Thomas Forester

Last updated
Thomas Forester
Born
Thomas Harland Forester

(1958-12-15) December 15, 1958 (age 65)
NationalityAmerican
Occupation(s)money manager, trader
EmployerForester funds
Known forOnly profitable stock mutual fund manager in 2008
Titlefounder, Chairman, and CEO
SpouseKaye
Children2
Website www.forestervalue.com

Thomas H. Forester (born December 15, 1958) [1] is an American mutual fund manager. He was the only long-focused United States stock mutual fund manager to make a profit in 2008. [2] [3] [4] [5] He turned a profit in the third quarter of 2002, during the stock market downturn of 2002 [6] and was first in his asset class year-to-date through November 1, 2004. [7]

Contents

Forester is a value investor who makes decisions based on fundamentals such as price–earnings ratio. [5] [8] His fund focuses on large-value stocks. [9] He is a contrarian investor. Like many value investors, he is a more of a portfolio investor than a short-term trader. [10] One of the most important financial ratios for Forest was the ratio of home prices to incomes, which helped him foresee the United States housing market correction. [11] His fund has typically underperformed during market rallies. [12]

Due to Forester's investing style of buying stocks with low price–earnings ratios and good earnings prospects, he has been compared to Warren Buffett. [13] Forester loosely quotes Buffett at times such as in Barron's when he said: "It's When The Tide Goes out that you find out who's swimming without a bathing suit. I have mine on." [14] Forester maintains previous employer Sir John Templeton as his role model. He invests by the philosophy credo that "I buy undervalued stocks, and if there are none, I go to cash." [6]

While his fund at one point had $250 million in assets under management, by 2018, it was down to $40 million. [15] The fund posted losses in 2012, 2015, 2016, and 2017, and never exceeded a 10% return after 2010. [16] It currently has $3 million in assets. [17]

Early life and career

Forester grew up in Illinois. [4] There he attended the Kellogg School of Management at Northwestern University where he earned his MBA. [18] Through the 1970s and while he was still at college, Forester helped his father manage an investment portfolio. [19] He started his career as a money manager in 1992 assisting in the management of a US$50 million fund for Sir John Templeton. He later worked for Wells Fargo in Minneapolis, Minnesota and Scudder Investments in New York City. In 1998, he lost money in subprime lending. [4]

Forester Value Fund

In 1999, Forester used $100,000 of his own money to establish Forester Value, a large cap value fund. [4] [9] Although he was in cash during the dot-com bubble, which proved to be profitable for a while, he trailed the S&P 500 by 28% in 2003.

Performance before 2008

In the third quarter of 2002, his fund was one of two out of 6,000 that turned a profit, returning 5.2%, but went to 100% cash by the end of the quarter. [6]

Between 2001 and 2008, the fund had been in the top 20% of its peer group three times and in the bottom 10% four times. Between 2005 and 2008, the fund had nearly broken even. [20]

In 2004, the fund was subject of controversy when Morningstar, Inc. attempted to reclassify it into the conservative-allocation fund category. Mutual fund managers, including Forester, believed that the fund belonged in another classification such as a large-cap value fund, which is how Lipper had it classified. Value Line classified it as an income fund at the time. The move resulted in the fund performing first in its category in 2004. The controversy led to complaints to Morningstar, Inc. and the U.S. Securities and Exchange Commission. [7]

His wife, Kaye, had been encouraging him to close his business. In October 2007, they agreed that he would close the business if he was not beating the S&P 500 by 10% by March. Although he only outperformed the S&P 500 by 9.5%, his wife agreed to allow him to keep the business going. After his fund took first place for year-to-date returns in the summer, he put 30% in cash. [4]

2008 performance

Through 2008, the fund had a five-year total return of 25%. [21]

In its first 10 years of existence, the fund only had one down year - in 2007. [22]

In 2008, there were 8,200 diversified United States stock mutual funds, and they averaged a negative 39% rate of return. [4] 1,700 of these funds have been in existence for over three years and have assets of at least $50 million. [9] Forester's Forester Value Fund (FVALX), which is Morningstar five-star-rated, [23] gained .4% in 2008 although one year it lagged the S&P 500 by 30%. [4] The fund, which had been up 7% through June 30 by avoiding the United States housing bubble and the Subprime mortgage crisis, was down 4.3% on the year through December 15 and 0.82% on the year as of the last day of trading. [23] [20] Morningstar tracks a total of 9,918 mutual funds that averaged a 39.1% loss in 2008. [14] Much of Forester's success was attributable to large cash positions. [4] However, he also benefited from several timely trades in the banking sector, health care. [4] [5] His fund held positions in countercyclical stocks that perform well in recessions. He had also held large cash positions during the dot-com bubble. [4] In 2008, he benefitted from investments in Walmart and Anheuser-Busch. [24]

