What the World’s Greatest Investors Are Saying Now

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Investing without trustEven as stocks come crawling back from the abyss, big name money managers are still going to have a hard time regaining investors’ trust – even if they deserve it. In this special report, we spoke with four of the world’s greatest investors to see how they managed to minimize investors’ losses during the worst of the downturn and how they’re making money now.

With stocks crawling back from last winter’s abyss, and a reforming White House trying to restore some order to the Wild West of the markets with new regulations, we’re starting to regain confidence in our investments. But when it comes to our feelings about big-name investors – well, it’s going to take a lot of wooing to teach us how to love again. After a crash in which almost every mutual fund manager suffered big losses, investors are finding it hard to believe that any wise man or woman really deserves our trust.

There may be an antidote to this kind of skepticism: experience. Managers who have witnessed good markets and bad, over careers spanning decades, are more proficient than their peers at adapting to trouble. Indeed, during the bungee-cord drop and rebound of the past 12 months, U.S. stock funds that have had the same manager for 10 years or longer lost slightly less money than their peers, according to data from Morningstar. And they’ve also been more likely to show positive returns so far in 2009. That’s why we’ve focused this year’s installment of our “World’s Greatest Investors” series on a truly battle-tested group of thinkers.

These four managers invest in such diverse fields as small-cap technology, corporate bonds and the foreign mergers-and-acquisitions market, but what’s more important is what they have in common: They minimized investors’ pain during the downturn, and they’re rebounding better than average in the current recovery.

If some of these names sound familiar, they’ve earned the exposure. Bill Gross has become the country’s foremost bond investor in his 22 years at Pimco, Joel Tillinghast has logged 20 years managing one of the top funds in the massive Fidelity family and Bob Rodriguez has averaged double-digit returns for two decades at FPA Capital. Our one newbie, Anne Gudefin, may be relatively young at 43, but she’s shined for almost a decade as an analyst and manager at the innovative Mutual Series fund family – and in last year’s crisis, she made calls worthy of a grizzled veteran.

Of course, even the grizzled can get eaten by a bear: Warren Buffett is having the worst year of his career. But overall, our group proves that a long-term view of the market and the experience to back it up are the keys to success.

ANNE GUDEFIN, MANAGER, MUTUAL GLOBAL DISCOVERY

Columbia University finance professor Bruce Greenwald recalls the day Master of Business Administration student Anne Gudefin talked her way into his value-investing class. When Greenwald protested that he had hundreds of students on his waiting list, Gudefin pointed to the copy of stock-picking bible, “The Intelligent Investor,” on his desk. “Okay, fine,” she said crisply in French-accented English. “But how many of them spent their summer in China reading that book?”

Greenwald moved Gudefin to the head of the line. Thirteen years later she’s first in a different class: In four years running the $13 billion Mutual Global Discovery fund, she’s outperformed 95 percent of global stock managers.

Foreseeing trouble in banking in 2007, she sold off financial stocks, shorted European and U.S. stocks, and had 58 percent of her fund parked in cash by the time the markets hit their worst stretch. While Discovery took losses last year, it beat the MSCI EAFE world stock index by 17 percentage points.

Daughter of an American banker and French real estate investor, Gudefin grew up in Switzerland and France. Her post-MBA efforts to get into money management were thwarted at first – one company placed her in client services, stereotypical women’s work at old-boy firms. But she broke into the business at a hedge fund before joining New Jersey-based Mutual Series in 2000 as an analyst covering European stocks. That meant working closely with investor David Winters. More crucially, it meant an apprenticeship in Mutual Series’ ethos of investing widely outside traditional stocks and bonds. David Petso, a Boise, Idaho, financial adviser with $25 million of his clients’ money invested in the Discovery fund, says he’s been impressed with Gudefin since she took over from Winters: “She’s very bold.”

Gudefin certainly can’t be accused of running with the crowd; she isn’t yet warming to the idea of a market recovery. Though she’s shrunk her cash position to under 40 percent, she’s staying conservative, buying ultrasafe utility bonds and high-dividend stocks while using covered-call options to hedge against a volatile market. She won’t call a market bottom until she sees large-cap stocks make a stronger move than they have so far. If investors would rather hear something more upbeat, well, tough luck. “I know I cannot be the popular girl at dinner parties,” she says with a nonchalant toss of her head that sends her earrings flying.

2009 Copyright The New York Times Syndicate