Downdraft
For the year 2000 we have seen hundreds of mutual funds lose 40%, 50% and more of their value. This does not seem right since the fund is supposed to be managed by a professional. How can this "professional" do such a bad job? More than half of the funds this year will not out perform the S&P500 index which closed down about 10%.
What is going on?
When you put your money in a mutual fund you are supposed to be hiring someone who knows how to make money. He should be able to do a better job than you. But he has not. If this person worked for me I would fire him. You don't hire people to lose money for you.
Now that you have fired this bum let's examine why he did such a poor job (pun intended). Each mutual fund has one or more analysts who are supposed to be able to determine if the stock of a company is a good buy. That means will it go up?
These so-called analysts do the kind of research that Wall Street says is necessary before purchasing a stock. Yes, they do all the standard things that anyone can do such as determine company growth, profit margins, P/E rations, cash flow, etc., etc. They get all that wonderful information from Morningstar and apply statistical analysis you and I would never think of. And when it comes right down to it what do they have? You can research something until you are blue in the face, pile on information upon information, but there is one thing all this nonsense will not tell you. Will the stock go up?
The kids who do this analysis (sorry, kids, you're only a man when you pick a winner) have an agenda. For the fund-type analyst he wants to find a stock that will not go down because that hurts the fund manager who gets paid not by performance but by the amount of money he can keep in the fund. He gets to skim his percentage off the top every year and never has to make the investor any money. Like paying someone to mow a parking lot.
Let me give it to you in plain language. Fund managers don't know how to be wrong. It is OK to be wrong, but when they have picked a dog and it starts down they refuse to get out to preserve capital. There is no excuse for any mutual fund to lose 30% or more of its capital. They only know how to buy and hold. Many times there is nothing to buy and cash is the only good position, but they don't seem to understand that.
When I was a floor trader on the exchange I was only right about 40% of the time, 20% I got out even and 40% I took a hit. When I was wrong I ran, did not walk to the nearest exit. Losses must be kept small. These money managers have never learned that basic rule. In one of the Woody Allen's movies he was asked what he did for a living. He said, "I am a money manager. I manage peoples money until it is all gone." Does that sound like your fund manager?
Isn't it time to find a fund that is going up?
Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.
Copyright 2005
al@mutualfundstrategy.com; 1-888-345-7870
More Resources
Unable to open RSS Feed $XMLfilename with error HTTP ERROR: 404, exitingMore Stocks & Mutual Funds Information:
Related Articles
The Secret Art of Backtesting
If you have not back tested your trading system, you might as well trade with your eyes close. In fact, whatever technical analysis criterion you use to trade with, be it moving averages, candle sticks, volatility breakouts, fibonacci retracements or any other trading system you have devised you're going to need to back test your trading system thoroughly and objectively in order to remove any possible doubt about it's capability.
Mutual Fund Ball and Chain
The broker told me not to sell because the mutual fund I owned had a 2% redemption fee and they would penalize me if I did.I got to thinking about it and did some simple math to see what that would cost me if I sold.
8 Penny Stocks to Avoid
There are many good penny stock investments available, which could turn a small amount of capital into a small fortune very quickly. However, to discover these you need to know what to look for and what to avoid.
Why Investors Use Financial Planners
Do you have a financial planner? Does one of your friends have a financial planner? Maybe you take your advice from your broker. As I have said countless times before a broker will make you broker.
Play another Day
Money management starts with protecting your capital, realizing profits and cutting losses. As I have stated in the past, without cash, you can't invest.
Why Buy and Hold?
Since I can remember, and that's a long time ago, the Wall Street brokerage companies, mavens and mutual fund managers have been exhorting the mantra of Buy and Hold for all your investments. There have been erudite studies published that this is the only way to go.
Commoditizing the world
Let's discuss commodities; with the latest Enron situation, it is important to understand the way things work. A commodity is anything useful, especially a transportable agricultural product or mining product.
The Exclusive Club of Large Caps
Picture one of those clubs where only the real heavyweights need apply. In the library the old aristocrats, General Motors and JP Morgan, are dozing in their leather chairs.
Low Expense Ratio
One of the big advertising kicks today from mutual funds is to tell how low their expense ratio is and that you will make a great deal more money if you buy and hold with them. Partly true, but that is not the whole story.
Online Investing & Stock & Share Trading: 4 Reasons Why Most Online Investors & Traders Go Broke
Are you attracted to the idea of being in control of your financial future, but confused about how to start investing in the stock or share market, while avoiding costly mistakes?Or maybe you're disappointed with your performance so far?Does it sometimes feel like every time you take the plunge and buy into the market, the price goes down?That's understandable..
Stock Valuation using the SMP Model
Disclaimer: Please note that I do not necessarily purchase, own, or partake of any of the securities or other financial instruments mentioned in this article. I also do not take any responsibility for any actions resulting from any actions taken by anyone who reads this article.
The Stock Market - How Just One Question Will Tell You All You Need To Know About Your Stock Broker
Last time we looked at the real performance of the stock market (we used the Dow Jones as a reference point) and the apparent performance that makes the headlines and can be seen by a casual look at a chart or "ballpark" figures - briefly; the Dow went up, for example, less than 50 points between April 1999 and April 2005 - essentially 6 years with no growth!But behind that seemingly "becalmed" Dow there were at least 10 significant moves each and every year totalling many thousands of points!But did the Wall Street Moguls, the so-called "Masters of the Universe" make you any money from those huge movements? No.Of course they didn't!Here's how I know.
Hot Stock Investing ... How to Pick Hot Stocks with Momentum Stock Trading
Profitable day traders recognize that momentum trading is among the fastest & most effective ways to harvest BIG piles of cash in the stock market.The problem is that if you don't know what stocks to look for and how to approach them while limiting your risk, you won't even get close to making some profits.
VooDoo Training For the Stock Market
If you go to Haiti or other places in the Caribbean you may run into the Voodoo tradition of magic. There are long and mostly noisy rituals with the medicine man spouting words that bring great power and conjure up whatever it is the supplicant desires.
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.
Never Lose Money
Never lose money in the stock market again. Yeah, I know.
Index Fund Trading Using Technical Analysis and Swing Trading Strategies
Index Fund Trading can be one of the most profitable..
Investment Lawyers and Trash Stocks
The trash business in its efforts to cook their books trying to keep pace may find itself in some trouble. The efficiency per Garbage Truck unit numbers was growing exponentially at a time when consolidation has slowed as there is a decreasing number of worthy deals to make for a good value, Ah ha Warren Buffet's favorite remarks are here too.
The Importance of Using Stop Loss Orders When Spread Trading the Financial Markets
A Guide to Using Stop Loss Orders Stop losses are market orders designed to allow you to limit your losses.When you place a stop loss you are instructing the spread betting company or stock broker to cut your position when it reaches a certain loss level (or in some cases, profit level - more later).
9 Deadly Trading Mistakes!
The following are a list of nine things you want to avoid at all costs. Anyone of them can literally destroy your financial dreams and goals!1.