Ken Heebner is the current master of Trend Investing.
Fortune magazine highlights Ken Heebner, who manages the CGM Focus fund – which gained 80% in 2007.
Link: America's hottest investor: mutual fund manager Ken Heebner - May. 27, 2008.
He works long hours trying to identify emerging trends in the economy. When he finds a promising one, he'll go all in, making huge bets on the stocks poised to benefit. Asked how long it takes him to identify those stocks, Heebner answers, "About ten minutes. I've been at this a long time." It's an investing style that will never be taught in business schools and is definitely not something any amateur should try at home. But Heebner, blessed with uncanny instincts, has managed to see around just about every corner in a market that has befuddled just about everyone else.
Since May 1998, Focus has an average annualized return of 24%, the best ten-year record of any U.S. mutual fund, compared with only 4% for Standard & Poor's 500. Focus, which has $7.4 billion in assets, is already up 15% in 2008 (as of May 19), but it is 2007 that will be remembered as Heebner's pièce de résistance. Fueled by big bets on energy, fertilizer, and metals, Focus soared 80% last year, vs. 5% for the S&P 500. "I told Ken it was like he was walking between the raindrops," says CGM president Bob Kemp, who oversees sales and marketing at the firm, of the year Heebner had in 2007. "It amazes even us." Last year marked the fourth time since 2000 that the fund returned 45% or better. And it's not as if Heebner has needed the big years to make up for a lot of losses: Launched in late 1997, Focus has had only one money-losing calendar year (2002).
His brain is wired differently. His ideas come faster, his focus is more intense, and his ability to sift through massive quantities of information and zero in on what matters is downright spooky. Pity the Salieris of the investing world who have to compete with this guy.
There's no simple formula that captures his investing principles, and explaining his approach is something even Heebner struggles with - which may be why CGM manages only $13 billion (including private accounts), a relatively modest amount given Heebner's track record. Basically, he's the last of the gunslingers - a go-anywhere manager who can be investing in left-for-dead U.S. value stocks one day and red-hot Brazilian growth stocks the next. But he's not just playing hunches. He knows from years of experience, for example, that when steel scrap prices soar - as they have of late - steel stocks usually follow. And Heebner is a workaholic who's up at 5:30 a.m. reading stock reports and checking business news and who never leaves the office at night without a stack of articles and research that make up his bedtime reading.
CGM is pretty much a one-man show. Heebner's entire investment team consists of two traders - Elise Schaefer and Sue Small - and Columb, the U2 fan. Being an analyst for Heebner is a bit like being a beauty consultant for Halle Berry, so Columb knows better than to try to suggest stocks. She operates more like a sleuth. Heebner will ask her to dig up the latest information on, say, scrap steel prices in China or deep-sea oil rig leases, and within an hour or two her findings are on his desk.
These days Heebner is keeping close tabs on the latest economic data out of China, because China is the key to his enormous bet on commodities. As of March, 64% of Focus's assets were invested in commodities-related stocks. His biggest stakes are in steel (ArcelorMittal, Nucor, and United States Steel) and in oil (Apache, Devon Energy, Petrobras, and Schlumberger). Petrobras, the Brazilian oil company that has announced two giant offshore oil discoveries, is his favorite. "Petrobras could become the biggest stock in the world," he says.
Heebner thinks steel prices could double and oil could blow past $200 a barrel. (He also thinks inflation will hit double digits within the next five years: "I don't know why anyone would buy a bond.") Yet he is constantly on the lookout for any sign that the economic slowdown in the U.S. may be infecting emerging economies abroad. That would deep-six his whole investment thesis, which hinges on China and other emerging nations using more energy and building more infrastructure. "I'm not waiting for Morgan Stanley to tell me there's something wrong in China," Heebner says. "By then it's too late."
One oil expert Heebner has consulted is Matthew Simmons, a Houston-based investment banker who's become the oracle of "peak oil" since his book Twilight in the Desert was published in 2005. Twilight argues that Saudi Arabia is running out of oil faster than we think, and Heebner's own research leads him to the same conclusion.
Simmons says he first met with Heebner around the time Twilight was going to press. Heebner spread out on CGM's conference room table a map of Ghawar, the world's largest oilfield. "I thought, 'Jesus, most of the people in the money-management business don't have any idea what any of the Saudi Arabian oil fields are called, much less where they are or what their production history is. But Kenny Heebner has a blown-up, detailed map of Ghawar that's better than anything I've ever seen,'" recalls Simmons. "Then he says, 'Let me tell you what I'm hearing.' Turns out he'd been digging up retirees from the oil business and finding people who were willing to talk. About an hour and a half later, I walked out and said, 'That guy is amazing.'" (CGM has become one of Simmons & Co.'s biggest clients.)
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