Forester conceded that because his fund is smaller than many of his peers, he is able to get in and out of portfolio positions faster than others and that his returns would have been much lower if he had been managing a larger portfolio. [9] However, he said his success at beating the market was more attributable to his financial market assessments than his fund's size. [11] Assets under management grew fivefold during 2008. [23]

Media attention due to 2008 performance

During and after his 2008 market success, Forester, who runs his fund from Libertyville, [13] became a celebrity. He made his first television appearance in December and newspapers from as far away as Chile's El Mercurio have requested interviews with him. [4]

Underperformance in 2009 and thereafter

In 2009, the fund was in the bottom quartile of its peer group. [25] He remained cautious in 2009, investing in Microsoft. [18]

In 2009, the fund's three-year and five-year averages were 9% and 7.5% ahead of the market. [26]

He had approximately 16%-17% in cash in March 2010 and was very cautious. [27]

In June 2010, he was increasing his cash position. At that time, his fund had $104 million in assets under management. [28] By the end of 2010, he had 45% in cash. [29]

In August 2011, he was again shifting assets to cash. [30]

In April 2012, he falsely believed that the stock market rally was closer to the end than the beginning. [31]

In 2015, he falsely predicted that China would be in a recession, increased his cash position to 30% and hedged his portfolio. [32]

Personal life

Forester moved to Libertyville, Illinois, a northern suburb of Chicago, in 1998 when he purchased a home in the town. He was a trustee of the Cook Memorial Library District. In 2004, he attempted to run on a Republican slate of delegates for United States President George W. Bush. However, due to an insufficient number of signatures on the slate's petition, they were removed from the ballot. He was unsuccessful in his election to the Cook Memorial Library District Board in during the 2005 municipal elections.

He is married to Kaye Forrester, with whom he is raising two children. [4] He works from home. [33]

Related Research Articles

Passive management is an investing strategy that tracks a market-weighted index or portfolio. Passive management is most common on the equity market, where index funds track a stock market index, but it is becoming more common in other investment types, including bonds, commodities and hedge funds.

An index fund is a mutual fund or exchange-traded fund (ETF) designed to follow certain preset rules so that it can replicate the performance ("track") of a specified basket of underlying investments. While index providers often emphasize that they are for-profit organizations, index providers have the ability to act as "reluctant regulators" when determining which companies are suitable for an index. Those rules may include tracking prominent indices like the S&P 500 or the Dow Jones Industrial Average or implementation rules, such as tax-management, tracking error minimization, large block trading or patient/flexible trading strategies that allow for greater tracking error but lower market impact costs. Index funds may also have rules that screen for social and sustainable criteria.

A closed-end fund, also known as a closed-end mutual fund, is an investment vehicle fund that raises capital by issuing a fixed number of shares at its inception, and then invests that capital in financial assets such as stocks and bonds. After inception it is closed to new capital, although fund managers sometimes employ leverage. Investors can buy and sell the existing shares in secondary markets.

A mutual fund is an investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV in Europe, and the open-ended investment company (OEIC) in the UK.

An exchange-traded fund (ETF) is a type of investment fund that is also an exchange-traded product, i.e., it is traded on stock exchanges. ETFs own financial assets such as stocks, bonds, currencies, debts, futures contracts, and/or commodities such as gold bars. Many ETFs provide some level of diversification compared to owning an individual stock.

The Vanguard Group, Inc. is an American registered investment advisor founded on May 1, 1975 and based in Malvern, Pennsylvania, with about $9.3 trillion in global assets under management as of May 2024. It is the largest provider of mutual funds and the second-largest provider of exchange-traded funds (ETFs) in the world after BlackRock's iShares. In addition to mutual funds and ETFs, Vanguard offers brokerage services, educational account services, financial planning, asset management, and trust services. Several mutual funds managed by Vanguard are ranked at the top of the list of US mutual funds by assets under management. Along with BlackRock and State Street, Vanguard is considered to be one of the Big Three index fund managers that play a dominant role in corporate America.

<span class="mw-page-title-main">Value investing</span> Investment paradigm

Value investing is an investment paradigm that involves buying securities that appear underpriced by some form of fundamental analysis. Modern value investing derives from the investment philosophy taught by Benjamin Graham and David Dodd at Columbia Business School starting in 1928 and subsequently developed in their 1934 text Security Analysis.

