A New Legendary Investor, Ken Heebner

Here's an interesting feature article on Fortune Magazine on Ken Heebner, America's hottest investor!!

The following are some of the interesting passages for me.

How good is he?

• Just how good has Heebner been? We may well be witnessing the most dazzling run of stock picking in mutual fund history. Since May 1998, Focus has an average annualized return of 24%, the best ten-year record of any U.S. mutual fund, compared with only 4% for Standard & Poor's 500. Focus, which has $7.4 billion in assets, is already up 15% in 2008 (as of May 19), but it is 2007 that will be remembered as Heebner's pièce de résistance. Fueled by big bets on energy, fertilizer, and metals, Focus soared 80% last year, vs. 5% for the S&P 500. "I told Ken it was like he was walking between the raindrops," says CGM president Bob Kemp, who oversees sales and marketing at the firm, of the year Heebner had in 2007. "It amazes even us." Last year marked the fourth time since 2000 that the fund returned 45% or better. And it's not as if Heebner has needed the big years to make up for a lot of losses: Launched in late 1997, Focus has had only one money-losing calendar year (2002).

He's one that seeks information rather opinions and one's that known to engage in short-selling too and is described as a true contrarian.

• Even more remarkable than the raw numbers is how Heebner has earned them. Heebner is a true contrarian, who says he's most confident as an investor "when everyone else thinks I'm nuts." He works long hours trying to identify emerging trends in the economy. When he finds a promising one, he'll go all in, making huge bets on the stocks poised to benefit. Asked how long it takes him to identify those stocks, Heebner answers, "About ten minutes. I've been at this a long time." It's an investing style that will never be taught in business schools and is definitely not something any amateur should try at home. But Heebner, blessed with uncanny instincts, has managed to see around just about every corner in a market that has befuddled just about everyone else.

Identifying emerging trends in the economy!!

( There's a new posting on Cows Don't Trade this morning. It's called Be On The Right Side of The Long Trend. Do give it a read and I am sure you won't be disappointed. )

The Fortune article then continues.

• A league of his own
  Spend some time with Heebner, and it becomes clear why. His brain is wired differently. His ideas come faster, his focus is more intense, and his ability to sift through massive quantities of information and zero in on what matters is downright spooky. Pity the Salieris of the investing world who have to compete with this guy.
  
  There's no simple formula that captures his investing principles, and explaining his approach is something even Heebner struggles with - which may be why CGM manages only $13 billion (including private accounts), a relatively modest amount given Heebner's track record. Basically, he's the last of the gunslingers - a go-anywhere manager who can be investing in left-for-dead U.S. value stocks one day and red-hot Brazilian growth stocks the next. But he's not just playing hunches. He knows from years of experience, for example, that when steel scrap prices soar - as they have of late - steel stocks usually follow. And Heebner is a workaholic who's up at 5:30 a.m. reading stock reports and checking business news and who never leaves the office at night without a stack of articles and research that make up his bedtime reading.
  
  CGM is pretty much a one-man show. Heebner's entire investment team consists of two traders - Elise Schaefer and Sue Small - and Columb, the U2 fan. Being an analyst for Heebner is a bit like being a beauty consultant for Halle Berry, so Columb knows better than to try to suggest stocks. She operates more like a sleuth. Heebner will ask her to dig up the latest information on, say, scrap steel prices in China or deep-sea oil rig leases, and within an hour or two her findings are on his desk.
  
  These days Heebner is keeping close tabs on the latest economic data out of China, because China is the key to his enormous bet on commodities. As of March, 64% of Focus's assets were invested in commodities-related stocks. His biggest stakes are in steel (ArcelorMittal, Nucor, and United States Steel) and in oil (Apache, Devon Energy, Petrobras, and Schlumberger). Petrobras, the Brazilian oil company that has announced two giant offshore oil discoveries, is his favorite. "Petrobras could become the biggest stock in the world," he says.
  
  Heebner thinks steel prices could double and oil could blow past $200 a barrel. (He also thinks inflation will hit double digits within the next five years: "I don't know why anyone would buy a bond.") Yet he is constantly on the lookout for any sign that the economic slowdown in the U.S. may be infecting emerging economies abroad. That would deep-six his whole investment thesis, which hinges on China and other emerging nations using more energy and building more infrastructure. "I'm not waiting for Morgan Stanley to tell me there's something wrong in China," Heebner says. "By then it's too late."

LOL! Heebner is obsessed with making money!

• Jeff Heebner says that his brother has always been a little obsessed with making a buck - even though spending it has never been his thing.

This sounds so like Warren Buffett for Buffett is known for his ambition to make money.

• "They didn't know him well enough," counters John Henry (a retired Philadelphia businessman, not the Boston Red Sox owner of the same name), who knew Heebner at both Amherst and Harvard. "Ken did march to his own drumbeat, but he was absolutely brilliant. I never, ever doubted that he was going to be a great investor." Henry, himself a long-time shareholder in Heebner's funds, says what first impressed him about Heebner was a little gambit he had going in finance class. Classmates would bring him silver dollars, which Heebner would exchange for dollar bills. Says Henry: "Ken was hoarding silver dollars on the idea that silver was going to keep appreciating, which would eventually force the Treasury to stop issuing new silver coins." And that's exactly what happened. "It was funny as hell - he'd be sitting there with piles of silver dollars on his desk - but Ken had it nailed," Henry says. "He saw something the rest of us didn't. That's Ken - that's always been Ken."

• In Heebner's early days at Loomis, he was forced to make all his stock picks from a list of 300 names approved by the firm's research department. Heebner was so frustrated by this restriction that he'd occasionally give Lynch stock ideas he wasn't permitted to use himself. Lynch confirms this, adding that in those days he, Heebner, and several other top Boston money managers used to talk stocks at a monthly dinner. Lynch says he even tried to recruit Heebner to Fidelity, an opportunity Heebner says he passed up because he would have been managing separate accounts instead of a mutual fund. "Ken is an incredible fundamental analyst," says Lynch. "He's very thematic, and he stays with things for a very long time, but once he's convinced that something is deteriorating, that's it."
  
  Lynch says he never really thought of himself as competing with Heebner, but evidently that feeling was not mutual. "The day Peter retired, I thought Ken was going to cry," Hermsdorf says. "Ken thought he was catching up to Peter."