Expert: Christopher C. Davis, Portfolio Manager and CEO
Davis Selected American Shares, New York City
Years in profession: 15
Assets under management: $5 billion in Davis Selected American Shares (the firm manages another $35 billion in large-cap core products)
Claim to fame: "American Shares has outperformed the market for the past ten years. We manage with that goal in mind-beating the market over a long period. It's also unique that we eat our own cooking. Our employees, their families and our directors are the fund's largest shareholders, owning about $2 billion in shares."
Economic outlook: "We're nervous about earnings and corporate profits and above all nervous about stock valuations. We think they're very high and interest rates are very low, so the foundation of the economy is fragile as we see it."
Interest rate outlook: "They're so low. We know they won't do in the next five years what they did in the last five years because they'd have to dip below zero."
Stock market outlook: "There is danger in valuations and complacency. It's time to be skeptical of big promises and very focused on realistic expectations."
Favorite investments: AIG, Berkshire Hathaway, Progressive, American Express, Hong Kong Shanghai Bank, Tyco and Altria.
Performance as of October 31, 2003:
YTD: 21.7%
One-year: 23.3%
Three-year: -3.4%
Five-year: 5.3%
Impediments to investing success: "For investors the problem is always the same-chasing whatever worked in the last three years."
Expert: James Floyd, Portfolio Manager, Senior Analyst
Leuthold Core Investment Fund and Leuthold Weeden, Minneapolis
Years In Profession: 30
Assets under management: $380 million in Leuthold Core
Claim to fame: Floyd is the brain behind the fund's quantitative and stock-picking analysis. This is key since the unique fund can shift between stocks and bonds and sell stocks short and often does, creating average annual returns of more than 11% since the fund was launched in 1995.
Economic outlook: "There is plenty of economic stimulus out there and it's starting to show up. It also looks like the employment picture will be very good for at least another year or two. It gets tougher to see much beyond that. The problems we see are the rising budget deficit and higher interest rates, which we think will kick in by mid-2004 as the Fed starts to worry about inflation. That's not something the stock market generally likes."
Interest rate outlook: "We see rate hikes by mid-2004. Initially it could be a pretty good size negative for the stock market because people will then start worrying about the next rate hike."
Stock market outlook: "We think there is a 20% potential left for large-cap stocks and another 20% rise in the S&P in the next six to 12 months. Nasdaq, we think, will go up another 30%."
Recommended asset allocation: "We're at 70% for stocks (the fund's maximum) and have another 22% in high-yield stocks and bonds, utilities stocks and REITs. We're using another 5% of assets to short Treasuries right now, which leaves about 3% in cash."
Favorite investments: Foundry Net, Freeport/McMoran Cooper/Gold, Canon ADR, Cisco, Inc. (As of October, Leuthold stopped disclosing investments. These are from MorningstarAdvisor.)
Performance as of October 31, 2003:
YTD: 37.85%
One-year: 41.01%
Three-year: 8.37%