Even the best stock pickers hit bottom

Three former investing superstars made the wrong bets in the bank and automaking sectors. With video.

By Kim Peterson Jun 13, 2011 2:35PM
The economy has ruined three of the country's best stock pickers.

The funds run by investing hotshots Bruce Berkowitz, Kenneth Heebner and Bill Miller have hit rock bottom. They're the three worst performers among large diversified U.S. mutual funds, Bloomberg reports.

The funds have lost 11% to 12% through June 9, crushed by the 3.4% gain that the Standard & Poor's 500 Index ($INX) showed. It wasn't hard for some stocks to beat these guys this year. Kellogg (K) rose 11%. Starbucks (SBUX) gained 8%, as did Johnson & Johnson (JNJ). IBM (IBM) rose 13%. Even Wal-Mart (WMT), which is slumping under mismanagement and the economy, is break-even year to date.

The following video analyzes these stock pickers and their failures.

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So what went wrong? These guys make their money by focusing on a small number of industries, and this time around they made big bets that the economy would recover. They zeroed in on financials and automakers -- the worst performers of the year so far.

Bank stocks, measured by the KBW Bank Index ($BKX), are down 10% as the economy and housing have sputtered. The biggest bank in the country, Bank of America (BAC), is down about 25% from the start of the year. One of Berkowitz's favorites, American International Group (AIG), has lost 40% this year.

The auto industry has been struggling to recover from the earthquake and tsunami in Japan.

So even the smartest guys in the room can't make sense of this economy. And if anyone could have figured it out, it should have been them. Berkowitz and Miller both beat the S&P 500 for 15 years straight, and Heebner was known for managing the best-performing stock fund in the U.S. over a decade.

"People assume because certain managers have had good streaks that they are always going to be a step ahead of the market," a Morningstar researcher told Bloomberg. "It never works out that way."

Maybe it's time to return to a tried-and-true stock-picking method: throwing a dart at the list of the S&P 500.

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