Buffett, of course, is a Wall Street legend. His investing skills have made him the second richest person in the United States, according to Forbes magazine, which puts his net worth at $9.2 billion. Shares of his holding company, Berkshire Hathaway, have risen from about $12 since Buffett took control in 1965 to around 823,000 now. Among Buffett’s best-known successes is Berkshire’s 15 percent stake in NEWSWEEK’S parent, The Washington Post Company, which is worth about 45 times what Buffett paid for it in the early 1970s.
But chronicling a smart investor doesn’t make you a smart investor. “Saying ‘I’ve written about Buffer and now I’m going to invest like Buffett’ is like saying, ‘I’ve studied the career of Pablo Picasso, and now I’m going to paint like Pablo Picasso and you’re going to pay me for it’,” observes San Francisco mutual-fund analyst Kurt Brouwer. Researching Buffett doesn’t give Hagstrom anything resembling the instincts, market savvy and information sources that Buffett has pried up in more than 30 years of investing. John Bogle, chairman of the Vanguard mutual-fund group, liked Hagstrom’s book enough to write one of the blurbs on the jacket. Bogle’s view of Focus Trust? “There’s going to be a new symphony by a man who wrote about Beethoven,” he quips.
Hagstrom doesn’t deny his inexperience. Although he is a certified financial analyst and has been in money management since 1989, he hasn’t run any “discretionary accounts”–accounts for which he makes all the investment decisions. This means that Hagstrom has no investment track record that outsiders can analyze. Hagstrom’s response: so what? Given that most mutual funds underperform the Standard & Poor’s 500-stock index, he says, inexperience “may be my biggest advantage.” That’s like saying that because surgeons lose patients on the operating table, you’re better off being cut by a tyro than by a veteran.
His investment inexperience notwithstanding, Hagstrom is marketing his fund like a pro. Among other things, his PR firm is mailing his book and a Focus prospectus to business writers. “He’s got a nose for a buck,” says John Rekenthaler, associate publisher of Morningstar Mutual Funds. Rekenthaler’s take: Hagstrom’s ability to invoke the Buffett aura gives his fund something to distinguish it from the 3,000 other stock mutual funds in an overcrowded market, and it could attract a lot of money if it piles up a good early record. Hagstrom and his associates get an annual fee of $7 per$1,000 of fund assets, a fairly stiff levy. The fund charges investors nothing to put money in, but makes them fork over up to 2 percent of their investment if they take their money out in less than two years. According to the fund’s prospectus, Focus Trust will own no more than 25 stocks and will have a relatively small turnover–strategies designed to mimic Buffett, who has made much of his money with a small number of long-term investments. Buffett, who wasn’t involved with the book and isn’t involved with the fund, declines to comment.
Focus Trust is aimed at small investors. It is accepting accounts as small as $1,000, far below the minimums set by many competing funds. Hagstrom says the fund, which opened last month and is sold through an 800 number, has attracted $1.2 million from 113 investors to date. He adds that he, his wife and their children have committed all their investment money to the fund. How much that is, he wouldn’t reveal.
When a man with no investing record gets the public to send him money merely by writing a book about Warren Buffett, you have to wonder what on earth is going on. I like Hagstrom, but I wouldn’t send him a dime until he’s produced at least five years of good numbers. Talking the Warren Buffett talk is one thing. But walking the walk is quite another.
