Bogle, Siegel, O'Shaughnessy: Where Do They Have Their Own Money?

While they have been hit hard over the past year, many of the world’s top investors aren’t shying away from the stock and bond markets, writes The Wall Street Journal’s Eleanor Laise. In fact, many have been snatching up bargain stocks and bonds for their own personal portfolios while most investors have been fleeing the market.

“A sampling of high-profile industry veterans, academics and brokerage-firm chiefs reveals that many are hanging on to holdings battered by last year’s market slide and busily hunting down new opportunities, particularly among bonds and beaten-down value stocks,” Laise explains “And they’re generally upbeat about the prospects for long-term retirement savers.”

The gurus Laise examines — who include Jeremy Siegel, David Dreman, and Jack Bogle — aren’t the only ones putting their own money where their mouths are.

Reports Reuters’ Jeffrey Hodgson: “With the global financial system mired in crisis and Western economies deep in recession, fund manager James O’Shaughnessy is so bullish on stocks he is pouring his own cash into the market.”

O’Shaughnessy, whose four-decade-plus study of stock returns and strategies is one of the most extensive ever performed, says stocks could still go to new lows. But the values out there now are too good to pass up. O’Shaughnessy says he is extremely bullish for the coming 5- to 10-year period. He started putting more of his own money into stocks in September and has continued to do so. “[I] will do so until [I’m] all in,” he says. “And that should probably be February or March. All equities.” O’Shaughnessy says his quantitative screens are high on consumer discretionary stocks (though not those that are high-end), and are shunning a lot of information/technology stocks.

Many of the gurus Laise examines share O’Shaughnessy’s overall enthusiasm, though they often differ in where exactly they’re putting their own money. But, Laise writes, “they do appear to have one thing in common, though: patience — a trait many small investors lack. … When they do suffer substantial losses, they tend not to panic. … They’re patiently waiting and watching for bargains rather than making a mad dash for havens like cash or Treasury bonds or drastically revising their asset-allocation plans. … And where possible, they’re even stepping up their savings to put more cash to work in the market.”

Here’s a summary of where these gurus are putting their own money:

Rob Arnott (chairman, Research Affiliates LLC): Says it is a “marvelous” time to be investing; more opportunities now than any of today’s investors have ever seen. Arnott is very high on the bond market, saying, “Certain parts of the bond market are priced for a scenario that’s worse than the Great Depression.” He increased his allocation to investment-grade corporate bonds in his personal account late last year because the market had reached “irrationally high yields.”

Arnott, 54, thinks another dip in emerging market stocks could make them “extremely interesting”. He expects a major increase in inflation in the next three to five years, so he says he also added to his allocation of Treasury Inflation-Protected Securities (TIPS) “in a very big way” late last year, writes Laise.

Jack Bogle (founder, Vanguard Group): Bogle has just 25% of his own portfolio in stocks, but he’s also 79 years old. He holds two municipal-bond funds, Vanguard Limited-Term Tax-Exempt and Vanguard Intermediate-Term Tax-Exempt. Bogle is still cold on foreign stocks.

David Dreman (chairman, CIO, Dreman Value Management): Dreman is no spring chicken — he’s 72 — but he still has 70% of his portfolio in stocks. He’s high on oil and gas explorers and producers, like Anadarko Petroleum, Apache, and Devon Energy. Oil prices currently price in a long world-wide recession scenario; if that doesn’t happen Dreman thinks oil prices will go “much higher”.

Don Phillips (managing director, Morningstar): His entire individual retirement account is in the Clipper Fund, a large-cap stock fund. It lost 50% last year, but early in 2009, Phillips made the maximum IRA contribution to the fund, as he has for the past two decades, writes Laise.

Burton Malkiel (author and economics professor, Princeton University): Malkiel, 76, increased his allocation to highly rated tax-exempt bonds — the yields on some of which were “unheard of” — late last year.

Jeremy Siegel (finance professor, Wharton School; sr. advisor, Wisdom Tree): Has recently raised his allocation for junk bonds. Siegel, 63, says stocks and high-yield bonds will move together as the current crisis passes. He’s added to his emerging market allocation, as such stocks have “gotten cheap enough to really give value now”. Another cheap area of the market Siegel has been increasing his stake in: U.S. real estate investment trusts.

Muriel Siebert (founder, chairwoman Muriel Siebert & Co.): Siebert, 76, says she doesn’t mind buying a stock on the bottom and waiting, but adds, “I do think when you get a market like this, you should be paid while you wait.” She’s thus been buying shares of big firms with high yields, like Pfizer, Altria, and General Electric.

Jim Rogers (commodities guru): He’s high on Chinese shares, focusing on sectors like agriculture, water, infrastructure, and tourism, because those are the areas the Chinese are pushing to develop. Rogers, 66, also likes agricultural commodities.

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