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San Diego's money management firm Brandes Investment Partners continues its string of disastrous investments, particularly in financial and newspaper companies. Today (Jan. 20), the stock of Royal Bank of Scotland plunged 69.31 percent. The British government owns the majority of the stock and investors believe it will take over the rest, wiping out shareholders completely. Brandes is the largest institutional shareholder with 2.69 percent of the stock. Earlier, Brandes lost big bucks as one of the major investors in Freddie Mac, Washington Mutual, and Countrywide. (The last two were taken over for prices far below what Brandes paid. Freddie closed today at 65 cents, down 7.14 percent; Brandes is no longer one of the largest institutional investors.) Brandes at last accounting (Sept. 30) owned 6.58 percent of McClatchy Newspapers, having bought in at $44.50. It closed today at 75 cents. Brandes owns 10.81 percent of Gannett, and began buying between $53 and $58. It closed today at $7.02. In late 2007, Brandes had $125 billion under management. At yearend 2008, that was down to $52.9 billion. Last year, according to the Brandes website, the manager's stocks generally underperformed benchmarks. Some examples: U.S. so-called "value" stocks (buying of depressed stocks): Brandes was down 55.44 percent while the benchmark was down 37 percent. Global equity: Brandes down 44.33 percent, benchmark down 40.7 percent. Global stocks and bonds: Brandes down 32.9 percent, benchmark down 19.52 percent. U.S. midcap stocks: Brandes down 57.53 percent, benchmark down 41.46 percent. U.S. small cap: Brandes down 59.51 percent, benchmark down 33.8. There were a handful of better performances: international small caps: Brandes down 40.73 percent, benchmark down 47.67 percent. Charles Brandes, founder of the firm, recently built the most expensive house ever constructed in the county, estimated by Forbes Magazine as costing $60 million. Charles Brandes and his new, young wife are frequently featured in the society columns.

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Don Bauder March 7, 2009 @ 7:03 p.m.

Response to pot #37: Everybody is getting hit to some extent; you are getting walloped, and I feel your pain. Best, Don Bauder


Don Bauder March 7, 2009 @ 7:05 p.m.

Response to post #38: Madoff will supposedly be confessing soon. With the confession, he will presumably get less time. Pity. Best, Don Bauder


JohnnyVegas Jan. 20, 2009 @ 9:26 p.m.

Brandes is under the gun and is lucky to still have an investment firm.

I feel sorry for the guy- but it is not just him, although he is losing more than others.

No one wants to see someone go down in flames.


Burwell Jan. 20, 2009 @ 9:50 p.m.

The San Diego Business Journal's 2007 list of San Diego's Wealthiest ranked Brandes #1 with a $2.6 billion net worth. Most of the $2.6 billion figure likely represents the value of Brandes'contractual right to manage the funds in exchange for management fees. These contractual rights likely have value because they can be sold. Any decline in assets under management, or related management fee income, would likely severely impair the value of the management contracts. Brandes has likely lost the bulk of his net worth.

I agree that Brandes does not deserve to go down in flames. He has never had a malignant influence on City politics nor has he attempted to use taxpayer money to enrich himself. Until recently, he was virtually unknown in San Diego. He's just made some bad investment decisions from which he and his investors will likely never recover.



Don Bauder Jan. 21, 2009 @ 8:01 a.m.

Response to post #1: I always thought Brandes was a nice guy, but haven't spoken with him personally in a long time. I do think it was a mistake for him to build a $60 million home (he says it's worth less than that), and then get himself photographed with the beautiful people entertaining in that home. A money manager should know better than that, although some of the big Wall St. boys go in for conspicuous consumption, too. Best, Don Bauder


Don Bauder Jan. 21, 2009 @ 8:13 a.m.

Response to post #2: Remember, he still has $52.9 billion under management. That should bring in some good income. Also, the so-called "value" managers who like Brandes follow the Graham and Dodd approach have taken a beating in this market. Brandes is not alone. Bill Miller of Legg Mason, who also looks for beaten-down stocks, was a Wall Street icon, posting gains for something like 15 straight years. Last year he took a monumental bath. Some of his funds were down 60 percent. Your other observation is on the money: Brandes has not stolen money from San Diego (both investors and taxpayers) as others have. Best, Don Bauder


Don Bauder Jan. 21, 2009 @ 10:49 a.m.

