Gerald Tsai Jr. who ran Fidelity’s Aggressive Growth fund could do no wrong during the go-go years of the 1960s. Deemed a stock picking savant of the momentum kind, he churned out returns twice that of the industry average for seven long years and with remarkable consistency.
And as it is with anything exotic and of the swash-buckling kind, the media couldn’t get enough of him. The New Yorker pronounced him the stock market’s ‘certified golden boy’. Investors’ money of course followed. And by the boatload. Assets under management in his fund grew from a mere $12.3 million in 1959 to $340 million by the time he called it quits in 1965 to venture out on his own.
He then launched the Manhattan fund seeking to initially raise only $25 million. And we know investors chasing performance never gets old and hence they clamored to get into his fund. He ultimately wound up with 10x more money than initially planned.
And you probably know how that movie ends. The Manhattan fund had two middling years and then the roof caved in. By July 1968, it was the sixth worst performing fund in the country. And just a year later, it had lost 90 percent of its value never to recover again.
About a generation later, in March of 2000 just as the bubble created by the Dot-com boom reached its zenith, Merrill Lynch, the then world’s largest brokerage firm jumped on the bandwagon with not one but two new funds to sell. The first was a “Focus Twenty” fund. The other was an “Internet Strategies” fund.
The offering of course was an incredible success. It always is towards the tail end of a mania. The funds collectively pulled in $2 billion at the onset.
But then again, we know how that movie ends. It was a money-making bonanza for Merrill but a disaster for their clients. The Internet Strategies fund tanked almost immediately. By the end of 2001, less than two years after the launch, investors lost 86 percent of their money.
The Focus Twenty did the same with a cumulative lifetime return through 2006 of minus 79 percent.
I bet if I were to try harder, I could come up with countless such stories across the many booms and busts the world over. They might all start differently but they end the same.
Something similar appears to be transpiring with some hot funds and investments du jour of the day. And you don’t have to look hard to find bubble assets. In fact there are many. Maybe I am too old-fashioned but sometimes amazed at all these businesses selling at twenty, thirty, fifty times revenues with never a sight of profits. And profits are the only thing that matter eventually.
One or two of these bubbly assets could grow into their valuation if ever but these many, never.
So we know how this movie will eventually end and that end’s not going to be pleasant. But you have a choice to make. You can either be a willing participant in the making of that movie or you can watch it on Netflix whenever it comes out. I prefer the latter.
Thank you for reading.
Cover image credit – Jonathan Borba, Pexels