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   Strategies & Market TrendsKen Heebner and CGM Focus Fund CGMFX


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To: timber555 who wrote (7)6/11/2008 10:00:20 AM
From: Highway Jim
   of 37
 
which of his funds do you have?

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To: Highway Jim who wrote (8)6/11/2008 12:33:20 PM
From: timber555
   of 37
 
CGMFX

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To: timber555 who wrote (7)7/9/2008 6:42:35 AM
From: Condo
   of 37
 
I started letting Ken manage my money this year.
I plan to entrust one of our IRA's to his care soon.

Much easier and profitable for him to do it than me.
He sure seems to see around corners. As for "easier", I may have to employ the "don't look" method.

Looks like CGMFX is heavily invested in energy, the chart looks very similar to OIH.
I wonder if turning the portfolio 384% a year (Morningstar) is how Heebner manages to keep the drawdowns so shallow. Relative to the return, that is.

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From: Sam Citron7/21/2008 12:26:43 PM
   of 37
 
Portfolio manager casts an optimistic eye on economy
Boston Globe
July 6, 2008

Ken Heebner, a portfolio manager at Capital Growth Management in Boston, has delivered some of the best investment performances of any manager in America. He often operates as a contrarian, avoiding technology stocks in the late 1990s and betting early against mortgage companies several years ago. Heebner, 67, spoke last week to Globe reporter Ross Kerber on where the economy is heading.

There's a lot of pessimism about the economy. What's your take?

My view of the world is quite different. I think people are very concerned about our economy, they're starting to realize there could be higher inflation to come. The consensus is that we'll bring the rest of the world into our recession. But my view is we've probably seen the weakest period of economic activity. The economy may not be robust in the next year, but it's seen its low point and at some point will move higher.

That's reassuring, but how can this be?

I understand how serious the housing problem is. But it's not as broad a problem as widely perceived. It's reduced everyone's sense of financial well-being, but a third of homeowners don't have a mortgage, and the vast majority of people made down payments and have fixed-rate mortgages, so there's no financial strain. For them, the only impact is the psychological impact of declining housing prices. So therefore I don't think this is as big a deal as everyone else does. We've passed the point of maximum distress.

What evidence is there for that?


First, on manufacturing, the Institute for Supply Management's index seems to have reached a low of 49, and when this gets to 45, that's a recession. Additionally, the Fed started aggressive ly easing interest rates, and the impact of those eases will start to be felt. But I think the driver of the global economy is the developing countries, with a population of 3 billion. China, Russia, India, Brazil, and a lot of smaller countries. If you add up Japan, Europe, and the US, you're talking about a little less than 1 billion people, and you have 3 billion people going strong.

But those 3 billion have less money and less GDP. How will that drive the world economy?

These people don't have the roads, the airports, the infrastructure - and the building of these creates big demand for industrial raw materials and energy in all forms. In a nutshell, these foreign countries place a high priority on growth. The broad pattern is they're more concerned about maintaining growth than other factors, be it pollution or inflation.

Globe columnist Steven Syre has twice named you fund manager of the year, and Fortune magazine recently dubbed you "America's hottest investor." So can you talk about what you are buying and selling?

The only two stocks I've made references to [owning] in the last few months are Petrobas [Brazil's Petroleo Brasileiro SA] and Schlumberger [an oil-services company]. I'm changing the portfolios so frequently.

What do you expect US growth rates to be? And inflation?

Our economy will surprise us on the upside, growing between 2 to 4 percent over the next 12 months. I'm a bull on the US economy. Clearly housing has been a negative, but there's only four states where they walked housing prices to Never Never Land, and now it's coming back to a realistic level. Because of increasing demand from these developing economies, I can see, three years from now, inflation approaching 10 percent.

How can you be such a bull on the economy and say inflation could be such a potentially big problem?

I didn't say it's a big problem. In the 1970s and 1980s, when inflation was high - we made good money investing in stocks in that period. I'm running a portfolio. I'm not running the country. The challenge inflation presents is that price-to-earnings ratios tend to decline. So when you invest money, you want to have enough growth to offset that compression.

What impact will the outcome of the US elections have on the market?

[Barack] Obama says he wants to eliminate the Bush tax cuts and take the maximum marginal tax rates to 39.6 percent, then institute some Social Security taxes - and says he'll increase the capital gains rate, now 15 percent. That would tend to be a negative factor. It's hard to quantify, but when I think what effect the election could have on the investment world, taxation is where there's a clear difference [between the candidates]. But it would probably be easier for Obama to say, let's drill offshore for oil. That would be a huge benefit to oil-services company stocks. . . . I do think Obama's going to be elected president of the US, and the Democrats [will] win a huge victory in November.

What do you think has been the biggest surprise in the markets this year?

There was a general fear that we would fall into a recession and it hasn't done that. We've gone sideways. The big surprise is that the economy has held up as much as it has.
People are overlooking the fact that we're having a huge boom in the farm economy. Also, the energy area is very positive. And I further expect the weak dollar to energize our exports and manufacturing industries. Our natural competitive strengths, our innovation and creativity, remain unique skills in the global economy. We're going to start to export cars, we'll start to export steel.

