Star Investors Reveal Their Hits and Misses by Gregory Zuckerman, The Wall Street Journal
Even the superstars swing and miss. Much of the time, in fact. That is as true in investing as it is in baseball.
HIT: In February 2000, after trailing the market for more than a year as investors bid up tech stocks, Rob Arnott’s research team at First Quadrant LP tweaked its investment model to reduce the emphasis on “value” stocks—those trading at a low price relative to their earnings—and increase exposure to surging tech shares.
About a month later, when he found out about the move, Mr. Arnott ordered the model returned to its original stance, sticking with the firm’s value orientation.
HIT: When Jeremy Grantham’s firm took a cautious stance on popular but expensive tech stocks in 1999, performance suffered and clients bolted. He and his team stuck to their guns and were rewarded when tech shares crashed and the firm rebounded sharply in the early 2000s.
Too many investing pros are afraid of immediate-term “career risk,” Mr. Grantham says, so they chase hot investment trends instead of aiming for superior long-term returns in cheap, unloved corners of the market.
HIT: In 2004, Howard Marks and Oaktree’s co-founder, Bruce Karsh, saw a bubble developing in riskier debt markets. They pared holdings, suffering as debt prices raced higher.
But when subprime mortgages pulled the financial system down, beginning in 2007, the moves looked savvy.
HIT: It was March 2008, and Jeffrey Gundlach was testing his nerve in a crisis.
Even assuming a rash of defaults and other bad news, debt investments priced at 65 cents on the dollar looked attractive. He began buying, though he knew there was a good chance markets would continue to drop.
see full article here by The Wall Street Journal