ADD ON BRANDES; The San Diego firm of Brandes Investment Partners as of Sept. 30 owned 6.03 percent of the outstanding shares of General Motors, the third largest institutional holder of the stock. GM is down 8 percent today (Jan. 21) to $3.22 and has been as high as $29.28 over the past 12 months. Brandes owns 4.88 percent of Ford, making it the fourth largest holder. That stock is down 5.63 percent to $2.01 today and has been as high as $8.79 over the past 12 months. Brandes has also had a position in Nissan, which has been hit. Best, Don Bauder


valueinvestingisdead Jan. 21, 2009 @ 9:21 p.m.

I think this proves that this whole Graham and Dodd approach is non-sense. Why didn't it catch WaMu, the Autos, the Banks, the newspapers etc etc..honestly, a superior money manager would have hid out in Treasuries, locking in a gain while the market melted down. Then, once the carnage was over, come on in and selectively buy the beaten down quality stocks. They would have looked like geniuses. You have to atleast pose the question of whether this was some sort of a Ponzi Performance prior to their meltdown, How, you ask? They bought alot of relatively illiquid stocks back before they got huge. With an avalanche of new money chasing these stocks, they inevitably went up. Thus, the people in first, got nice, index-beating returns as all this money drove up their stock picks. Eventually, like most Ponzi deals, the bubble bursts and down they come. Now, they have crashed. This whole "value " approach crap is non-sense. Why nobody but you Don has even reported their poor performance is startling. Maybe all the society events is a way to hush anyone that may have spoke out? All speculation but seriously think about the big picture here. They may have run a Ponzi Scheme without even realizing it was happening.

Peace Colt


Burwell Jan. 21, 2009 @ 10:30 p.m.

I stand by my opinion in Post #2 that Brandes' $2.6 billion net worth was based primarily on his ownership of the management contracts with the funds, and his ability to sell those management contracts. The value of the management contracts in turn are based on the gross value of the assets in the funds, and the managment fees Brandes receives from the funds. With less assets in 2009 to manage Brandes is worth considerably less that he was in 2007. He may well have lost $1 .5 billion or more in net worth, in addition to any losses from his personal portfolio if he has one. The management contracts in today's troubled market may be virtually worthless.


Don Bauder Jan. 21, 2009 @ 11:08 p.m.

Response to post #6: I don't see a Ponzi here. I also do not believe that value investing is a bunch of crap. Certainly, it has a bad track record currently, and Brandes has one of the worst. Growth investing hasn't done well, either. Over the decades, value has outperformed growth. But it has sure taken a pratfall in this market. Best, Don Bauder


Don Bauder Jan. 21, 2009 @ 11:11 p.m.

Response to post #7: I certainly did not mean to argue with your point that Charles Brandes is worth considerably less than he was worth in late 2007, when he had $125 billion under management. Now, with around $53 billion under management, he has certainly come down. I can't imagine that he will be in the next Forbes 400. Best, Don Bauder


valueinvestingisdead Jan. 22, 2009 @ 7:13 a.m.

Reply to #8 - What argument for value investing can you make when it says to buy Fannie Mae, Freddie Mac, General Motors, Ford, Gannett, McClatchy, Homebuilders, Washington Mutual, National City, Royal Bank of Scotland etc etc....? The Performance speaks for itself. My point wasn't that growth investing was better either. My point was that a move to Treasuries would have been smart. If there was the "level of safety" in these stocks that Graham talks about, then they wouldn't go to zero or lose 90%. I am just not convinced that value investing works anymore. Proof is right there to see.

Also, in their heyday, they bought many illiquid international stocks, not this U.S. stuff. If you have billions of dollars chasing relatively illiquid stocks, don't you think it moves them up? Their performance hit the skids once they couldn't buy illiquid stuff anymore and were forced into stuff like GM, F etc. Just look at the big picture. I am not saying it was done intentionally. Wouldn't you love to own a basket of stocks knowing that there is a ton of cash behind you ready to keep buying them?


