combination of art, intuition and science. But that can only be true when someone really does their homework and has a discipline that is meaningful to them. The process I just described provides that discipline and works for me.
It is only fair that you would ask me which managers and funds I use and how I am doing. In my next column, I will go over a model I use in building a portfolio. It currently consists of six funds, and as of Monday had year-to-date returns of 18.9%.
Vern Hayden is a certified financial planner in Westport, Conn. He is a financial consultant and advisory associate of Financial Network Investment Corp. He also is an owner of Hayden Financial Group. His column is not a recommendation to buy or sell stocks or to solicit transactions or clients. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks or funds. While he cannot provide investment advice or recommendations, Hayden welcomes your feedback at