Were the 2000’s really a lost decade? That’s what the media is telling us.

Don’t believe it. For me and for the investors I know the 2000’s were not a lost decade.

In a previous post I gave you four reasons why a good investor should not have had a lost decade. One of my points was that good stockpickers should have made money over the last 10 years.

So, let me show you who some of the best stockpickers were over the last decade.  I searched Morningstar’s mutual fund database as of December 31, 2009 to find all large cap U.S. stock funds that had an average annual return of 10% or more over the past 10 years.  I came up with 4 funds that met this criteria:


10-year annualized return: 17.89%

Manager: Ken Heebner

Strategy: This fund is usually invested in fewer than 25 stocks.  Mr. Heebner will trade very frequently among stocks and sectors often making large sector bets. The manager is also able to short stocks and will occasionally short a large position in the portfolio.

Fairholme (FAIRX)

10-year annualized return: 13.21%

Manager: Bruce Berkowitz

Strategy: This fund manager has adopted the principles of Warren Buffett.  The fund primarily seeks to buy good businesses that are run by great managers.  The fund will also invest up to 25% in turnaround stories or “special situations”. Mr. Berkowitz invests in  a small number of postions (currently 20), often holds large amounts of cash (currently 22%), and will make large bets on single positions (currently PFE is nearly 13% of the portfolio).

Yacktman (YACKX)

10-year annualized return: 11.90%

Manager: Donald Yacktman and Steve Yacktman

Strategy: These fund managers prefer to invest in profitable companies that generate lots of cash, have little debt, and are selling at discounts to what they think the whole business is worth. The fund is concentrated in just a few names (around 40) and they hold most of their stocks for a long time.

Yacktman Focused (YAFFX)

10-year annualized return: 11.82%

Manager: Donald Yacktman and Steve Yacktman

Strategy: The strategy for this fund is the same as the Yacktman fund, but with one difference.  This fund will own a fewer number of stocks and focus on the managers’ best ideas.

As I reviewed this list I came up with 3 obvious takeaways from the results:

  1. Active management works. Every one of these funds employ an active investment strategy where they have a method that results in a portfolio that looks much different than the benchmark (the S&P 500 Index).  Every one of these funds also beat the benchmark by over 12% a year for the last decade.
  2. Concentrated portfolios can pay off big when the manager is right. Each of these funds have a portfolio of 40 stocks or less. The managers each had a strategy to determine which stocks had the greatest investment potential.  Each manager focused on buying just their best ideas for the fund. Concentration can also hurt a fund when the manager is wrong. If you’re going to invest in a fund that has a small number of positions you want to be sure the manager has a successful track record of being right over the long term.
  3. Owning too many stocks can hurt you. If you owned an S&P 500 index fund you would own 500 stocks in your fund.  None of these funds own more than 40 stocks.  The more stocks you own the more diluted your portfolio becomes.  Owning a large number of stocks prevents you from making large bets on companies you really believe in.  Companies that give you confidence and conviction.