Market timing is the strategy of making buying or selling decisions of financial assets by attempting to predict future market price movements. The prediction may be based on an outlook of market or economic conditions resulting from technical or fundamental analysis. This is an investment strategy based on the outlook for an aggregate market rather than for a particular financial asset.

<span class="mw-page-title-main">Asset allocation</span> Investment strategy

Asset allocation is the implementation of an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor's risk tolerance, goals and investment time frame. The focus is on the characteristics of the overall portfolio. Such a strategy contrasts with an approach that focuses on individual assets.

Style investing is an investment approach in which securities are grouped into categories, and portfolio allocation is based on selection among "styles" rather than among individual securities.

The Fidelity Magellan Fund is a U.S.-domiciled mutual fund from the Fidelity family of funds. It is perhaps the world's best-known actively managed mutual fund, known particularly for its record-setting growth under the management of Peter Lynch from 1977 to 1990. On January 14, 2008, Fidelity announced that the fund would open to new investors for the first time in over a decade.

<span class="mw-page-title-main">Dodge & Cox</span> American Investment Firm

Dodge & Cox is an American mutual fund company, founded in 1930 by Van Duyn Dodge and E. Morris Cox, that provides professional investment management services.

Fundamentally based indexes or fundamental indexes, also called fundamentally weighted indexes, are indexes in which stocks are weighted according to factors related to their fundamentals such as earnings, dividends and assets, commonly used when performing corporate valuations. This fundamental weight may be calculated statically, or it may be adjusted by the security's fundamental to market capitalization ratio to further neutralize the price factor between different securities. Indexes that use a composite of several fundamental factors attempt to average out sector biases that may arise from relying on a single fundamental factor. A key belief behind the fundamental index methodology is that underlying corporate accounting/valuation figures are more accurate estimators of a company's intrinsic value, rather than the listed market value of the company, i.e. that one should buy and sell companies in line with their accounting figures rather than according to their current market prices. In this sense fundamental indexing is linked to so-called fundamental analysis.

Tactical asset allocation (TAA) is a dynamic investment strategy that actively adjusts a portfolio's asset allocation. The goal of a TAA strategy is to improve the risk-adjusted returns of passive management investing.

Otis "Mason" Hawkins is an American value investor and the founder, chairman, and former chief executive officer of Southeastern Asset Management, Inc. In 1975, Hawkins founded Southeastern Asset Management, a $35 billion employee-owned, global investment management firm and the investment advisor to the Longleaf Partners Funds, a suite of mutual funds and UCITS funds.

<span class="mw-page-title-main">TrimTabs Investment Research</span>

TrimTabs Investment Research, Inc. is a leading independent institutional research firm focused on equity market liquidity based in Sausalito, California.

<span class="mw-page-title-main">Stock market index</span> Financial metric which investors use to determine market performance

In finance, a stock index, or stock market index, is an index that measures the performance of a stock market, or of a subset of a stock market. It helps investors compare current stock price levels with past prices to calculate market performance.

Royce Investment Partners is a family of mutual funds that focuses primarily on small-cap investing, and has been considered one of the industry's most experienced smaller-company stock pickers. Royce & Associates, LLC serves as investment adviser to all Royce portfolios, including open-end mutual funds and closed-end funds.

Style drift occurs when a mutual fund's actual and declared investment style differs. A mutual fund’s declared investment style can be found in the fund prospectus which investors commonly rely upon to aid their investment decisions. For most investors, they assumed that mutual fund managers will invest according to the advertised guidelines, this is however, not the case for a fund with style drift. Style drift is commonplace in today’s mutual fund industry, making no distinction between developed and developing markets according to studies in the United States by Brown and Goetzmann (1997) and in China as reported in Sina Finance.

<span class="mw-page-title-main">PRIMECAP</span> Asset management firm based in Pasadena, California

PRIMECAP Management Company (Primecap) is an American investment management firm based in Pasadena, California. The firm is known for managing US-focused equity portfolios for The Vanguard Group (Vanguard). In 2004, it launched its own mutual funds, the Odyssey Funds. In addition, it also handles separately managed accounts for institutional investors.

