While 2008 will forever be remembered as one of the worst market performing years in history, one equity mutual fund manager was identified by Barron's as the only one to have posted a gain. That distinction is bestowed on Tom Forester and his Forester Value Fund (FVALX) which was up 0.39% in 2008. While one year is nothing to write home about, the Forester Value Fund has also beaten the S&P over three, five, and ten year periods, respectively. No doubt the Fund's 37 percentage point outperformance in 2008 was a significant factor in those impressive results.
Cash is King
It's never a bad idea to see where investment funds like Forester are putting money to work in today's world. Not surprisingly, the Fund has a nice balance of cash, accounting for nearly 20 percent of the Fund's assets. Cash is one of those assets many love to hate until they need it most, then it becomes the most sought after asset. The fact that cash justs sits there earning no interest in today's world and being subject to the long-term, value-destroying effects of inflation is a great reason to not have idle cash. In investing, however, discipline is often the key between success or failure. So having the discipline to sit on cash when the market is unattractive is more valuable than the disadvantages of sitting on cash.
It's never a bad idea to see where investment funds like Forester are putting money to work in today's world. Not surprisingly, the Fund has a nice balance of cash, accounting for nearly 20 percent of the Fund's assets. Cash is one of those assets many love to hate until they need it most, then it becomes the most sought after asset. The fact that cash justs sits there earning no interest in today's world and being subject to the long-term, value-destroying effects of inflation is a great reason to not have idle cash. In investing, however, discipline is often the key between success or failure. So having the discipline to sit on cash when the market is unattractive is more valuable than the disadvantages of sitting on cash.
Quality is Cheap
Forester, like many other respected value managers, is finding that the best known names and brands in the world today offer the most value. One such name held by many value oriented investors is Microsoft (Nasdaq:MSFT). The shares trade for 13 times earningsand yield 2%, ratios that the Microsoft of past never commanded. A 2% yield for any tech stock is virtually unheard of. Microsoft's dominance of the operating system generates gobs of free cash flow. Owners of the stock like Jeremy Grantham of GMO see the stock on the verge of a new profit wave with the introduction of Windows 7.
Forester, like many other respected value managers, is finding that the best known names and brands in the world today offer the most value. One such name held by many value oriented investors is Microsoft (Nasdaq:MSFT). The shares trade for 13 times earningsand yield 2%, ratios that the Microsoft of past never commanded. A 2% yield for any tech stock is virtually unheard of. Microsoft's dominance of the operating system generates gobs of free cash flow. Owners of the stock like Jeremy Grantham of GMO see the stock on the verge of a new profit wave with the introduction of Windows 7.
Another top holding for Forester is Altria Group (NYSE:MO) which trades at 12 times earnings and yields 7%. Many top investors, including Seth Klarman at Baupost, think we are in the midst of another lost decade in stocks. If that is so, then owning a company like Altria that pays a 7% dividend looks like an incredibly attractive deal. Sure the stock can decline in meantime, but as a company well known for decades as having one of most stable operations, the current valuation seems very reasonable. Looking at the list of the Fund's top 10 holdings showing big positions in Johnson & Johnson (NYSE:JNJ), General Dynamics (NYSE:GD) and Bristol Myers Squibb (NYSE:BMY).
The common thread in all of these companies is that they operate in stable industries - consumer goods, defense and pharmaceuticals. In addition, they are dominant players in their industries and all have attractive dividend yields. Bristol Myers, for example, trades for less than 5 times earnings and yields 5%.
Slow and Steady
Big dividend paying companies may not be as sexy as high growth smaller companies. And in the short run, their stock prices may not move as much. But investing is a long-term game and those who are around for the long haul usually have the better results.
Big dividend paying companies may not be as sexy as high growth smaller companies. And in the short run, their stock prices may not move as much. But investing is a long-term game and those who are around for the long haul usually have the better results.
By: Sham Gad
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