Don Bauder Jan. 22, 2009 @ 10:37 a.m.

Response to post #10: Yes, the purchase of T bonds and notes would have been better, no doubt. However, remember this: clients hire Brandes and other managers to build a portfolio of certain kind of assets. Brandes might be hired to handle the portfolio of mid cap US stocks. Or international bonds. Or international small caps. So a manager such as Brandes has to buy those kinds of assets, although some clients might permit the manager to buy other kinds of assets at certain times, such as a horrific bear market such as we have today. Most clients give the manager little latitude. The point is that Brandes, by its mandate, couldn't have had 100 percent T bonds or notes, or even 50 percent or 25 percent, in all probability. What I have been pointing out is that within those parameters (US mid caps, whatever), Brandes has consistently underperformed benchmarks, such as the S&P 500, or the Russell mid cap index, etc. Best, Don Bauder


valueinvestingisdead Jan. 22, 2009 @ 11:11 a.m.

Reply to #11 - I agree with you here. They could have avoided all these train wrecks though IF value investing worked. No one way to invest works consistently over time. You have to change with the markets.

You can see how the first in may have benefited, no?

I don't think anyone can defend their performance here. Take care and let's hope 2009 is better for everyone.


Don Bauder Jan. 22, 2009 @ 4:03 p.m.

Response to post #12: You make a very good point. Brandes has not given an inch. He is still preaching his value philosophy. He has not adapted to the market. However, maybe in some instances he can't. Clients figure they want X number of value managers and X number of growth managers, along with others that might be considered eclectic or use some other approach. They hire Brandes as, say, a value international equity mid cap manager. He's locked in to the value approach in such an instance. Best, Don Bauder


mykarmaranovermydogma Jan. 22, 2009 @ 8:35 p.m.

reply to #12: Great call - you win the Monday Morning Quarterback Award! Let me guess...we should have sold our houses a couple of years ago and bought oil futures, then sold the oil futures last summer and bought Treasuries. So now what? Are you going to predict who won last year's World Series?

You might consider that investing in stocks isn't meant to be a one-year commitment. When you're in for the long term, one bad year - even a year as bad as 2008 - doesn't prove an investing philosophy is wrong.


Don Bauder Jan. 22, 2009 @ 9:15 p.m.

Response to post #14: It's true that investment is long-term. And results shouldn't be judged on one year -- EXCEPT when that one year is the worst since the Great Depression. Then the astute manager might make some adjustments in his/her investment philosophy. I have nothing against value investing. I practice it myself and have some welts to prove it over the last year. (Stocks are 25 percent of my portfolio -- much less than that of my net worth -- and I buy almost only for yield. This often gets me into value investing. My heaviest concentration by far is utilities and they have held in there. But I have taken a beating on some banks and REITs.) Best, Don Bauder


mykarmaranovermydogma Jan. 22, 2009 @ 10:45 p.m.

reply to #15: I'm not defending any particular equity investing philosophy - my point is related more generally to asset allocation. I don't think you should judge equity investing of any kind on one-year performance. Just about every equity index that has been around since the Depression, including the DJIA, had its worst year since the Depression in 2008. If you were going to avoid every equity investing philosophy that had a bad year in 2008, you'd have to get out of equities entirely.

In general, if your investment horizon is only one year, you shouldn't be in an asset class as volatile as equities in the first place. It follows that if one year is too short a period to invest in equities, one year is also too short to make a reasonable judgment about an equity investing strategy. On the other hand, if you have a long time horizon (and maybe some Pepto Bismol), one astoundingly bad year isn't a reason to avoid equities altogether.

If someone thinks he can time the market; i.e., get in and out of different asset classes (equities, bonds, real estate, commodities, etc.) at the right time over the long term, more power to him. He would be the only person on Earth with that talent.

Your allocation to equities sounds pretty conservative, but perfectly reasonable as long as you weren't planning to liquidate that part of your portfolio anytime soon and the volatility isn't keeping you up at night.


Burwell Jan. 22, 2009 @ 11:40 p.m.

