Warp Daddy
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From Forbes re Zuccaro
Bobby Zuccaro winner of Forbes BOOBY PRIZE 2004
Blind faith in bubble-era stocks and a relentless turnover make ther Grand Prix Fund a vehicle you don't want to be riding.
When does sticking to your beliefs shift from ad-mirable fortitude to blind stubbornness? If anyone embodies that question, it is Robert Zuccaro, manager of the Grand Prix Fund. Alas, the grand prize of which this fund is especially deserving has the word "booby" in its name.
Zuccaro, winner of this year's Booby Prize, is a bull. He buys high-priced growth stocks and holds them for a short while. It's a momentum strategy, essentially: He buys shares of companies with strong price and profit growth and a record of positive earnings surprises. Recent holdings (as of the June 30 quarterly statement) include the personal products firm Helen of Troy and the credit card processing company Ipayment, which he has since sold.
The strategy works well enough in bull markets; Grand Prix returned 112% in 1998 and 148% in 1999. It hasn't worked lately. Yet Zuccaro remains a true believer. "If you're going to pursue the biggest returns in the stock market you have to accept, by definition, the biggest volatility," he says.
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Volatility? Volatility is not so bad. It's losing money that hurts. Had you invested $100,000 with Zuccaro five years ago you would today be down to $29,000.
Zuccaro's bull-era mantra is that the personal computer has helped create an "economic miracle." Companies like Yahoo and Ebay are increasing profits so fast that price/earnings ratios around 100 are becoming commonplace, he says, and justified. And while many view the economy as still in recovery, Zuccaro sees an ongoing and unprecedented boom. "We are in the early stage of a major bull market that will carry for years," he believes.
Grand Prix's dubious performance does not come cheap. Investors pay a 5.25% front load on top of an onerous 2.5% in annual expenses. They typically are enlisted from Grand Prix's broker and advisory firms, among whom Zuccaro counts 200 relationships. Zuccaro acknowledges the fees are high, but says all small funds have that problem (his fund's asset base of $25 million has shrunk from $700 million in 2000). The expense ratio, moreover, does not even include the cost of trading (commissions and bid/ask spreads). Spreads are impossible to measure, but the fund spent an estimated 2% of assets on commissions last year.
Whether out of bravado or self-interest, Zuccaro argues that his fund investors should hold tight for several years. He repeats the old chestnut about how buying and holding lets you take advantage of huge upward moves that can't be forecast. Fair enough, but then why does he keep churning individual stocks? Turnover last year came to 717%.
When a fund goes into a downward spiral of losses, redemptions and rising expense ratios, the buying and holding of fund shares cease to make sense. The right thing to do is to exit.
Bobby Zuccaro winner of Forbes BOOBY PRIZE 2004
Blind faith in bubble-era stocks and a relentless turnover make ther Grand Prix Fund a vehicle you don't want to be riding.
When does sticking to your beliefs shift from ad-mirable fortitude to blind stubbornness? If anyone embodies that question, it is Robert Zuccaro, manager of the Grand Prix Fund. Alas, the grand prize of which this fund is especially deserving has the word "booby" in its name.
Zuccaro, winner of this year's Booby Prize, is a bull. He buys high-priced growth stocks and holds them for a short while. It's a momentum strategy, essentially: He buys shares of companies with strong price and profit growth and a record of positive earnings surprises. Recent holdings (as of the June 30 quarterly statement) include the personal products firm Helen of Troy and the credit card processing company Ipayment, which he has since sold.
The strategy works well enough in bull markets; Grand Prix returned 112% in 1998 and 148% in 1999. It hasn't worked lately. Yet Zuccaro remains a true believer. "If you're going to pursue the biggest returns in the stock market you have to accept, by definition, the biggest volatility," he says.
Special Offer for Forbes.com members -- receive a Free Trial Issue of Forbes Magazine... no risk... no obligation!
Volatility? Volatility is not so bad. It's losing money that hurts. Had you invested $100,000 with Zuccaro five years ago you would today be down to $29,000.
Zuccaro's bull-era mantra is that the personal computer has helped create an "economic miracle." Companies like Yahoo and Ebay are increasing profits so fast that price/earnings ratios around 100 are becoming commonplace, he says, and justified. And while many view the economy as still in recovery, Zuccaro sees an ongoing and unprecedented boom. "We are in the early stage of a major bull market that will carry for years," he believes.
Grand Prix's dubious performance does not come cheap. Investors pay a 5.25% front load on top of an onerous 2.5% in annual expenses. They typically are enlisted from Grand Prix's broker and advisory firms, among whom Zuccaro counts 200 relationships. Zuccaro acknowledges the fees are high, but says all small funds have that problem (his fund's asset base of $25 million has shrunk from $700 million in 2000). The expense ratio, moreover, does not even include the cost of trading (commissions and bid/ask spreads). Spreads are impossible to measure, but the fund spent an estimated 2% of assets on commissions last year.
Whether out of bravado or self-interest, Zuccaro argues that his fund investors should hold tight for several years. He repeats the old chestnut about how buying and holding lets you take advantage of huge upward moves that can't be forecast. Fair enough, but then why does he keep churning individual stocks? Turnover last year came to 717%.
When a fund goes into a downward spiral of losses, redemptions and rising expense ratios, the buying and holding of fund shares cease to make sense. The right thing to do is to exit.
