Monday, July 18, 2005

Morningstar pans Marketocracy

[11/28/05] I see in this Mauldin letter of some months ago that out of 70,000 investors at marketocracy, only 2% have beaten the S&P both long-term and monthly.

The Marketocracy Fund is run by top 100 managers at Marketocracy. Here's how Ken Kam (the guy who run Marketocracy) describes them.
Wall Street investment houses, says Kam, recruit the wrong people. The top-drawer firms look for high achieving, well spoken generalists from the best business schools. But good investors, Kam says, tend to be savants with a passion. They're nerds. They're freaks. They're too young or too old. They eat junk food and stare at the monitor and perhaps forget to bathe. They live and breathe stocks. They tend to be sector specialists who know the underlying science, product cycles, supply chains and b habits in their sectors."
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[7/18/05] Morningstar has a dim view of the Marketocracy Masters 100 fund. The major beef seems to be the high expense ratio (1.95% according to Yahoo). The other beef is their low opinion of us amateurs.

However looking at the Yahoo chart, MOFQX has actually slightly outperformed the S&P 500 since inception in late 2001. It was well ahead at the end of 2003, but had a miserable 2004 to fall back to near even. Turning to the marketocracy site, it looks even better, outperforming the S&P 500 29.49% to 15.08% (7.34% to 3.92% annualized). What's more, it has a beta of only 0.78 (compared to the S&P 500's 1.00).

1 comment:

Chris said...

I consider myself a rather seasoned investor and also have a very dim view of the Marketocracy Fund (MOFQX). The expense ratio is indeed exorbitant, and require solid and consistent returns to justify an investment in the fund.

If you look at the fund on smartmoney.com you can see that the fund is underperforming 83% of its peer group year to date. For a trailing 12 month period the fund is trailing 97% of its peer group, and for the trailing three years the fund underperforms 96% of its peer group!!

The chart on the marketocracy website does illustrate that the fund has done well over a long-term view, but the last three years have been nothing short of horrendous.

If you go to the SEC site and pull down the fund's holdings from the period ending 3/31/05, you can see that Marketocracy's fund has a significant portion of their assets in stocks that are priced less than $10 per share. Many of these stocks have a small float and the bid/ask ranges are not attractive. This will also hamper the returns of the M100 fund in my opinion, of course only time will tell.