America's Hottest Investor (pg. 2)
In August 2005, Heebner doubled down on commodities by taking big stakes in copper miners Southern Copper and Phelps Dodge. The price of copper - and of copper stocks - doubled in a little over a year.
In November 2006 he built large positions in fertilizer companies Mosaic and Potash Corp. of Saskatchewan. This time the stocks quadrupled.
In October 2005 he shorted mortgage lender Countrywide. Heebner was early on that one, but he stuck with the short for two years, and his conviction was rewarded in 2007 when Countrywide collapsed from $40 to $8. By then, Heebner had short positions in three more drain-circling mortgage lenders: BankUnited, IndyMac, and FirstFed Financial.
Not every one of his moves worked out so well, of course. But Kemp, Heebner's longtime mentor and colleague dating back to their days at Loomis Sayles in the 1970s, says that one of Heebner's many strengths is knowing when to cut his losses. "A lot of fund managers fall in love with an idea and ride it all the way down," Kemp says. "Ken's quick to admit when he's wrong."
Heebner actually began 2007 with a quarter of Focus's money invested in five Wall Street banks: Bear Stearns (BSC, Fortune 500), Citigroup (C, Fortune 500), Goldman Sachs (GS, Fortune 500), Lehman Brothers (LEH, Fortune 500), and Merrill Lynch (MER, Fortune 500). The holdings could have proved disastrous, but by June - before the credit crisis really snowballed - he was out. "How do you explain genius?" muses Douglas Pratt, a former Invesco fund manager who was an analyst at Loomis. "Ken just sees things others don't."
Spend some time with Heebner, and it becomes clear why. His brain is wired differently. His ideas come faster, his focus is more intense, and his ability to sift through massive quantities of information and zero in on what matters is downright spooky. Pity the Salieris of the investing world who have to compete with this guy.
There's no simple formula that captures his investing principles, and explaining his approach is something even Heebner struggles with - which may be why CGM manages only $13 billion (including private accounts), a relatively modest amount given Heebner's track record. Basically, he's the last of the gunslingers - a go-anywhere manager who can be investing in left-for-dead U.S. value stocks one day and red-hot Brazilian growth stocks the next. But he's not just playing hunches. He knows from years of experience, for example, that when steel scrap prices soar - as they have of late - steel stocks usually follow. And Heebner is a workaholic who's up at 5:30 a.m. reading stock reports and checking business news and who never leaves the office at night without a stack of articles and research that make up his bedtime reading.
CGM is pretty much a one-man show. Heebner's entire investment team consists of two traders - Elise Schaefer and Sue Small - and Columb, the U2 fan. Being an analyst for Heebner is a bit like being a beauty consultant for Halle Berry, so Columb knows better than to try to suggest stocks. She operates more like a sleuth. Heebner will ask her to dig up the latest information on, say, scrap steel prices in China or deep-sea oil rig leases, and within an hour or two her findings are on his desk.
These days Heebner is keeping close tabs on the latest economic data out of China, because China is the key to his enormous bet on commodities. As of March, 64% of Focus's assets were invested in commodities-related stocks. His biggest stakes are in steel (ArcelorMittal, Nucor, and United States Steel) and in oil (Apache, Devon Energy, Petrobras, and Schlumberger). Petrobras, the Brazilian oil company that has announced two giant offshore oil discoveries, is his favorite. "Petrobras could become the biggest stock in the world," he says.
Heebner thinks steel prices could double and oil could blow past $200 a barrel. (He also thinks inflation will hit double digits within the next five years: "I don't know why anyone would buy a bond.") Yet he is constantly on the lookout for any sign that the economic slowdown in the U.S. may be infecting emerging economies abroad. That would deep-six his whole investment thesis, which hinges on China and other emerging nations using more energy and building more infrastructure. "I'm not waiting for Morgan Stanley to tell me there's something wrong in China," Heebner says. "By then it's too late."