Thomas Forester

Thomas H. Forester (born December 15, 1958)[1] is an American mutual fund manager. He was the only long-focused United States stock mutual fund manager to make a profit in 2008.[2][3][4] He had previously been the highest return mutual fund manager of the 6000 tracked by Morningstar and one of only two managers to turn a profit for the third quarter of 2002.[5] He had also previously been number one in his asset class year to date through November 1, 2004, although controversially.[6]

This article is about the mutual fund manager. For those of a similar name, see Thomas Forrester (disambiguation).
Thomas Forester
Born
Thomas Harland Forester

(1958-12-15) December 15, 1958
NationalityAmerican
Occupationmoney manager, trader
EmployerForester funds
Known forOnly profitable stock mutual fund manager in 2008
Titlefounder, Chairman, and CEO
Spouse(s)Kaye
Childrentwo
Websitehttp://www.forestervalue.com/

Forester is a value investor who makes financial decisions based on financial statistics such as price/earnings ratio (P/E).[4] His fund focuses on large cap stocks.[7] He has been a contrarian investor for many years.[8] Like many value investors, he is a more of a portfolio investor than a short-term trader.[9]

Early life and career

Forester grew up in Illinois.[3] There he attended the Kellogg School at Northwestern University where he earned his MBA.[10] Through the 1970s and while he was still at college, Forester helped his father manage an investment portfolio.[11] He started his career as a money manager in 1992 assisting in the management of a US$50 million fund for Sir John Templeton. He later worked for Wells Fargo & Co. in Minneapolis, Minnesota and Scudder Investments in New York City. In 1998, he experienced a losing investment in sub-prime lenders.[3]

Forester Value Fund

In 1999 Forester used $100,000 of his own money to establish Forester Value, a large cap value fund.[3][7] Although he was in cash during the dot-com bubble, which proved to be profitable for a while, he trailed the S&P 500 by 28% in 2003.

In 2004, the fund was subject of controversy when Morningstar attempted to reclassify it into the conservative-allocation fund category. Mutual fund managers, including Forester, believed that the fund belonged in another classification such as a large-cap value fund, which is how Lipper had it classified. Value Line Inc. classified it as an income fund at the time. The move bumped Alpha Hedged Strategies Fund out of first place for its classification year to date as of November 1, 2004. The controversy not only led to complaints directly to Morningstar, but also to the Securities Exchange Commission.[6]

His wife, Kaye, had been encouraging him to close his business prior to 2008. In October 2007, they agreed that he would close the business if he was not beating the S&P 500 by 10% by March. Although he only led the market by 9.5% his wife agreed to allow him to keep the business going. After his fund took first place for year-to-date returns in the summer, he put 30% in cash. Although, he is not repeating his success in 2009, his fund is receiving large cash contributions.[3]

In 2008, there were 8200 diversified United States stock mutual funds, and they averaged a negative 39% rate of return.[3] 1,700 of these funds have been in existence for over three years and have assets of at least $50 million.[7] Forester's Forester Value Fund (FVALX), which is Morningstar five-star-rated,[12] gained .4% in 2008 although one year it lagged the Standard & Poor's 500 (S&P 500) by 30%.[3] The fund, which had been up 7% through June 30 by avoiding the housing crisis and the credit crisis,[13] was down 4.3% on the year through December 15 and 0.82% on the year entering the last day of trading.[12][14] In 2008, the second best of the 1,700 funds was Mario Gabelli's Gabelli ABC Fund, which lost only 2.6%.[7] Morningstar tracks a total of 9,918 mutual funds that averaged a 39.1% loss in 2008.[15] Much of Forester's success was attributable to large cash positions.[3] However, he also benefited from several timely trades in the banking sector, health care.[3][4] His fund held positions in countercyclical stocks that perform well in recessions. He had also held large cash positions during the dot-com bubble.[3] In the third quarter of 2002, his fund was one of two out of 6000 that turned a profit.[5] One of the most important financial ratios for Forest was the ratio of home prices to incomes, which helped him foresee trouble in the housing market.[16]

Between 2001 and 2008, the fund had been in the top 20% of its peer group three times and in the bottom 10% four times. Between 2005 and 2008, the fund had nearly broken even.[14] In 2009, Forester's fund had a 1.35 expense ratio.[17] Through 2008, the fund had a five-year total return of 25%.[18] In 2009, the fund's three-year and five-year averages were 9% and 7.5% ahead of the market.[19] He is a low P/E investor who buys with full market cycle investing in mind.[20]

In the media

During and after his 2008 market success, Forester, who runs his fund from Libertyville,[21] became a celebrity. He made his first television appearance in December and newspapers from as far away as Chile's El Mercurio have requested interviews with him.[3] In an interview with The Wall Street Journal Forester conceded that because his fund is smaller than many of his peers, he is able to get in and out of portfolio positions faster than others and that his returns would have been much lower if he had been managing a larger portfolio.[7] However, he said his success at beating the market was more attributable to his financial market assessments than his fund's size.[16] Because of the publicity his fund has been receiving in the down market its assets under management grew fivefold during 2008.[12]

