John Maynard Keynes
After that whole discussion about finding a needle in a haystack, why would we abandon a skilled manager? We are risk managers first, and if new information tells us that risk has increased, we have no choice but to reconsider our investment.
Manager Change
We show no mercy in the event of a manager change. While an apprentice sometimes steps in and nothing changes, we believe the type of rare skill we seek resides with the person, not the firm. A recent example is TCW Total Return(TGLMX), a fund with a great record whose manager Jeffrey Gundlach was ousted in late 2009 in a power struggle. We don't care who takes over, Gundlach was the reason for the stellar performance.
Style Drift
Skill in one investment area sometimes transfers to other areas, but not always. We evaluate managers based on their approach to the market in question, so if he or she drifts over to another style we have no choice but to be concerned. For example, Bruce Berkowitz of Fairholme Fund (FAIRX) has an excellent history in equities, but his launch of a high yield bond fund has potential to take away from his focus.
Popularity
Through no fault of his or her own, a manager's style may pass in and out of popularity. Good stewards of investor money typically close the fund to new investors when too much money flows in, but the fact that investors are so enthusastic about a style gives us reason for concern. A great example is Ken Heebner of CGM Focus(CGMFX), who has a great long-term record but also an independent streak that puts his returns nowhere near those of the market's in many years. A manager like this is best used by buying when he's down and letting go when he's on top of the world.