What are the biggest areas of problems for the US economy?

The brokerage firms were enjoying huge profitability because of the boom in private equity and hedge fund trading, and they won't have that. Higher inflation is always bad for insurance companies, and the banking system still has all the bad mortgage loans eroding its base. It may be a year more of that. They still have a lot more mortgages to write off.

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To: Sam Citron who wrote (11)10/4/2008 1:00:46 AM
From: Condo
   of 37
 
I'll jump into both CGMFx and CGMRx when the long-term market trend improves. But that could be awhile coming.


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To: Condo who wrote (12)10/4/2008 11:01:38 AM
From: Sam Citron
   of 37
 
Amble,

I am curious why you would want to own both these funds. What do you get from CGMRX that CGMFX doesn't provide, except for a preordained bias toward "real-estate", which KH has cleverly redefined to include such things as mines?

Sam

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To: Sam Citron who wrote (13)10/4/2008 1:22:38 PM
From: Condo
   of 37
 
What do you get from CGMRX that CGMFX doesn't provide..?

CGMRx moves more calmly than CGMFx most of the time, so CGMRx will go into the wife's IRA.

The two portfolios do always seem to overlap some.

CGMRx Top Ten Holdings as of 6/30/08:
6.3% Arch Coal, Inc. (ACI)
6.2% PEABODY ENERGY CORPORATION (BTU)
6.0% CONSOL ENERGY, INC. (CNX)
5.9% Cleveland-Cliffs Inc. (CLF)
5.2% FREEPORT-MCMORAN COPPER & GOLD B (FCX)
5.1% Digital Realty Trust, Inc. (DLR)
4.9% Boston Properties, Inc. (BXP)
4.9% Annaly Capital Management, Inc. (NLY)
4.8% Federal Realty Investment Trust (FRT)
4.8% Ventas, Inc. (VTR)

CGMFx Top Ten Holdings as of 6/30/08:
6.5% Weatherford International, Inc. (WFT)
6.3% Schlumberger, Ltd. (SLB)
6.3% United States Steel Corporation (X)
6.3% PEABODY ENERGY CORPORATION (BTU)
6.3% Brazilian Petroleum Corporation ADR (PBR)
6.2% FREEPORT-MCMORAN COPPER & GOLD B (FCX)
6.2% Nabors Industries, Ltd. (NBR)
6.2% CONSOL ENERGY, INC. (CNX)
6.0% Hess Corporation (HES)
5.9% Wachovia Corporation (WB) [short]

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To: Condo who wrote (14)10/6/2008 11:40:43 AM
From: Sam Citron
   of 37
 
Calmness is good most of the time but I wouldn't want to put KH in a straight-jacket. He was able to wrangle out of it in creatively redefining real-estate in order to participate in the commodities boom, but now that commodities AND real estate are in a bust, it might be difficult for CGMRX to perform.

Do you happen to know whether shorting is permitted in CGMRX's charter?

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To: Sam Citron who wrote (15)10/6/2008 11:51:33 PM
From: Condo
   of 37
 
Calmness most of the time...
During the last market uptrend from the summer of 2003 through the end of 2007, CGMRx had a -19% price drop along the way, nearly matching a CGMFx worst of -20%. That means the 2 funds carry the same potential for heartburn (maximum adverse excursion) even if the day-to-day price movement differs (e.g., standard deviation). So FWIW, I was probably wrong to give "calmness" as an argument for CGMRx.

The CGMR charter says KH can invest 20% in anything he pleases (more if he gives notice of adverse conditions) but no short-selling allowed. The 80% in "real estate related" includes areas such as mining, fertilizer, materials of all kinds, international real estate, and companies whose business is 50% not real estate.

Recently the CGMRx and CGMFx portfolios have been about 70% different, so it seems like owning both would add overall diversification as long as the 2 funds deliver similar returns during market uptrends. But I take your point that KH is far more constrained in CGMRx than in CGMFx, and if commodities and real estate remain in a worldwide slump his choices for CGMRx are more limited.

Since Ken Heebner does run both funds, I wonder how much coordination is involved between the two. Obviously he does all his shorting in CGMFx. But does he pursue ideas in CGMRx whenever possible and do the rest in CGMFx? Both funds have done relatively well over the past 10+ years. How can that be, given the vagaries of the real estate market, unless he's been treating the two as one conjoined fund? Even if so, I take it you think that strategy has "run out of real estate". (<g>)
.:.

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To: Condo who wrote (16)10/7/2008 11:39:41 AM
From: Sam Citron
   of 37
 
I assume KH simply tries to maximize returns in each fund subject to the constraints imposed by their charters. I expect CGMFX to continue to outperform CGMRX based mainly on its more liberal charter combined with KH's personality, which needs the freedom to take the bold contrarian initiatives that have been the hallmark of his career.

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