Winning by Cutting Losses

Mutual Funds

Winning by Cutting Losses

A father and son "dive" for great companies at bargain prices.

Veteran fund manager Don Yacktman has a knack for beating the competition during down markets. In the 2000-02 bear market, when Standard & Poor's 500-stock index plunged 47%, his flagship Yacktman fund (symbol YACKX) gained 39%, and Yacktman Focused fund (YAFFX) added 35%. During the 18-month-long bear market that, we hope, ended in March, each fund declined about 45%, some ten percentage points less than the S&P 500's loss.

The funds tend to lag when stocks sizzle. But their long-term records are solid. Over the past ten years, both returned 7% annualized, while the average large-company value fund broke even and the S&P 500 sank 2% a year.

Stephen Yacktman joined his father as co-manager late in 2002. Together, he says, they enjoy "Dumpster diving" for solid businesses at bargain prices. Near the market's bottom, Stephen says, they were finding extraordinary bargains among financials, such as AmeriCredit (ACF), a car-finance company that was recently Focused's second-biggest holding.

Don says he and his son normally stay away from financials because "you don't know what's inside them." But AmeriCredit, he says, is different: In addition to having steered clear of bad loans, the company reports its key numbers on a monthly basis, making the business transparent and easy to understand. "If the Federal Reserve said it was going to stress test AmeriCredit, I'd say, "Why bother?'" says Stephen. "All the data's right here, and it provides better insight than stress-test results."