Most writers have assumed a "you should have seen it coming" tone while reporting on the recent disaster at Bear Stearns
They obviously didn't have any of their retirement savings invested in the company.
I did. And it wasn't a short position.
But I haven't lost any sleep
Although Bear shares have plummeted, I'm not too worried.
You see, my position in Bear Stearns was through an investment in Vanguard Windsor II (VWNFX), a mutual fund recommended by our Champion Funds newsletter. And, though many investors might now want to sell their investment in the fund, I'm holding on tight.
Jim Barrow, the chief portfolio manager at the fund, began buying shares in Bear Stearns last year as Bear's hedge funds began going belly up from their subprime mortgage exposure.
His thesis, though it later proved wrong, was that Bear carried significantly less risk than the market was factoring into its price. He also thought it positive that then-CEO James Cayne was the largest shareholder. And, as shares continued falling below "book value," he snagged up additional shares.
All told, the fund owned nearly 8 million shares, or 6.7% of shares outstanding.
As the recent drama unfolded, the investment lost nearly 90% of its value. A position that began the year valued at $700 million will be bought out for just $80 million.
Again, not worried
This isn't Jim Barrow's first mistake. He's made other bad investments in various stocks while managing the fund, and in his nearly 45 years in investment analysis.
But the fact remains that he's delivered market-beating annualized returns of 12.3% for shareholders of the fund since its inception in 1985. And though it's unfortunate that he was wrong on Bear, such potential for errors is part of the risk we take when we invest.
This is especially true of value investing when you're hunting down cheap, out-of-favor companies. Sometimes you're wrong. What counts is being right more often than you're wrong. And on that front, Barrow is a stellar manager I still trust to manage my money.
But the greatest assurance I have by investing in Barrow's fund is that my money is diversified among nearly 300 stocks -- far more stocks than I'd be able to adequately invest in and follow on my own. Even its sizable investment in Bear only amounted to about 1.4% of its overall assets.
This broad diversification provides a cushion for invested capital, such that major flare-ups in one holding don't drastically affect an investor's overall position. In fact, the fund's year-to-date losses have been just slightly more than the general market's because of its broad exposure to blue-chip holdings like International Business Machines
So, for investors who, like me, are looking for diversification and market-beating returns by proven money managers, Vanguard Windsor is still a wise investment choice. If you're interested in an even wider selection of mutual funds to add to your portfolio, click here to browse through the other funds recommended in our Champion Funds newsletter free for the next 30 days.
Fool analyst Adam J. Wiederman won't be losing sleep over the Bear Stearns disaster, but is expecting a disruption in his sleep life when his wife gives birth to their first child in August. He has a beneficial interest in Bear Stearns through his investment in Vanguard Windsor II, a Champion Funds recommendation. JPMorgan Chase is an Income Investor recommendation. Wal-Mart and Coca-Cola are Inside Value recommendations. The Fool's disclosure policy is here.