Due to Forester's investing style of buying low P/E stocks with good earnings prospects, he is compared to Warren Buffett.[22] Forester loosely quotes Buffett at times such as in Barron's Magazine when he said: "It's When The Tide Goes out that you find out who's swimming without a bathing suit. I have mine on."[15] Although he is now likened to Buffett, Forester maintains Templeton as his role model. He invests by the philosophy credo that "I buy undervalued stocks, and if there are none, I go to cash."[5]

Personal life

Forester moved to Libertyville, Illinois, a northern suburb of Chicago, in 1998 when he purchased a home in the town.[23] He has been involved in civic duties in Libertyville and national political efforts. As of 2004, he was a trustee of the Cook Memorial Library District.[24] In 2004, he attempted to run on a Republican slate of delegates for United States President George W. Bush.[24] However, due to an insufficient number of signatures on the slate's petition, they were removed from the ballot.[25] He was unsuccessful in his election to the Cook Memorial Library District Board in during the 2005 municipal elections.[26][27]

He is married to Kaye Forrester, with whom he is raising two children.[3]

Notes
  1. U.S. Public Records Index Vol 1 (Provo, UT: Ancestry.com Operations, Inc.), 2010.
  2. La Monica, Paul R. (2009-01-06). "The best investor of 2008 is buying...: Tom Forester runs the only mutual fund focusing on U.S. stocks that made money last year. Here's what he's doing now". CNNMoney.com. Retrieved 2009-03-04.
  3. Gullapalli, Diya (2009-02-27). "Can 2008's Lonely Fund Success Avoid Falling to Zero From Hero?: A 0.4% Gain Made Thomas Forester No. 1, But He's Struggling to Find an Encore in 2009". The Wall Street Journal. Retrieved 2009-03-04.
  4. Kiviat, Barbara (2009-01-27). "Tom Forester, 2008's No. 1 Stock Picker". Time. Retrieved 2009-03-04.
  5. Dugas, Christine (2002-10-04). "How two small funds actually made money". USA Today. Retrieved 2009-03-04.
  6. Benjamin, Jeff (2004-11-01). "Fund manager fumes at Morningstar stance - Forester fracas raising questions about rating service's methods". Crain's Chicago Business. Retrieved 2009-05-22.
  7. McGee, Suzanne (2009-01-04). "One Fund in 1,700 Made Money in '08: Tiny Forester Value, with a 0.4% return last year, is the champion in our latest quarterly contest". The Wall Street Journal. Retrieved 2009-03-04.
  8. Burrows, Dan (2005-05-30). "Blue-chip blues: Forester favors big and beaten U.S. companies". MarketWatch. Retrieved 2009-03-04.
  9. Caplinger, Dan (2008-11-04). "What It Takes to Win in a Losing Market". The Motley Fool. Retrieved 2009-03-04.
  10. Salzman, Avi (3 November 2009). "A Tutorial in Defensive Investing". Barron's. Retrieved 2 January 2019.
  11. Garcia, Cardiff (2009-01-14). "Early lessons made Forester one in 10,000". Financial News Online. Retrieved 2009-03-04.
  12. Jewell, Mark (2009-01-04). "Top-Performing Funds Find Value in Caution: Managers Don't Plan to Change Defensive Investment Strategy Anytime Soon". The Washington Post. Associated Press. Retrieved 2009-03-04.
  13. "Relatively Speaking – The Best Mutual Funds for 2008". erollover. Retrieved 2009-03-04.
  14. Rapacon, Stacy (2008-12-28). "How One Stock Fund Spared Its Investors From the Worst of '08". The Washington Post. Retrieved 2009-03-04.
  15. Lin, Paul (2009-01-12). "Three Winning Fund Strategies (Sort of)". Barron's Magazine. Retrieved 2009-03-04.
  16. Landy, Heather (2009-01-11). "Bleak Year Brought Almost No Winners: Average Fund Dropped 30 Percent, But Diversity Saved Some Investors". The Washington Post. Retrieved 2009-03-04.
  17. "Recession Navigators". The Washington Post. 2009-01-04. Retrieved 2009-03-04.
  18. Waggoner, John (2009-01-16). "System uses funds' prior performance as investing guide". USA Today. Retrieved 2009-03-04.
  19. Greenberg, Gregg (2009-01-26). "Forester: Focus on Top-Line Growth in '09". TheStreet.com. Retrieved 2009-03-04.
  20. Burton, Jonathan (2008-11-09). "Going bottom fishing: Forester Value manager finds bargains in Valero, Daimler, Symantec". MarketWatch. Retrieved 2009-03-04.
  21. Roeder, Doug (2009-01-11). "Last man standing in 2008 - Forester's value fund only one to make money". Chicago Sun-Times. Retrieved 2009-03-04.
  22. Wherry, Rob (2009-01-09). "SmartMoney.com's Best Funds of 2008". Smart Money. Retrieved 2009-03-04.
  23. "Real Estate Transfers". Daily Herald. 1998-06-29. Retrieved 2009-03-04.
  24. "Competing Republican Bush slates on primary ballot". The News Sun. 2004-01-16. Retrieved 2009-03-04.
  25. Zahorik, Ralph (2004-02-14). "State GOP enrages would-be delegates for Bush". The News Sun. Retrieved 2009-03-04.
  26. "Abderholden, Martin bounced from Cook board". The News Sun. 2005-04-06. Retrieved 2009-03-04.
  27. "Lake County Library Districts". Chicago Tribune. 2005-04-07. Retrieved 2009-03-04.
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