I think the major criticism against Brandes is that he moved heavily into financial stocks when most other fund managers were unloading them. He took huge positions last year in the big losers Bauder cites. Gurufocus.com details his 2008 stock picks many of which appear to have been foolhardy at the time he made them. It's not a matter of judging Brandes with hindsight. Many of his crazy stock picks ocurred after 6/30/2008 when it was clear financials and the stock market was falling apart. This was not value investing but little more than speculation. Bauder was questioning the wisdom of Brandes' stocks picks last year shortly after he made them.



valueinvestingisdead Jan. 23, 2009 @ 6:30 a.m.

burwell - Agreed. Where is the margin of safety? Down 90%, down 100%? This is a joke if you preach margin of safety. You nailed it with your speculation comment.

Peace COLT


Don Bauder Jan. 23, 2009 @ 7:09 a.m.

Response to post #16: I agree that market timing doesn't work. In 2007, I suggested that some of my friends who were 50 percent equities scale back to 20 or so. Actually, they went below 20, and here I sit at 25 with them laughing at me. My heaviest allocation by far is munis. But I am worried about defaults in that sector, even though I have only so-called high quality paper, and, of course, the insurers are worth zilch. So I stuck with some dividend-paying stocks. Time will tell if that move was intelligent. It doesn't look like it was right now. Best, Don Bauder


Don Bauder Jan. 23, 2009 @ 7:16 a.m.

Response to post #17: Brandes admitted that he got into the financials too early. He sure did. Best, Don Bauder


Don Bauder Jan. 23, 2009 @ 7:38 a.m.

Response to post #18: There is a good argument that some of the Brandes picks smacked of speculation, not value investing. Best, Don Bauder


valueinvestingisdead Jan. 23, 2009 @ 11:27 p.m.

New article on Brandes' website admitting that they blew it. I am impressed and think this gives them more credibility. They mentioned that they underestimated the severity of the housing downturn and the Government intervention risks.

Anyways, that article is a move in the right direction. Up to this point, their blatant babbling about margins of safety and 3-5 year time horizons was driving me mad because so many of my holdings went to zero or pennies. I respect someone more if they admit their mistakes and maybe learned from it.



katzkup Jan. 24, 2009 @ 9:26 a.m.

Don, just seen the numbers. As an ex-employee I'm not surprised. He and his worthless analyst bunch are San Diego's own local Madoff. Inside the company there is sexism and and a lack of accountability. I wonder if he will give back some of his ill-gotten gains? As the year as gone by he has gone into seclusion. Never read about his extravagant live style in the local fish wrap any more. Have you seen the net worth of Brandes and some of his partners. GREED! Tried to warn him back in the '90's about irrational exuberance. For those who believe he is a nice guy, you have not had to work for him. It is very cut throat and the firm treats it's employees terribly. Many of them have had physical and emotional problems that have ruined careers and landed them on disability. The firm is a staunch supporter of the failed policies of the Bush administration. Eventually(KARMA), how a company is run will come out in the numbers. I do not feel sorry for some one who has ruined lives and lost millions, NOR DOES BRANDES HIMSELF OR HIS ACCOMPLICES. Where is and was FINRA, NASD, SEC, and the CFA when you need them?


Don Bauder Jan. 24, 2009 @ 6:19 p.m.

Response to post #23: The last Brandes statement had Brandes's percentage losses for the various kinds of funds he manages. The numbers were for full year 2008. Why don't you post them? Best, Don Bauder


valueinvestingisdead Jan. 24, 2009 @ 9:55 p.m.

Reply to #23 and #24

To #23 - You obviously must see my point on how being the first in with tons of fresh money coming in behind you could prop up your illiquid stocks and thus, give you a huge return as a flood of money props up your holdings? Problem is guys like me that came in late to this pyramid and took a bath as this all came crashing down. Anyone that doesn't see this doesn't understand stocks and liquidity.

To #24 - Don, US VALUE was down 55% in 2008 and another 20-something % in the last 6 months of 2007. Do you realize the financial damage done here? They had closed their other funds so poor saps were forced into the US product and many had a substantial sum of money invested only to see it explode 75-80% in a year and a half.

I think this turned into a Ponzi without even realizing it. Please tell me an argument against my thesis?

Peace COLT


Don Bauder Jan. 25, 2009 @ 9:11 a.m.

