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Commentary | JOHN BALZAR

The Feelings Aren't Mutual

Cozy talk from the managers of our retirement funds can't make us feel better about our losses.

January 20, 2002|JOHN BALZAR

"Given our recent numbers, you may wonder why we're still so confident."

As a matter of fact, the question occurs to me just now. That and the old Beatles' song "I'm a Loser."

I've just received an annual report from one of America's largest mutual fund companies. This is the season when such statements arrive in the mail, charting the progress of millions of our precious nest eggs--complete with the insider scoop on investment strategies.

First thing I noticed is that Sir Isaac Newton was wrong about gravity. You may recall, he postulated that two falling objects will arrive in the dirt at the same time.

"For the 12-month period ended Oct. 31, 2001, ____ fund declined 43.42%," the report begins, "significantly under-performing its benchmark, the S&P 500 Index, which lost 24.83%."

Thus, the face of dear Ben Franklin on a C-note has been reduced to one each, Ulysses S. Grant, Abraham Lincoln and George Washington, plus pocket change. Perhaps we should reconsider Ben's old ditty about the value of a penny saved if $100 becomes $56.58.

These big mutual funds are supposed to shoulder the investment work for the millions of us who have other tasks to do. It is in diversified, brand-name outfits like this fund that George W. Bush and Daniel Patrick Moynihan want us to entrust not just our 401(k) but our Social Security too for a better future.

Because they manage our collective billions in retirement dollars, these funds can command journeyman talent there on Wall Street, or so we're told.

In this progress report, some 15 portfolio managers guide us into the rabbit hole, writing down their thoughts "about performance."

As I read along, some follow-up questions came to mind:

Portfolio manager: "I've been known to follow something called the 20% rule: If a stock falls 20%, it's time to sell."

So how did you lose 43%?

"I have not allowed panic or headlines to dictate my investment decisions. Bottom line is that we do our homework."

Oh really? Whose idea was it to invest $154 million in Enron?

"Through this difficulty, we have never wavered."

You held on to Enron?

"In fact, our conviction in the majority of our owned companies has strengthened, especially at these lower valuation levels."

So you're waiting for the chance to buy more Enron?

"Our companies and their management teams have certainly been tested, and I am very satisfied with their progress to date."

Yes, Kenneth Lay and his gang did quite well for themselves, didn't they?

"Believe me, we are our toughest critics."

Would you believe me if I said we didn't believe you?

"It's times like these when you have to take another hard look at every company in your fund whose valuation has been taken to a lower level."

Is bonehead English now an elective in college?

"It's important to ask yourself, who are you hiring when you invest in a mutual fund?"

If not the Three Stooges, then who?

"You'll never hear a prediction of 'when' from me; it's the 'where' that we're spending time on."

Us too. Where did the money go?

"What I'm finding is that, oftentimes, the entire franchise isn't worth what the market is paying for it today. It's worth more."

To whom?

Portfolio manager No. 1: "Virtually all our companies are actively working toward lowering their cost structures."

Portfolio manager No. 2: "The way I see it, it's only a matter of time before this money finds its way into consumer spending patterns."

Does anyone there know the name of Joseph Heller's most famous book?

"While some of our companies suffered as a result of poor execution in a difficult economy, our ongoing research suggests that many of our companies fell victim to reactionary selling."

Perchance is this what is meant by the phrase, "lose-lose"?

"In either case, our investment strategy remains unchanged."

OK, if green isn't your favorite color, what is?

"We invest our own money in ____ funds, so we share your disappointment."

Does anyone remember what all the king's horses and all the king's men couldn't do for Humpty Dumpty?

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