Ramblings of a Portfolio Manager 11-30-2009

Ramblings of a Portfolio Manager or Insomnia Can Be Detrimental To Your Investment Portfolio

Why do we Americans assume someone with a foreign accent is inherently more intelligent? Such an ethno-reverent attitude has probably caused more Americans to become victims of scams, swindles and frauds than avarice and naiveté combined. Now, lest you rush to label us xenophobes, remember that Charles Ponzi leveraged his suave Italian accent and consider how much US investor money is now being thrown at heretofore unknown but quite charming Christian Baha, who not only sports an quaint accent but has made it the cornerstone of his funds’ television marketing program. We wonder how many investors even understand what Baha is hawking with that brogue let alone know his track record.

We don’t recommend it but anyone tuning in to CNBC’s Worldwide Exchange at 4am EST will hear daily an distinguished looking, unsmiling white haired portfolio strategist (who would look more comfortable at the bar at Claridge’s than in front of a Bloomberg terminal), smugly proclaiming in upper-crust English, stilted French or broken Hoch Deutsche intonations that the US will suffer a double-dip recession and that our equity markets are going nowhere (or down). In our humble opinion, this euro-centric investment philosophy is a projection of the insipid investment opportunities of their own no-growth economies on ours. It’s a dour analysis that they’ve been promulgating all year and it’s been dead wrong. Yet US investors continue to pour money into the funds of these offshore masterminds and they are regularly extolled as market mavens by the business press. So it was with a wry smile that we listened to the TV talking heads inform the American investing public over the last two weeks that the “smart money” foreigners (China and India) are buying gold and, therefore, so too should we.

We’ve seen this movie before. Remember the “brilliant” Japanese investors and their investments in big-ticket US real estate in the 80’s, right at the top? How did they fare? Well, for starters there was the $2 billion lost on Rockefeller Center and $841 million on Pebble Beach (twice), deals which were lauded by the press at the time. How about the British, seen as savvy fellow anglo investors, who also had their share of bad investments from homebuilders (Beazer) to advertising agencies (J Walter Thomson, Ogilvy and Mather), retailers (Brooks Brothers) and scores of New England banks—all purchased at market peaks? Saudi Prince Al-Waleed, praised as an investment genius by the press, at least tried to buy on dips but still lost big on Citigroup—twice--and his neighbors in Abu Dhabi thought $30/share was a good price for the same company, now trading just north of $4. All of the above were all poorly timed investments made by supposedly sophisticated private parties and many American investors rushed to join in where they could. Of course Sovereign entities are not exempt from bad decisions and let us not forget the blunders of Iceland, which went from fishing village to financial center and back in the period of several years and, more recently, Dubai, a tiny Arab Emirate with no oil but which bet heavily on development at that commodity’s peak (oh boy, leveraged real estate speculation based on oil speculation!) and is now in danger of defaulting on $59 billion of debt. Again, in both cases domestic investors piled on, following the “smart money.”

Our point here is that while Americans don’t have a monopoly on investment talent, neither do foreign investors. So if you happen to have a sleepless night and tune into the financial new channels early morning, remember two things: 1. that the opinions of the smart-sounding foreigners are both situationally based and biased and 2. governments (not just our own) are slow, ponderous decision-making bodies and by they time they recognize and act on an opportunity, not only is the barn door open, the horse is usually already at the Alpo plant. Personally, we’ll leave the US market investing to US-based portfolio managers and the gold buying to jewelers.