Response to post #25: I still don't see how it can be called a Ponzi. Brandes had excellent results in his early years; that's why he grew so big so fast. Everybody thought he was a wunderkind and money poured in. Now -- as happens to all the wunderkinds -- the law of averages is taking over. He is losing his shirt (Miller of Legg Mason, another ex-wunderkind, is, too). The early people made money and the later people lost. But the early investors aren't being paid off with money from the later investors. The early investors made out well because his investments were doing well. Later investors are taking a bath. Included with later investors are some of the early investors who didn't get out. Best, Don Bauder


valueinvestingisdead Jan. 25, 2009 @ 1:27 p.m.

Reply to #26 - Don, without realizing it, the later investors were paying for the people first in as they were bidding up their stock holdings. If you have 25 relatively illiquid stocks in your portfolio and a whole bunch of new investors keep pouring in buying those same stocks, don't you think it runs them up? In their early days, they bought mostly, thinly traded international stocks. Couple that with a batch of new money that keeps coming in and if you were first in, your stocks kept getting saturated with fresh money. Thus, they go up and you beat the indexes. This has nothing to do with being a great stock picker. Why do you think they disallow front running? Wouldn't you love to own a basket of stocks knowing that over the next few years, tons of investors would be pouring money into them? Once this ends though, the ones that came late get stampeded. This was a ponzi, but I don't think it was intentional. It became a ponzi without them even knowing it, I would think. Basically, the late investors by pouring money into the front investors stocks DID pay off those investors by running up their holdings.

I am shocked given a 75% decline over 6 quarters that they can still have anyone wanting to pay Mercedes type fees for Kia performance.

Peace COLT


Don Bauder Jan. 25, 2009 @ 9:26 p.m.

Response to post #27: I can see your point only when you say it was an inadvertent Ponzi. Yes, in the early days Brandes bought thinly traded international stocks. It was probably true that the later money pouring in heavily drove up the prices of those stocks inordinately. Those early investors who got out were beneficiaries of this phenomenon. The later investors were left holding the bag when the law of averages, or reversion to the mean, inevitably came in. But this is the way the investment game goes, unfortunately. Best, Don Bauder


valueinvestingisdead Jan. 26, 2009 @ 8:45 a.m.

Reply to #28 - So based on that, it is hard to conclude that the value approach has really worked. This past year has wiped out their track record. If you were, in fact, long term, you now have been crushed. I don't know what the right approach is...we are in times that you cannot compare to anything. I am beginning to think this whole stock market is more of a scam than a great place to invest. Peace COLT


Don Bauder Jan. 26, 2009 @ 10:05 a.m.

Response to post #29: I don't think value investing is the core of your Ponzi argument. It could be any theory of investing that could cause the inadvertent Ponzi as you describe it. In fact, a growth philosophy, especially if it concentrated on small caps, would be more likely to produce the effect you describe than value investing. The manager would initially be buying thinly traded small caps, which would rise in price as more money poured in. The early investors would get out and leave the later investors holding the bag. Best, Don Bauder


valueinvestingisdead Jan. 26, 2009 @ 10:14 a.m.

Reply to #30 - Totally agree EXCEPT when value investing was done on an International scale on thinly traded stocks. Their growth was so huge that all that new money kept chasing the same stocks. Once they were forced off of this treadmill and went to more large cap stocks, their performance plunged.

Anyways, it will be interesting to see what their performance is like going forward. This margin of safety thing is irksome since so many stocks went down 90% or more. How is that a margin of safety?

Thanks COLT


valueinvestingisdead Jan. 26, 2009 @ 2:31 p.m.

The term "Ponzi scheme" is a widely known description of any scam that pays early investors returns from the investments of later investors.

This is taken courtesy of wikipedia. This is EXACTLY what happened here during the heyday. BUT, it was not intentional and you could make a case that most hedge funds act like this.


Don Bauder Jan. 27, 2009 @ 8:03 a.m.

Response to post #31: I know that Brandes was indeed buying thinly-traded, international stocks during those years in which his fund zoomed. I am sure they were value stocks. But again, as you recognize, they didn't have to be value stocks. They could have been thinly-capitalized growth stocks, etc. Best, Don Bauder


Don Bauder Jan. 27, 2009 @ 8:07 a.m.

