Another active manager "embarrassed" by his own performance...

Dallas' Donald Hodges is humbled my his inability to "make good bets" in financial stocks last year. His fund falls from the top quartile to the bottom in 6 months ruining "a great 10 year track record". But, he's been working out in his luxurious home gym extra hard so he'll have the strength to make a come back. Please.

Poor guy. I guess he hasn't seen the data showing that only about 25% of managers beat the market over a 5 year period and rarely does that group beat it in the next five years. As it turns out, even a blind squirrel finds a nut every once in a while. I guess he thinks he's smart too for a while until winter comes.

Christopher

Top Fund Manager Sees Decade Ruined

Hodges, 'Very Much Embarrassed,' Regroups After Nearly 50% Drop in 2008

• Article

By SHEFALI ANAND

For many years, Donald Hodges ran one of the top-rated stock-focused mutual funds in the country. He also has lost money for his investors over the past decade.

A $10,000 investment in Hodges Fund made 10 years ago would be worth around $9,015 today, compared with $7,720 if it was invested in the Standard & Poor's 500-stock index. Years of stellar performance were wiped out by a 49.5% plunge in 2008, a much steeper fall than the S&P, and a 11% drop so far this year.

Brandon Thibodeaux for The Wall Street Journal

Mutual-fund chief Donald Hodges, in his Dallas office this month.

This hurts badly. "You carry it with you every place you go because you have friends investing with you," says Mr. Hodges, a silver-haired, 74-year-old Dallas money manager, who also suffers because he has money in the fund. "I'm very much embarrassed by our performance last year."

So, Mr. Hodges, who maintains a calm aura despite all, has found himself logging extra hours soothing clients. He has become more cautious in his new stock picks, leery about buying until he is sure they are unlikely to blow up. He also is working out more often at home with his treadmill and weights, trying to remain fit to tackle what lies ahead.

Mr. Hodges is emblematic of well-regarded fund managers with good track records who have been chastened in the short term. Of the 468 diversified U.S. stock funds that have had the same manager for 10 years through Feb. 28, 46% logged negative returns over this period, says fund tracker Morningstar Inc. In the same time, the S&P index has fallen an annualized 3.4%, including reinvested dividends.

Robert Hagstrom's Legg Mason Growth Trust was in the top quarter among peers over the 10 years ended December 2007. But after a 60% slide in 2008, weighed down by bad bets in financial stocks, the fund is now among the worst performers in the growth category. Mr. Hagstrom says he expects the fund to do a "great job" coming out of this poor period, as it has done in the past.

Neuberger Berman Partners Fund, which lost 52% in 2008, is down an annualized 2.4% over 10 years through Feb. 28. Big stakes in energy, materials and industrial stocks fared poorly. "Our numbers were fantastic through June, and then we fell of the cliff massively," says manager Basu Mullick. He notes that this year, the fund is ahead of the S&P by seven percentage points.

Hodges Fund suffered in the last part of 2008 because of declines in the likes of offshore-drilling firm Transocean Inc., American Airlines parent AMR Corp. and Texas Industries Inc., maker of industrial materials like cement.

Mr. Hodges's son Craig, 45, joined as a co-manager 10 years ago. "Having to see him go through this in the twilight of his career is a little bit tough," he says

The "go-anywhere" Hodges Fund -- Donald Hodges invests in both value and growth issues, and ranges from small- to large-market capitalizations -- was founded in 1992 and rose to $750 million in assets by early last year. But now it is one-third that size, thanks to the brutal decline and outflows of around $31 million for the first two months of this year.

Mr. Hodges grew up in the small Texas ranching town of Canadian. After working for others as a broker and money manager, he founded Hodges Capital Management Inc. in 1989, now headquartered in the 100-year-old former official residence of a Dallas mayor that boasts of oak and maple floors. His two other children also work with him, in marketing and operations.

Time was when Hodges Fund routinely ranked at or near the top of its category. In 2003, the bounce-back year from the tech-bust bear market, the fund clocked an 80% return, followed by double-digit showings right up to 2007, when the market's downturn began and it managed an 8.5% performance.

Glory Days

In three consecutive years through the end of 2007, the Hodges Fund won awards for having the best five-year performance in Lipper Inc.'s category of multicap core funds. Even now, Mr. Hodges frequently appears in the media.

In the first half of 2008, even as the broad market fell, Hodges Fund held up relatively better because it had few financials. In the summer, Mr. Hodges took time off for an investors' cruise to Asia. He received a daily update on the fund portfolios via faxes and emails.

But after the collapse of Lehman Brothers Holdings Inc. in September, several of his fund holdings were hit hard. Mr. Hodges figured it was a buying opportunity -- a strategy that had worked well for him coming out of the 1982 and 1987 market slumps.

He bought some cheap shares that he thought would hold up. One was Cal-Maine Foods Inc., a large producer and distributor of eggs. Wrong move. That stock has dropped 42% since September.

In recent months, Mr. Hodges has been spending a lot more time on the phone with clients, at times simply letting them vent. Recently, a client called him and repeatedly mentioned how much money the fund had lost. Mr. Hodges didn't argue, and said instead: "I haven't done well. I'm sorry about that."

Going for the Rebound

Mr. Hodges is fixated on turning around his fund. He is staying with holdings he thinks will rebound, such as oil-related stocks. "It becomes a question of proving yourself to yourself, and to your clients," he says.

Still, he has become gun-shy about jumping into new stocks. For weeks, he had been eyeing a small company called Coinstar Inc., which among other things rents out movie DVDs for $1. Mr. Hodges has owned the stock before and believed it was cheap when it was down 22% from last June's high, but only recently did he buy shares.

"A year ago, I would probably have stepped up quicker," he says.

"You have to be somewhat forgiving of yourself, and realize that over a period of time you've done well," Mr. Hodges says. "And that day will return again."

Write to Shefali Anand at shefali.anand@wsj.com

Comments

[Dallas]

Donald Hodges, the "Christian" money manager is a silver-toothed liar. If you compute his returns on a factual basis--which means factoring in his fees AND the tax consequences of his heavy short-term asset turnover, you will find his ten-year return is less than half of the S&P.

His son, Clark, arrested more than once for various offenses over the years, has been known to bring in unsuspecting female clients from his various activities on adult sex sites such as "Adult Friend Finder," where he is known by the name "StiklerJab" among others.

The only Stiklerjab one can think of in the Hodges Family is the "stickjabbing" to the clients the massive cash they have lost by holding their assets with this company.

Don't count out a formal investigation into allegations of insider trading by Don at two Dallas companies both traded on the NYSE.