America's Hottest Investor (pg. 4)
Asked about the silver dollars, Heebner smiles and reveals that it was more than a lark for him. At one point he'd accumulated 13,000 silver dollars and had even taken out a bank loan to help finance his little venture. "The Treasury had these uncirculated silver dollars in bags in vaults. You could walk in with a thousand dollars, and they'd give you a bag of 1,000 silver dollars." It's still the best deal he's ever seen, he says: "You couldn't lose, but you could make a lot." Heebner figures he eventually netted around $15,000, but he was less successful when he tried to parlay his experience into a term paper about why silver prices were going up: "I didn't get a very good grade."
After getting his MBA, Heebner wanted to go to work on Wall Street as an investment banker. Nobody would hire him. "I think my energy level back then was so high that I just made people uneasy," he says. Heebner eventually took a position at the economic forecasting firm A&H Kroeger, where he spent four years and honed his ability to identify trends from reams of data.
Eager to get into the investing world, Heebner thought he'd gotten his big break when Scudder Stevens & Clark hired him as a conglomerate analyst in 1969 and then promoted him to assistant portfolio manager for the Scudder Development fund four years later. Ned Swanberg, who was the fund's lead manager back then, says what he remembers most about Heebner is an idea he never acted on. Heebner returned from a trip to the New Jersey shore with what seemed like a bizarre suggestion: He wanted Scudder to invest in Atlantic City real estate. Atlantic City had fallen on hard times by the early 1970s, but there was talk of bringing in casinos. "I should have listened to him," Swanberg says. "We'd have made a fortune." (Gambling was approved in 1976, setting off a boom.)
Heebner was eventually fired from Scudder, but it had nothing to do with investing. During a three-martini lunch with some colleagues, Heebner made some comments critical of Scudder's CEO, and one of his lunchmates blabbed. "I wasn't a martini drinker," Heebner says. "That was the problem."
Scudder's loss proved to be Loomis Sayles's gain. Kemp had just been made chief investment officer at Boston-based Loomis, and one of his first assignments was fixing Loomis's two struggling mutual funds. "Someone told me there was a fellow with some talent at Scudder, but he was loud and talked back," Kemp recalls. "I said, 'I don't care if he talks back, just as long as he has the right answers.'" Heebner usually did. He took over the Loomis Sayles Capital Development fund (now CGM Capital Development) in 1976 and eventually turned it into Boston's second-hottest mutual fund, after Lynch's Magellan. The investment community in Boston is fairly collegial, and Heebner and Lynch soon became friends. "Peter would talk about Heebner constantly," says Brian Posner, a former Fidelity fund manager who early in his career was one of Lynch's analysts. "Here was a guy with a much more modest organization who kept just punching out the numbers."
In Heebner's early days at Loomis, he was forced to make all his stock picks from a list of 300 names approved by the firm's research department. Heebner was so frustrated by this restriction that he'd occasionally give Lynch stock ideas he wasn't permitted to use himself. Lynch confirms this, adding that in those days he, Heebner, and several other top Boston money managers used to talk stocks at a monthly dinner. Lynch says he even tried to recruit Heebner to Fidelity, an opportunity Heebner says he passed up because he would have been managing separate accounts instead of a mutual fund. "Ken is an incredible fundamental analyst," says Lynch. "He's very thematic, and he stays with things for a very long time, but once he's convinced that something is deteriorating, that's it."
Lynch says he never really thought of himself as competing with Heebner, but evidently that feeling was not mutual. "The day Peter retired, I thought Ken was going to cry," Hermsdorf says. "Ken thought he was catching up to Peter."
In 1990, Heebner and Kemp broke from Loomis to form CGM. Or more precisely, they persuaded Loomis's parent company, New England Life, to spin them off. (Natixis, the French bank that acquired New England Life's money management operations, still owns a 50% stake in CGM.) Heebner wanted to leave Loomis largely because other money managers there were piggybacking on his ideas. "I had a good investment record, so obviously if they saw me buying something, they would want to look at it too," he says.
He continued to put up excellent returns until the mid-1990s, when tech stocks started to dominate the market. For Heebner, that was a problem, because he usually shied away from technology. The barriers to entry were too low, and forecasting winners and losers too hard. Focus eked out single-digit gains in both '98 and '99, whereas many rival funds were soaring 40% or 50%. Though Heebner never doubted his decision to steer clear of technology, others (ahem, ahem) weren't so sure. In October 1999, Fortune made Heebner the poster child for fallen fund stars in a story headlined "Where Have All the Geniuses Gone?" With shareholders pulling money out of his funds, Heebner eventually gave in and bought a handful of tech stocks. But he was always a nervous holder, tending to buy and sell at the wrong times. "I knew it was a train wreck," he says. "The problem I had is that when you go from 50 times earnings to 100 times to 150 times, how do you know when the idiots are going to stop bidding these things up? That's the thing about bubbles - how do you know when they're going to end?"
Of course, skeptics are asking the same question today about commodities. Heebner doesn't see the parallel. He believes that the consensus view on Wall Street is still that the U.S. will drag the rest of the world into a global recession. He thinks that by betting big on oil and steel, he's actually being contrarian.
We'll see if he's right. But by the time you read this, it may not even matter. Perhaps one of the Chinese steel prices Heebner tracks will have ticked in the wrong direction. Perhaps one of his Petrobras sources will have told him that the offshore discoveries are so big that they might oversaturate the market. Perhaps by the time you read this Heebner will have done the same about-face on commodities that he did on homebuilders 3 1/2 years ago.
Heebner's friend Bob Molloy, a retired broker from Merrill Lynch, likes to tell the story of the time Heebner took him and some Merrill colleagues sailing after work. "We'd just got out of Boston Harbor and we're about to put up the sails when Ken announces, 'We've got to turn back.' I said, 'What do you mean, we have to turn back? It's a beautiful day.' Ken said, 'Look out there. There's a big bank of fog rolling in.' Well, all I saw was the horizon, but by the time we got back to the slip, you couldn't even see from the cockpit up to the front of the boat - that's how thick the fog was." Like we said, Heebner just sees things before anyone else.