Response to post #32: Excellent point -- one worth investigating. I am sure that is what a lot of hedge funds were (are) about, and in their cases, it may have been deliberate. Another area to investigate: who got sucked in as the later investors? Why, pension funds, that's who. Isn't it almost always true that a handful of high rollers runs up a stock, then respectable investors greedily jump in, wiping out the little people as the original crooks jump out? It's the pump and dump strategy and is also part Ponzi scheme. Best, Don Bauder


valueinvestingisdead Feb. 16, 2009 @ 6:28 p.m.

They continue to get clobbered. International is down another 13% plus so far in 2009. When will the bleeding stop?


Don Bauder Feb. 17, 2009 @ 7:15 a.m.

Response to post #36: David Rosenberg of Merrill Lynch, one of the few economists who has called this tragedy, says as of today (Feb. 17) that the market has another 30 percent to go on the downside. Best, Don Bauder


valueinvestingisdead Feb. 20, 2009 @ 7:58 p.m.

Reply to #36 - He seems right. Don, I ruined my life by investing in this market with this insanity Graham and Dodd crap. I am ruined. To top it off my kid's college money was spread out among 4 funds at Baron Capital, another value guy who has been crushed. I am just sick!


JohnnyVegas Feb. 20, 2009 @ 10:33 p.m.

^^^ Virtually the entire nation is in a similar if not identical situation^^^^^

I have to say that it-but there are some people in far worse shape.

I felt very sick when I saw a story today of a guy who was 70 years old and had his retirement invested with Madoff-$700K- and it is all gone. he was working at Wal Mart. That burns me up like you would not believe.

Madoff is under "house arrest", and IMO he should be sitting in a jail cell, solitary confinement.

For the life of me I cannot figure out why the guy is allowed house arrest with $50 billion in losses.


italiansrcool March 12, 2009 @ 2:55 p.m.

For the most part... I think there are a lot of ignorant people posting things here. If you were educated in the arts of asset allocation and investing you may realize that many managers are selected for their style.That they will have years that are up and down.they are specialists in an area that an advisor hires for an overall asset allocation. Therefore, if you were properly diversified you could have saved some money from this down performance. IT IS YOU AND YOUR ADVISORS JOB TO FIGURE OUT WHAT TO SHIFT IN YOUR ASSET ALLOCATION NOT THE MONEY MANAGER YOU HIRE Brandes' style is out of favor just as it was in 98 and 99...they did not buy tech and looked like they missed the boat. then when all you greedy people were pushing QCOM up the the $1000 price target...the Tech bubble burst and many of you lost a ton of money. What did Brandes do? ended up having a fantastic time after the bubble burst and looked like they were smart. Why? because the were following undervalued stocks but no one could see that at that time... Many of you saw dollar signs in tech but didn't see it in the old economy stocks and because of that...Brandes was able to buy these old economy stocks at steep discounts to intrinsic value. to put it simply, VALUE INVESTING IS BUYING COMPANIES BASED ON FUNDAMENTAL RESEARCH WHEN NO ONE WANTS TO TOUCH THEM BECAUSE THEY ARE FEARFUL, THEN HOLD ON LONG TERM...I guess in this environment...it is easier to caste stones, call someone Madoff and say foolish things. You may as well call Buffett and Templeton Madoff as well...and maybe some of the posters on this board too. I would say educate yourself a little and realize that markets have never gone up in a straight line but if it will make you feel better, continue on with the ignorant comments.


valueinvestingisdead Dec. 17, 2009 @ 8:43 p.m.

Italiandude, You don't get it..in a super high growth firm if you have a basket of illiquid stocks that you are buying and the money keeps pouring in, then you are going to drive those stocks up. That is what caused the massive performance. Buffett and Templeton didn't keep opening client accounts and chasing the same stocks. This was a PONZI scam even if they didn't realize it and those late to the party got crushed. What brilliant mind buys Fannie Mae, Countrywide, Washington Mutual, all those dying newspaper stocks, etc...? For that, you pay a Mercedes Benz fee so they can put on $10 million Halloween shows? The market is one big casino.


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