What you can learn from 30 years of stock-picking

Veteran managers from Ariel, Gabelli, Monetta and Pioneer share their lessons

Nov 10, 2016 @ 9:29 am

By John Waggoner

You can learn a lot about investing in 30 years, and if you don't believe it, check out the class of 1986 — fund managers who have each run their fund the past 30 years.

That's exactly what the Ariel funds did Wednesday, gathering together four of the six managers who started work on their funds in 1986.

The class:

• John Rogers, who founded Ariel Investments in 1983 and took the helm of the Ariel fund (ARGFX) three years later. The fund has averaged an 11.19% gain since inception.

• Mario Gabelli, CEO of Gabelli Asset Management Company and manager of Gabelli Asset fund (GATAX) since 1986. The fund has averaged an 11.75% return since inception.

• Robert Bacarella, manager of the Monetta fund (MONTX). Started several years earlier as an investment club, the fund has gained an average of 7.55% a year since inception.

• John Carey, manager of the Pioneer fund since 1986. The fund has risen an average 9.13% a year during his tenure.

How have they lasted since the middle of the Reagan administration in such a competitive field?

“Pure obsession,” said Mr. Gabelli. We're obsessed with studying our companies, reading annual reports. What you have to do is stay the course, do what you do, do it every minute.”

“Persistence,” said Mr. Carey. “Persistence in an investment strategy is more important over the long term. That's what works for clients and helps them meet their goals.”

Mr. Rogers agreed, saying that running a fund is a bit like coaching a team: You're constantly second-guessed by others, and many managers are replaced if their strategy doesn't outperform. But that could be a disservice over the long term.

And, as a man who has had the same phone number for 30 years and has lived in the same home since he returned from college, he values consistency. “Habits and discipline are important,” he said. “I don't e-mail, and I'm feeling very smart about that right now,” he joked.

But his most important discipline is reading. “I read constantly. Ever since I was a kid, I've loved to read. Having that discipline, doing the same thing over and over again, makes you better.” Mr. Gabelli agreed. “We have knowledge that we've accumulated over an extended period of time on a variety of subjects. You stay focused and you read and read and read.”

Mr. Bacarella, the sole growth manager of the group, made a different analogy, noting that markets are more efficient now than at any time in the past. Managers are more like airline pilots, who often keep the plane on autopilot — except when taking off, landing or encountering turbulence. “Markets are more efficient now than at any time in history,” he said. “I spend a lot of time trying to determine whether or not I can have a positive or negative variance — and when things go against you, you must cut losses.”

Mr. Carey said that taking a hard look at your own strengths and weaknesses is important as well. “You may have some industries you know better, and may have some situations where you respond to things differently.” Being a good stock manager means knowing where you're good and where you're not.

Naturally, running the advisory company helps to make for a job security, too. “I have tenure – I own the team,” Mr. Gabelli said.

Most of these long-term stock pickers think that passive management is overrated. “Indexing is going to end the same way the internet bubble did – people own stocks because they're in an index and for reasons that have nothing to do with fundamentals,” Mr. Rogers said. “The industry will go back to a better period of old-fashioned stock picking, and managers will not feel the need to be just like the indexers.”

The fund industry will also have to work hard to rebuild trust in the market for millennials, Mr. Carey said. “There was a tremendous interest in stocks among the Baby Boom generation,” he said. “It remains to be seen if millennials will take the same interest — and if they don't, the shareholder base will dwindle. It's a critical issue for the economy that there's support for the capital market.”

Mr. Gabelli agreed. “If I'm a millennial, I don't believe in capitalism,” he said. “I have enormous student debt. I saw what happened in 2008, 2009 and I blame Wall Street and capitalism.”

Finally, a successful long-term manager gets there by looking ahead, not behind. Mr. Carey, manager of Pioneer Fund, noted that his mentor was Philip Caret, who managed money for Pioneer until he was 102. “Even then, he was looking for long-term investment opportunities,” Mr. Carey said.

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