The Risks Of 'Guru Investing'

Includes: BOND
by: Global Investing Editor

Euphoria is a Greek word. Friday, Thursday's euphoria was reversed into dysphoria by new conditions requiring implementation of austerity measures and 325 mn euros of further budget cuts before Greece gets EU and IMF money. Another risk-roiled weekend awaits.

Having recently sold Tesco plc (OTCPK:TSCDF), the UK supermarket chain still owned by Warren Buffett's Berkshire Hathaway (NYSE:BRK.A), we note today the risks of ''guru investing.'' Eduardo Garcia writes about how badly this strategy hurt Mexicans seeking an edge by investing with Carlos Slim Helu, the richest man in the world.

Slim's Grupo Financiero Inbursa's five pension funds from Afore Inbursa lost 10.9 bn pesos for Mexican individual pension accounts in 2009-11. They were the worst performing pension funds in Mexico and failed to match the average return in the sector. The Inbursa plans are run by Marco Antonio Slim, a family member.

Eduardo cited data from la Comisión Nacional del Sistema de Ahorro para el Retiro o Consar published by Bloomberg. This showed that the return of the Slim funds was 7.31% whereas the Consar figures overall show returns of 11.51%. In 2011 Inbursa funds lost 11% of the money of those who invested with them mainly because Slim's funds did not invest in longer term Banco de Mexico bonds. Inbursa feared that inflation would exceed the 2-4% target range. The other Mexican 14 fund managers on average placed 27.2% of the money they managed in government debt, while Inbursa invested only 0.5% according to Consar. Some commentators think this gap is a sign of a lack of long-term thinking by the Slim pension plans which only invested in very short-term bills.

Pension funds overall invested with a nearly 13 year horizon for young investors whereas the Slim funds invested for 2.7 years only. For older workers' pension plans, for those over 60, Inbursa invested for 2.2 years while its rivals invested for 9.1 years. (My translation from, which Eduardo edits. My comment below is not based on anything Eduardo wrote.)

In the US we have a similar (if poorer) guru, Bill Gross, who in 2011 bet against the US dollar and removed exposure to US government holdings in Pimco's Total Return Fund (TRXT). Mr. Gross in 2009 also declared the death of equities. Slim continues to invest in equities particularly if he wins thereby an extra edge -- a monopoly, a good press, or government support.

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