CHICAGO (CNN/Money) -
If you thought the bear market has been bad so far, fund manager Wally Weitz says that's nothing compared to the fallout investors could face after WorldCom dropped the bomb about cooking its books.
When a 1990s Wall Street darling like WorldCom admits to financial shenanigans, especially in the post-Enron environment, investors in the broader market may just cut their losses and run. Sure, they're selling now. But things could get even worse, Weitz said at the Morningstar investment conference Wednesday.
"This is the most mainstream company yet that is lying," Weitz said, noting this may be the straw that breaks the camel's back.
More than 1,000 fund managers, fund executives and investment advisers are in Chicago this week for the 14th annual Morningstar conference. It is one of the biggest gatherings of fund managers of the year, and the mood has been as grim as the market.
Weitz, manager of the $4.3 billion Weitz Value Fund, was one of three managers on a panel to talk about investing strategies "outside the box." The others were Bill Nygren, manager of Oakmark Fund and Oakmark Select, and Ross Margolies, head of Citigroup Asset Management Hedge Fund and manager of Salomon Brothers Capital Fund.
But the conversation soon switched to WorldCom and other blowup stocks that have sent mutual-fund returns spiraling.
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Indeed, Weitz is among a group of big money managers who met recently to see what they could do to force companies to clean up their act. Their beef? Shady accounting practices; poor corporate governance; overstated assumptions about pension fund returns; the handling of options; and biased board members, to name a few.
They all agreed to keep the details of the session quiet -- but Weitz said they represent at least $1 trillion in investor assets. Among the other big names at the session was Bill Miller, the influential manager from Legg Mason Value Trust who has beat the S&P 500 11 years in a row. (Click here to read more about Miller's take on controversial stock Tyco.)
While it's not yet clear what the group would do to flex its muscles, it could push for legislation or use its proxy vote to voice displeasure with corporate boards.
"There's a groundswell of discontent among money managers and that could lead to some changes," Weitz said.
Indeed. Weitz escaped the sting of WorldCom, but not stocks such as Adelphia and Qwest Communications (Q: Research, Estimates), both top holdings in his fund.
Adelphia, the nation's sixth-largest cable operator, likely will file for Ch. 11 bankruptcy protection later this week. The company is facing an SEC probe and financial worries after news surfaced that the Rigas family used off-the-book loans to invest in a golf course and expand its private cable holdings.
And Qwest's stock has plummeted on questions about its accounting practices and heavy debt. The SEC recently said it would take a harder stance on how the company accounted for $1.4 billion in sales.
Weitz admitted there's not much managers can do to prevent a situation like WorldCom or Adelphia.
"You can't legislate integrity," Weitz said. "We made a mistake with Adelphia. We accepted a management team we weren't crazy about. But we didn't think they were stealing from us."
As far as Qwest, Weitz is holding on to his shares. He started buying the stock in the 3rd or 4th quarter of last year. Weitz said CEO Joseph Nacchio may have a "personality problem," but not necessarily an "integrity problem."
"I think Qwest is going to survive this," Weitz said of its recent woes.
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