How To Beat The Mutual Fund Companies At Their Own Game
You'd have had to be living on a desert island with no TV, newspaper or internet connection to have missed hearing about the great mutual fund scandal of 2003.
The issue was that some mutual fund companies allowed certain hedge funds to engage in after-hours trading, sometimes incorrectly referred to as market timing. Unfortunately, some companies have used the confusion about the term "market timing" to further their own cause. How?
They have used this issue to pretty much ban all forms of trading their funds, and some companies are imposing hefty short-term redemption fees-penalties for all intents and purposes-in the name of avoiding impropriety. But the real idea behind it all is: Buy our fund and never sell it!
These companies advocate a stubborn Buy & Hold philosophy despite the devastating effects that approach had on investors' portfolios during the recent bear market. Performance is immaterial to them-they want your money in their fund whether it's going up or down.
With all of the negative press over the months you'd think that mutual fund companies would have cleaned up their act and started giving more consideration to the individual investor. Not so.
This was brought home to me when a fund manager of an $800 million mutual fund called me to see what my plans were in respect to holding our positions with his fund (about $2 million).
I explained my trend tracking methodology and he got very angry when he heard I would protect my clients' accumulated profits by selling his fund if it were to drop 7% off its highs.
His blustering made it quite clear that he did not like anyone managing for the benefit of their clients; he only cared about what was best for him and his company.
So, what can you do to prevent being taken advantage of? For one thing, do what your mutual fund company does - not what they tell you to do. Adopt a strategy for following trends, such as I do, and use the mutual fund manger's superior stock picking ability to your advantage by buying and holding only as long as the fund is performing well.
Remember, the fund manager has one big disadvantage over you: He always "has to" be invested so that the public can purchase shares in his fund. You don't!
If market conditions dictate that you are better off in the safety of a money market account because we are in a severe downtrend, then you can take your money and run for cover. He can't. He is constantly trying to adjust his portfolio to ever-changing economic conditions so that his potential losses are minimized. At the same time you are being told that his fund is the investment for all seasons. Don't fall for it!
You as an individual investor are really in the driver's seat. Unfortunately, you have probably been conditioned to think that Buy & Hope is a good investment strategy, when in fact it is a losing proposition.
Bottom line is, use a well performing mutual fund during strong up trends and get over to the sidelines during trend reversals. (That's exactly what I did for my clients in October, 2001, and we retained the lion's share of their profits while Buy & Holders kept insisting the emperor was wearing new clothes.) Pretty soon you will feel that you are in charge of your financial destiny and any chosen mutual fund is merely a tool to bring you closer to your goals of maximizing your gain and minimizing your losses.
About The Author
Ulli Niemann is an investment advisor and has been writing about objective, methodical approaches to investing for over 10 years. He eluded the bear market of 2000 and has helped countless people make better investment decisions. To find out more about his approach and his FREE Newsletter, please visit: www.successful-investment.com.
ulli@successful-investment.com
More Resources
Unable to open RSS Feed $XMLfilename with error HTTP ERROR: 404, exitingMore Stocks & Mutual Funds Information:
Related Articles
Investment Research - The Dalbar Study
Very few people, even professionals, have heard of the Dalbar Study that originated in 1995. Its purpose is to determine the profitability of trading for the small investor of mutual funds.
Long Term Investing
In his wonderful book, 'Multiple Streams of Income', best selling author Robert Allen advises Investors to divide their Stock Market investment and trading capital into three portions -50% invested long term (forever) in an Index Fund, 30% invested in Accelerated Stock strategies and 20% in options or high risk investment strategies.This article will discuss long term investing and how technical analysis can alert us to points in time when it is prudent to take profits and exit the Stock market.
The Problem With Hedge Funds
Are hedge funds a suitable investment for you? Hedge funds are an appropriate investment for qualified purchasers with a net worth above one million dollars and an annual income exceeding two hundred and fifty thousand dollars. Purchasers are often required to sign an acknowledgement confirming their qualifications to invest in hedge funds.
Humpty Dumpty the Stock Market Falls Down
Humpty Dumpty had a great fall and all the King's horsemen could not put Humpty Dumpty back together again.The Stock Market has had a great fall and all the brokers, CEOs, analysts and politicians have not been able to get it back up again.
Being Wrong Buying Stock is Okay
Being wrong is OK, but let's not carry it to extremes. That applies to everything, but let's limit our discussion here to the stock market.
The Cub; II
We keep hearing about this bear market and that the bottom is "in" or "very close" so we should be invested in these bargain basement prices to take advantage of the next bull so we won't lose out on the expected huge profits.This is not a big bear market - yet.
A Personal Stock Market Investment Philosophy
∙ Make every investment in the stock market a long-term investment.My Mother worked as a teller in a small bank in Dover, New Jersey.
Trading as a Business
What can I expect to make my first year of trading?We get questions like this one quite often. We find that most aspiring traders don't have a clue as to what to expect from the market.
Understanding a Stocks PEG Ratio
A PEG ratio cannot be used alone but is a very powerful tool when integrated with the basics (price, volume and chart reading). You must enjoy crunching numbers and have a calculator handy to estimate your own PEG ratio.
Protectionism
First let's see what protectionism is. According to Mr.
Investing in the Stock Market
From the book 'The Stockopoly Plan' by the author Charles M. O'MeliaThere are several factors an investor in the stock market should consider:1.
Defining a Long-Term Investment in the Stock Market
For some "long term" would mean holding a stock position over the weekend. For others, it may mean holding a security for at least 1 year for the purpose of declaring a long-term capital gain, thus saving on taxes.
Where Is The Rabbit?
We need a rabbit!This was a pretty horrible week for the market with two 100-point days and Friday closing on the lows.During these past few days Sir Alan told us things are looking up and the economy is basically strong.
Dont Buy Worldcom! A Guide to Wise Bottom Fishing
Over the past few months, several investment professionals have brought up the topic of the down-and-out company of the day and whether to buy now as a speculation. Last year, K-Mart was the big news, and everyone wanted to know whether this was a good stock play.
Why Stock Is More Risky Than Options!
You probably have been told that options are risky. Even worse, that you can lose your shirt trading them!Well, what is the truth?Let's take a look at stock ownership.
Dividend Paying Stocks
I would like to share with the reader an article printed in the financial section of U.S.
Economists
In today's volatile and confusing stock markets everyone is searching for a guru who knows which way the market is going and when. Ask any economist and he will have an answer.
Money, Insanity and Wall Street
Money: the most charged word in the planet. It means something to everyone.
I Love You, Warren Buffet
Sometime around 1980, can't remember exactly, there was a flight of money from many countries to Switzerland. The clock makers had so much money pouring in that the banks took interest rates to zero and even for a period of time were actually making you pay ½% interest to them to put your money in their banks.
War Market
There is no question that the stock market is being affected by war jitters. When it looks like peace we have a strong rally.