References

  1. ↑ U.S. Public Records Index Vol 1 (Provo, UT: Ancestry.com Operations, Inc.), 2010.
  2. ↑ Arends, Brett (January 7, 2009). "Why Forester Finished First" . The Wall Street Journal .
  3. ↑ La Monica, Paul R. (January 6, 2009). "The best investor of 2008 is buying...: Tom Forester runs the only mutual fund focusing on U.S. stocks that made money last year. Here's what he's doing now". CNN .
  4. 1 2 3 4 5 6 7 8 9 10 11 12 Gullapalli, Diya (February 27, 2009). "Can 2008's Lonely Fund Success Avoid Falling to Zero From Hero?: A 0.4% Gain Made Thomas Forester No. 1, But He's Struggling to Find an Encore in 2009" . The Wall Street Journal .
  5. 1 2 3 Kiviat, Barbara (January 27, 2009). "Tom Forester, 2008's No. 1 Stock Picker". Time .
  6. 1 2 3 Tolliver, Craig (October 1, 2002). "Third-quarter review: Is it over yet?" . MarketWatch .
  7. 1 2 Benjamin, Jeff (October 30, 2004). "Fund manager fumes at Morningstar stance - Forester fracas raising questions about rating service's methods" . Crain Communications .
  8. ↑ Burton, Jonathan (November 9, 2008). "Going bottom fishing" . MarketWatch .
  9. 1 2 3 4 McGee, Suzanne (January 4, 2009). "One Fund in 1,700 Made Money in '08: Tiny Forester Value, with a 0.4% return last year, is the champion in our latest quarterly contest" . The Wall Street Journal .
  10. ↑ Caplinger, Dan (November 4, 2008). "What It Takes to Win in a Losing Market". The Motley Fool .
  11. 1 2 Landy, Heather (January 11, 2009). "Bleak Year Brought Almost No Winners: Average Fund Dropped 30 Percent, But Diversity Saved Some Investors". The Washington Post .
  12. ↑ "Why Shadings Matter". Morningstar, Inc.
  13. 1 2 "THE FORESTER FUNDS, INC. FORM N-CSR March 31, 2005". U.S. Securities and Exchange Commission.
  14. 1 2 Lin, Paul (January 12, 2009). "Three Winning Fund Strategies (Sort of)" . Barron's .
  15. ↑ Thomas Jr., Landon (March 8, 2018). "Stock Markets Are Scary. Suddenly, It's a Good Time to be a Trader" . The New York Times .
  16. ↑ "FORM N-1A". U.S. Securities and Exchange Commission. August 17, 2020.
  17. ↑ "Forester Value Fund". MarketWatch.
  18. 1 2 Salzman, Avi (November 3, 2009). "A Tutorial in Defensive Investing" . Barron's .
  19. ↑ Garcia, Cardiff (January 12, 2009). "Early lessons made Forester one in 10,000". Financial News .
  20. 1 2 Rapacon, Stacy (December 28, 2008). "How One Stock Fund Spared Its Investors From the Worst of '08". The Washington Post .
  21. ↑ Waggoner, John (January 15, 2009). "System uses funds' prior performance as investing guide". USA Today .
  22. ↑ Goldberg, Steven (September 19, 2011). "Goldberg's Picks for Low-Risk Stock Funds: Forester Value". Kiplinger's Personal Finance .
  23. 1 2 3 Jewell, Mark (January 4, 2009). "Top-Performing Funds Find Value in Caution: Managers Don't Plan to Change Defensive Investment Strategy Anytime Soon". The Washington Post . Associated Press.
  24. ↑ Rapacon, Stacy (July 30, 2008). "Forester Value: Making a Comeback". Kiplinger's Personal Finance .
  25. ↑ Laise, Eleanor (December 30, 2009). "Mutual Funds Find Redemption in 2009" . The Wall Street Journal .
  26. ↑ Greenberg, Gregg (January 26, 2009). "Forester: Focus on Top-Line Growth in '09". TheStreet.com .
  27. ↑ Cendrowski, Scott (March 30, 2010). "A star fund manager gets cautious". Fortune .
  28. ↑ Brandstrader, J.R. (June 19, 2010). "Storm Watch" . Barron's .
  29. ↑ BYRT, FRANK (April 24, 2011). "Forester Goes Big on 'Discovery' Picks". TheStreet.com .
  30. ↑ Schwartz, Nelson D. (August 4, 2011). "Nervous Investors Chase Low-Risk Assets" . The New York Times .
  31. ↑ De Aenlle, Conrad (April 7, 2012). "Wary of Heights (and the Future)" . The New York Times .
  32. ↑ Schaefer, S. (September 17, 2015). "Fund Manager Who Beat The '08 Crash Thinks The China Trouble Is Just Beginning" . Forbes .
  33. ↑ O'Keefe, Brian (October 14, 2002). "Finding Forester Value Just one large-cap value fund is in the black this year. The catch? No stocks!". Fortune .
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.