Old, tired and pointless.
No, not yellowed copies of
in your dentist's office. The adjectives listed apply to most of the reports pumped out by fund managers. These periodic missives are usually outdated, vague and poorly written. No wonder people think investing is boring.
lamented the pathetic quality of the latest
Magellan report that he received in the mail.
Thankfully, there are stellar exceptions. You can find trenchant, informative reports at firms like
. Reports from these value outfits, as we shall see, can be of service not only to the funds' shareholders but also to the average investor looking to pick the brains of fund managers.
Granted, funds are only required to disclose their complete holdings to shareholders twice a year. Many funds meet this minimum and that's it. A number of funds deliver quarterly reports, which are better especially if they go beyond the obvious pap. A
few brave funds choose to be completely open, listing their up-to-the minute moves on the Internet.
But most funds provide useless reports on what the market did during a previous period, and Magellan's dull dispatch is no exception. It gives a recap of what happened in the market for the year ending March 31 -- in a report posted on
Web site May 22. It's an understatement to say that this report and many others like it are dated.
While managers can be forgiven for not revealing stock bets they're about to make, there isn't any excuse for serving up drivel that doesn't even attempt to explain the thinking behind the funds' recent successes and failings.
Also managers rarely deliver any useful details about the companies they mention. How about some actual stories instead of a few useless one-liners? "
benefited from its announced merger with
," says the Magellan report. By the way, did you know that
is running for president?
Finally, fund reports are often badly written. "Managers, in my experience, hate to write," says Pamela Wilson, an attorney with the law firm of
Hale and Dorr
in Boston. "You can't get them to write their own name."
The noteworthy fund reports out there avoid these common failings. They are timely, detailed and enjoyable to read.
Here's a sampling of the fund companies and managers who get it right.
The quarterly reports from Oakmark in Chicago are a great read whether you own one of these value funds or not.
For one, the managers deliver well-written narratives about what happened in their funds. They also go into great detail to explain what happened to their stocks over a given period and how they feel about those events. Lastly, they tell stories -- stories about their stocks and how they value them.
Even if you're partial to growth, you'll still want to read about how these managers value companies.
Just look at
semiannual report from March 31.
Managers Bill Nygren and Henry Berghoef give you a very detailed explanation of why they like
Toys "R" Us
, as well as a good summary of the company's background through 1980s and 1990s. "Despite all the negatives, TOY had a $16 book value (how long has it been since you've heard that term on
?) and had per-share earnings of $1.36 before deducting losses from their Internet start-up,
," they write.
"Furthermore, TOY owns a very successful
Babies "R" Us
chain, 80% of
Toys "R" Us Japan
, and much of the real estate its stores occupy. ... But what really caught our attention was TOY's announcement on Jan. 10 that John Eyler had been named CEO."
They also are making an effort to get their reports out to shareholders as quickly as possible. "Our goal is both to keep shareholders informed about what is in the portfolios and why," says Nygren. "Last quarter, we experimented with putting the
Oakmark fund report on the Internet early. Typically, one month after end of quarter we would be mailing it. I believe it was on the site about a week after the quarter."
They are evaluating moving to earlier Internet site releases for all the Oakmark fund reports, which would only improve the firm's already outstanding communication with shareholders.
Nothing can replace the experience of actually speaking to Marty Whitman, the straight-talking, always-quotable manager of the
Third Avenue Value fund.
But his reports come close.
The letters that open each quarterly report should be read by every investor. You may not agree with the seasoned manager, but Whitman's candor is refreshing.
The fund's letters start by outlining positions that were new, increased, decreased or eliminated -- more detail than you will find in most reports. Then you get into Whitman's talk.
In Third Avenue Value's
annual report from October of last year, Whitman goes into what he calls "Wall Street's Flight to Garbage."
"It has become respectable today to market new issues of common stocks at fantastic prices where the companies have no prospects of generating profits from operations for the foreseeable future," he writes. "Despite the super-performance of garbage issues in recent years,
Third Avenue Value will continue to refuse to invest in such issues at the same prices that the public is paying."
You might disagree, but his reports are nonetheless engrossing.
Like Marty Whitman, the managers at Tweedy Browne are firmly entrenched in the value approach to investing.
They think the market of the past few years went berserk, and they convey that skepticism and their investing beliefs with precision.
In the annual report from March 31, Tweedy Browne's managers debunk one of last year's trends with style.
"We have no doubt that online retailing is here to stay. However, we also think online retailing will become just another avenue of distribution but may not be the dominant one. Online retailing is not unlike catalogue shopping or ordering over an 800 number, neither of which to date has replaced the shopping mall," they write. "Human beings are for the most part social animals. They enjoy going shopping, touching and feeling the merchandise and seeing the other people in the mall."
These guys aren't afraid to state their case, and they do it well.
T. Rowe Price
As you've probably noticed, the preceding three examples come from smaller value shops. Revealing reports from growth managers are hard to find. Value funds tend to sit on their holdings for years, and any buying prompted by tipping their hat wouldn't be much of a concern. Growth investors, on the other hand, don't want traders rushing into their favorite stocks and driving them up before they finish buying. With a fund that has heavy turnover, any report that discusses its holdings would be completely out of date before it ever reaches shareholders.
Some reports from large growth funds provide exceptions. The folks at
suggest looking at the reports from
T. Rowe Price Blue Chip Growth, run by Larry Puglia.
The fund's annual report from the end of last year includes a letter from Puglia that walks shareholders through an extensive but basic portfolio review. He talks about the winners
"As always, some stocks produced disappointing results.
was our largest loser in the six-month period," he writes.
It's not poetry but it's succinct.
If you have your own favorites, send your suggestions to me at
email@example.com and include your full name.